September 15, 1989
A lawyer may pay a portion of contingent fees to a suspended lawyer pursuant to a referral agreement. While MCR 9.119(F) provides that no portion of the referral fee be earned during the period of his suspension, it also provides that a suspended attorney may be compensated on a quantum meruit basis for legal services rendered and expenses advanced by him or her prior to the effective date of the suspension. The reasonable value of the referral depends on the facts and circumstances of each case, and the lawyers themselves are in the best position to make that determination.
References: MRPC 1.5(e); RI-19; MCR 9.119(F).
A lawyer accepted a referral of a plaintiff's contingent fee case from another lawyer, agreeing to pay a referral fee equal to a percentage of the referred lawyer's net fee, if any, upon recovery in the case. The client has consented to the agreement, and the total amount of fees considered is reasonable. After the referral, and after completion of all of the referring lawyer's obligations and duties pursuant to the agreement, the referring lawyer is suspended from the practice of law. During the referring lawyer's suspension, the referred lawyer settles the case on behalf of the client.
The referred lawyer asks whether it is unethical to pay the referring lawyer the referral fee in light of the referring lawyer's suspension.
This same issue was addressed in RI-19. Reference was made to MCR 9.119(F), which prevents a lawyer from sharing in any of the fees for legal services that were performed by another lawyer during the period of any disciplinary suspension. In this contingent fee case there was no recovery until after the referring lawyer was suspended from the practice of law. The referring lawyer is prohibited from sharing in that portion of the fees earned after the suspension.
We note that MCR 9.119(F) was adopted prior to the adoption of MRPC 1.5(e), which changed the prior rule that fees could be shared only with referring lawyers who participated in the continued handling of the matter. Under the prior Michigan Code of Professional Responsibility DR 2-107(A)(2), a division of fees had to be in proportion to the services performed and responsibility assumed by each lawyer. Since in this case the referring lawyer's ability to participate in the matter ceased with the referring lawyer's suspension, it would automatically follow that the referring lawyer's ability to share in the fees also ended at that point.
MRPC 1.5(e) eliminates the requirement for continuing participation by the referring lawyer. Consequently, if the referring lawyer fully performed all responsibilities and duties under the referral agreement prior to the effective date of the suspension, the referring lawyer is not violating MCR 9.119(F) by accepting the payment of the fee after suspension, when the fee is fully earned prior to the suspension. MCR 9.119(F) specifically provides that a suspended lawyer may be compensated on a quantum meruit basis (i.e., the reasonable value of services rendered regardless of any agreement as to value), for legal services rendered and expenses paid by the suspended lawyer prior to the effective date of the suspension.
What is an appropriate method of determining the quantum meruit value of the services rendered by the referring lawyer? That determination will depend on the facts of each case. In some cases, the "reasonable value" of the services will be the same amount as would be paid under the referral contract, such as where the referring lawyer has fully performed prior to the suspension, or as a practical matter the case could have been settled at the same amount (with the same legal fees) at the time of the suspension. In other cases, the reasonable value of services will be less, as for example where the referring lawyer was suspended immediately after the referral and the enhanced value of the settlement was the result of extensive effort and cost to the referral lawyer. Even in such cases, the referral has value.
The referral and the referring lawyer are in the best position to determine the reasonable value of the referral, and it does no injustice to ethics rules to allow them to establish such values in the circumstances of this case. The total fees are reasonable, and the client has agreed to the division on disclosed terms. The change reflected in MRPC 1.5(e) recognizes the validity of referral agreements.