March 8, 1991
A not-for-profit lawyer referral service registered with the State Bar may charge as a referral fee a percent of the fee collected by the referred to lawyer.
References: MRPC 5.4(a), (c), 6.3(b), 7.2(c); Emmons v State Bar of California, 6 Cal App 3d 565, 86 Cal Rptr 367 (1970).
A local bar association had established a lawyer referral and information service (LRIS). The advertising, personnel and other costs of the referral activities were supported by the $35 yearly payment of the panel members to whom cases could be referred, by the $20 per client referral fee, and through subsidizing amounts received from the general fund budget (bar association membership dues).
In order that the referral service become more self-sufficient without increasing panel membership fees or client fees, the association has undertaken a program to charge its benefiting referral lawyers a 10% fee on any sum they collect over $300, on each referral.
The inquiry presented is whether this payment would constitute the unauthorized practice of law, since the fee would be shared with a nonlawyer.
MRPC 7.2(c) states:
"(c) A lawyer shall not give anything of value to a person for recommending the lawyer's services, except that a lawyer may pay the reasonable cost of advertising or communication permitted by this rule and may participate in, and pay the usual charges of, a not-for-profit lawyer referral service or other legal services organization that satisfies the requirements of rule 6.3(b)."
MRPC 6.3(b) states:
"(b) A lawyer may participate in and pay the usual charges of a not-for-profit lawyer referral service, or a legal service organization that recommends, furnishes, or pays for legal services to its members or beneficiaries, if that service or organization:
"(1) has filed with the State Bar of Michigan a written plan disclosing the name under which it operates, the name, address, and telephone number of its chief operating officer, the plan terms, conditions of eligibility, schedule of benefits, subscription charges and agreements with counsel;
"(2) updates its filings within 30 days of any material change; and
"(3) in January of each year following its inception files a statement representing that it continues to do business under the terms and conditions reflected in its filings as amended to date."
Thus a lawyer may pay the charges of a not-for-profit lawyer referral service registered with the State Bar. MRPC 5.4 states in part:
"(a) A lawyer or law firm shall not share legal fees with a nonlawyer . . . .
". . .
"(c) A lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services."
The avowed purpose of these rules is to prevent any interference with the independent professional judgment of the lawyer in representing the client. The basis for the rule is multifaceted, but would include such concepts as restricting outside influences from affecting the quality of the legal representation, the amount the lawyer charges, and the effort that may be committed to any particular case by the lawyer.
Lawyer/lay person fee-splitting has been distinguished from fee-splitting with a bar association. In Emmons v State Bar of California, 6 Cal App 3d 565, 86 Cal Rptr 367 (1970), referring to ABA Op 291, the court noted:
"In the related area of lawyer reference services of bar associations, the American Bar Association Committee on Professional Ethics has issued an opinion declaring that contributions from panel members do not violate the canon against fee-splitting . . . ."
"The basic features of the [local bar association] arrangement [a one-third referral fee] do not offend the public policy underlying these canons. There are wide differences -- in motivation, technique and social impact -- between the lawyer reference service of the bar association and the discreditable fee-splitting featured in the disciplinary decisions. Prohibited fee-splitting between lawyer and layman carries with it the danger of competitive solicitations, poses the possibility of control by the lay person, interested in their own profit rather than the client's fate, [and] facilitates the lay intermediary's tendency to select the most generous, not the most competent, attorney . . . . None of these dangers or disadvantages characterizes the [local bar association's] lawyer reference activity. The bar association seeks not individual but the fulfillment of public and professional objectives. It has a legitimate, nonprofit interest in making legal services more readily available to the public. When conducted within the framework conceived for such facilities, its reference service presents no risks of collision with the objectives of the canons on fee-splitting and lay interposition."
Where a lawyer referral service adopts provisions insulating its panelists from any undue influence, the professional judgment of the lawyer is not interfered with and the rule against fee-splitting with nonlawyers is not violated.
A review of the issue presented does not require an exhaustive determination that some, most or all of the officers and/or directors of various bar association referral groups are lawyers, nor a calculation of the costs and charges amassed by those associations in carrying out their daily activities.
In summary, it appears that a registered not-for-profit lawyer referral service may appropriately charge as a referral fee a percent of any fee collected by the referred to lawyer. A lawyer may not increase a fee to cover the referral payment, and the total fee may not be excessive, MRPC 1.5(a), as judged by the value of service to the client.