When can two lawyers from different firms divide a fee in a referral arrangement?
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ABA Formal Ethics Opinion 474 (PDF) from the ABA’s Standing Committee on Ethics and Professional Responsibility addresses the propriety of referral fees, explains that clients must consent to such arrangements, and also provides examples of when a lawyer does or does not have a conflict of interest.
Under ABA Model Rule 1.5(3), 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 Rule 1.5 explains that these arrangements most often occur between a referring lawyer and a trial lawyer.
The opinion notes in a footnote that state adoptions of Model Rule 1.5(e) vary dramatically. Some states only require client consent and a total reasonable fee. A few states prohibit referral fees altogether. Other states mandate joint responsibility or joint financial responsibility.
Clients must consent to such an arrangement and be fully informed of the agreement regarding the division of fees before or within a reasonable time after the start of the representation. Lawyers often cannot receive a referral fee or assume responsibility for the case, however, if they have a concurrent conflict of interest. A lawyer cannot be involved in the case if there is a concurrent conflict of interest unless the lawyer meets the requirements of Model Rule 1.7(b), which includes having each affected client giving informed consent.
The opinion explains that the fee arrangements must be approved by the client and confirmed in writing. “The agreement must describe in sufficient detail the division of the fee between the lawyers including the share each lawyer will receive,” the opinion reads. Such fee agreements “should not be entered into toward the end” of the attorney-client relationship. “Instead, the division of fees must be agreed to either before or within a reasonable time after commencing the representation.”
