Before giving or accepting a referral fee, it’s important to know the ethical rules governing these arrangements. Lawyers are prohibited from sharing a fee with a non-lawyer. However, if a lawyer wants to share a fee with another lawyer who is not in the same firm, he or she must follow the appropriate ethical guidelines. Initially, it is important to distinguish the type of referral fee being considered. The Illinois Rules of Professional Conduct provide for two types of fee sharing arrangements. The first is where the referring attorney is going to be performing some work on the matter, as in a co-counsel relationship.
In this situation, the division of the fee must be in proportion to the services performed by each lawyer.1 The other scenario where a fee can be shared is where the primary service performed is only the referral of the client to another lawyer.2 This situation means the referring attorney will not be performing work on the case. Under this type of referral arrangement, there is no specific proportionality requirement. However, the Rule states that each attorney must assume joint financial responsibility for the representation.3 Courts in Illinois have defined this term to mean any potential financial responsibility for a malpractice action.4
This represents an area of caution for the referring attorney. However, there are a few practical concerns to follow that would help insulate from potential liability when making a referral. Of course, referrals should be made to attorney who is competent to handle a particular matter. For example, sending a multi-million dollar personal injury matter to an attorney six months removed from law school may not be advisable. Communication with the attorney who is going to be handling the file is key. This is especially important to ensure timely compliance with a pending deadline such as a statute of limitations.
A search of the ARDC website will provide the current status of an attorney’s license, malpractice insurance and any disciplinary history. Another ethical concern in accepting referral fees requires that the client agrees to the specific arrangement, in writing.5 Although this portion of the rule may seem straightforward, the following example illustrates a potential pitfall for the referring attorney. Attorney A refers a personal injury case to Attorney B. Attorney B takes the case and agrees to give a referral fee to Attorney A. Attorney A assumes Attorney B has described the nature of the fee split in the client’s engagement agreement. Attorney B obtains a successful outcome and pays the referral fee - but did not disclose the referral fee or obtain the client’s consent. In this scenario, both attorneys open themselves to a potential disciplinary proceeding and Attorney A has a potentially unenforceable fee arrangement.6 The referring attorney should never assume the client’s written consent was obtained. This illustrates another example of why communication with the attorney to whom the case was referred is important. Referring attorneys should also note that the ethics rules require the total fee be reasonable.7 The Rules of Professional Conduct provide several factors that determine what constitutes a reasonable fee. These factors include, inter alia, the time and labor required, the fee customarily charged in the locality for similar legal services, the amount involved, the results obtained, the experience, reputation and ability of the lawyer or lawyers performing the services.8
Although the Rules provide guidance for reasonableness of attorneys’ fees in general, there is no explicit statement with regard to what constitutes a reasonable referral fee. In the situation where both attorneys will be performing work on the matter, the fee must be in proportion to the services performed by each lawyer.9 Meaning that if one lawyer is only expected to perform twenty percent of the work, then his share of the fees should be similarly apportioned. However, what about the scenario where the primary service performed is the referral of the client to another lawyer? What is the appropriate percentage to pay where the referring attorney is not performing any other work on the case except for the referral? The answer to this question is not entirely clear from the Rules or case law. However, from a practical perspective, one should consider the point of view of the client since the client’s consent is necessary.10
In addition to understanding the requirements of a lawyer-to-lawyer referral, it is also important to know the Rules governing not-for-profit lawyer referral services. Generally, a lawyer is prohibited from giving anything of value to a person for recommending the lawyer’s services.11
However, one of the exceptions to this prohibition, includes the provision that a lawyer may pay the usual charges of a legal service plan or a not-for-profit lawyer referral service.12 In addition, Illinois case law has allowed for actual referral fees to be provided to a lawyer referral service.13 In Richards v. SSM Health Care, Inc, the attorney received a referral from a not-for-profit referral service for a medical malpractice matter.14 The attorney was required to pay a referral fee back to the referral service, but refused.15
One issue this case presented was whether a referral service bears the same legal responsibility as a lawyer-tolawyer referral. The court held that it did not, and that the lawyer referral service is not subjected to the same legal responsibility of a malpractice action.16
One area of law which has its own unique provisions for attorney fee sharing is the field of bankruptcy. Generally speaking, Section 504 of the Bankruptcy Code prohibits attorneys from sharing compensation.17 However, there are a few exceptions to this provision including one which allows for fee sharing among partners or members of a professional association or corporation.18 There is also a provision which allows an attorney for a creditor to share compensation or reimbursement with any other attorney who contributed to the services rendered.19 Finally, under the Bankruptcy Code, “bona fide public service attorney referral programs” are specifically excluded under the prohibition on fee sharing.20
When considering whether to share a fee with a lawyer who is not in the same firm, it is important to remember these strict ethical requirements. Attorneys performing services on the same matter must make sure the total fee is reasonable, the client consents in writing to the fee split and the division of the fee is in proportion to the services performed by each lawyer.21 Where the primary service being performed is the referral of the client to another lawyer, the referring attorney assumes joint financial responsibility for the representation.22 Keeping these rules and the practical tips in mind can aid in avoiding the dangers of fee sharing agreements.
1 Illinois RPC 1.5(e)(1).
4 In re Storment, 203 Ill.2d 378, 392, 786 N.E.2d 963, 970 (2002).
5 Illinois RPC 1.5(e)(2).
6 Albert Brooks Friedman, Ltd. V. Malevitis, 304 Ill.App.3d 979, 710 N.E.2d 843 (1st Dist, 1999).
7 Illinois RPC 1.5(e)(3).
8 Illinois RPC 1.5(a)(1-8).
9 Illinois RPC 1.5(e)(2).
11 Illinois RPC 7.2(b).
12 Illinois RPC 7.2(b)(2).
13 See Richards v. SSM Health Care, Inc., 311 Ill.App.3d 560, 724 N.E.2d 975
14 Id. at 562.
16 Id. at 569.
17 11 U.S.C. 504(a)
18 11 U.S.C. 504(b)(1).
19 11 U.S.C. 504(b)(2).
20 11 U.S.C. 504(c).
21 Illinois RPC 1.5(e)(2), 1.5(e)(3), and 1.5(e)(1).
22 Illinois RPC 1.5(e)(1).
Michael J. Drabant is the owner of The Drabant Law Group, Ltd., in Warrenville, Illinois. He received his Bachelor of Arts from the University of Maryland and graduated from The John Marshall Law School, where he received his J.D. and LL.M. (Master of Laws) in Taxation, with honors. His practice is focused on the areas of estate planning, probate and civil litigation.