Hello and welcome to this Ethics Alert blog which will discuss the recent American Bar Association Formal ethics Opinion which addresses when lawyers may share a fee in a referral arrangement. The opinion is ABA Formal Ethics Opinion 475 and was issued on April 21, 2016. The formal opinion is here: http://www.abajournal.com/files/FO_474.pdf
Under ABA Model Rule 1.5(3) (and the Bar Rules of most jurisdictions), lawyers may refer cases to lawyers in other firms and receive a fee as long as the referring lawyer performs legal services or assumes joint responsibility for the case. Comment 7 to Model Rule 1.5 explains that these arrangements most often occur between a referring lawyer and a trial lawyer. ABA Formal Ethics Opinion 474 discusses the propriety of referral fees between lawyers, explains that clients must consent in writing to such arrangements, and provides examples of when a lawyer does and does not have a conflict of interest.
The opinion notes that state rules related to referral fees vary widely. Some states only require client consent and a total reasonable fee and some states prohibit referral fees altogether. Other states (including Florida) require that the referring lawyer either perform legal services of assume joint responsibility for the case (which would include potential legal malpractice liability) and limit the amount of the fee without court approval.
The client must consent to the referral arrangement and be fully informed of the agreement regarding the division of fees before or within a reasonable time after the representation begins. A lawyer cannot be involved in the case (or receive a referral fee) if there is a conflict of interest unless the lawyer obtains a waiver which meets the requirements of ABA Model Rule 1.7(b), which includes the requirement that each affected client give informed consent in writing (if the conflict is waivable). A lawyer cannot perform legal services or assume responsibility for the case, however, if he or she has a conflict of interest.
The opinion also states that “(t)he agreement must describe in sufficient detail the division of the fee between the lawyers including the share each lawyer will receive.” In addition, a referral agreement should not be entered into toward the end of the attorney-client relationship but must be disclosed and agreed to by the client “either before or within a reasonable time after commencing the representation.”
Bottom line: Lawyers should be aware that, although most jurisdictions (including Florida) permit referral fees, the Bar rules typically impose the requirement that the client provide informed consent in writing to the referral fee and the fee is also subject to limitations in the amount without court approval (25% in Florida without court approval). In addition, if a lawyer is unable to represent a client outright because of a conflict of interest that is not waived or waivable, the lawyer will not be able to accept a referral fee since, in Florida and most jurisdictions, the referring lawyer must either perform legal services or assume joint responsibility for the matter (which includes potential legal malpractice liability). Lawyers should consult the Bar Rules in his or her jurisdiction before participating in a referral fee.
Be careful out there.
Disclaimer: this e-mail is not an advertisement and does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.
Joseph A. Corsmeier, Esquire
Law Office of Joseph A. Corsmeier, P.A.
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Clearwater, Florida 33759
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