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Ethics Opinion

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RI-158

March 15, 1993

SYLLABUS

    A lawyer may request a referral fee prior to the referral of the client's legal affairs to another lawyer, but may not refuse to provide an appropriate referral where the client objects to the payment of a referral fee or where the receiving lawyer refuses to enter into an agreement to pay the referral fee.

    References: MRPC 1.1, 1.2(a), 1.5(d) and (e), 2.1, 8.4(c); MCPR DR 2-1O7(A); RI-116, RI-124.

TEXT

An inquiry has been made with reference to the propriety of the payment of referral fees pursuant to MRPC 1.5(e) under various factual circumstances. For purposes of this discussion, the following facts are assumed:

After providing legal representation relating to various business affairs, the lawyer is requested by the client to provide advice in a domestic relations dispute (divorce). The lawyer does not regularly practice in the domestic relations field but is prepared to refer the client to another lawyer competent to provide such representation.

The following questions are posed:

  1. May the lawyer condition referral on the client's advance promise to agree to the payment of an appropriate referral fee?
  2. May the lawyer "condition" the referral on the receiving lawyer's agreement to pay a referral fee?
  3. If either the client or the receiving lawyer objects to the payment of a referral fee, may the lawyer refuse to provide the client with a referral?

Presumably this is an instance in which no conflict exists. If the lawyer is disqualified from providing the representation because of a conflict, i.e., having provided representation to both parties in their business, financial and personal affairs, then the lawyer would be prohibited from undertaking representation and further prohibited from receiving any referral fee. See RI-116. The lawyer would not be prohibited, however, from recommending/referring competent counsel to both parties. MRPC 1.5(e) states:

    "(e) A division of a fee between lawyers who are not in the same firm may be made only if:

      "(1) the client is advised of and does not object to the participation of all the lawyers involved; and

      "(2) the total fee is reasonable."

Thus, the Michigan Rules of Professional Conduct specifically permit the division of reasonable attorney fees (fee splitting) as long as the client does not object to the participation of all the lawyers involved.

There are various forms of division of fees, including but not limited to dollars per hour, percentage of total fees, etc. MRPC 1.5(d) prohibits any arrangement for, charge, or collection of a contingent fee in domestic relations and criminal matters.

In RI-124 the Committee opined that a lawyer may pay a referring lawyer a referral fee consisting of a percentage of legal fees billed to the client as long as the client is advised of and does not object to the participation of all the lawyers involved, the client's bill is not increased because of the referral fee, and the total fee is reasonable.

The Michigan Rules of Professional Conduct, as adopted in 1988, provided a major modification in the provisions governing division of fees. Prior to that modification, the Michigan Code of Professional Responsibility provided in DR 2-107(A)(2) that fee divisions could only be accomplished where "the division is made in proportion to the services performed and responsibility assumed by each." The present rule deleted the requirement of "proportionality" and shared responsibility, and infers that the lawyer's understanding of the nature of the client's case well enough to pick appropriate counsel is a legal service of some real value. See The Law of Lawyering, Hazard & Hodes, (Prentice Hall, Supp 1992, p123).

There is currently considerable concern with reference to the payment of referral fees in tort cases, particularly where a law firm engages in heavy "marketing" (advertising, etc.), with the intent to do nothing on the new matters except to refer them to various tort practitioners. This opinion does not address the question of whether or not such activities qualify for a referral fee.

Since advice to the client of the participation of other counsel, as well as the client's nonobjection to such participation, is essential to effectuate a referral, may the lawyer condition the act of referral upon the client's promise "in advance" not to object to the payment of a referral fee? Certainly in any instance where a lawyer contemplates a referral, that issue should be fully discussed with the client. If the client offers objection to the participation, then the lawyer may not request or receive a referral fee. Such an understanding by the client and the reaching of an agreement in the early stages will both facilitate the client's objectives, as well as save the time of the referring and receiving lawyers.

Next, inquiry is made as to whether or not the lawyer may condition the referral on the receiving lawyer's agreement to pay a referral fee as part of a reasonable fee. Since a division of fees between lawyers is permissible if the client is advised, does not object to the participation, and the fee is reasonable, nothing prohibits the lawyer from reasonably attempting to effectuate a referral fee arrangement and a lawyer is not required to refer a case to a lawyer who refuses to engage in an appropriate fee division agreement. In this regard, in making referrals and fee agreements, the lawyer should be cognizant of MRPC 1.1 governing lawyer competence and make every reasonable effort to assure that the receiving lawyer has the competence and skills necessary to meet the client's objectives. Neither lawyer should allow the referral relationship to affect either lawyer's professional judgment regarding the best interests of the client. See MRPC 5.4(c), 1.8(f). The referring lawyer should also be cognizant of the mandates of MRPC 2.1 which states:

    "In representing a client, a lawyer shall exercise independent professional judgment and shall render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors that may be relevant to the client's situation."

Finally, the question is posed as to whether, in instances in which either the client or the receiving lawyer objects to the payment of a referral fee, the lawyer may refuse to provide a referral. In addressing this issue, a review of the preamble to the Michigan Rules of Professional Conduct entitled "A Lawyer's Responsibilities" is instructive. As is emphasized there, a lawyer is a representative of clients as well as an officer of the legal system, and a public citizen having a special responsibility for the quality of justice. As noted in MRPC 2.1, a lawyer performs various legal as well as other nonlegal functions on behalf of the lawyer's client. As an advisor, a lawyer provides a client with an informed understanding of the client's legal rights and obligations and also performs responsibilities as a negotiator, intermediary and evaluator in addition to the responsibilities as a diligent advocate.

The lawyer plays a unique role in the administration of justice, and owes a duty to ensure public understanding and acceptance of that system. The lawyer has a duty to exemplify the legal profession's ideals of public service and has a difficult and challenging task of addressing conflicting responsibilities, particularly between the lawyer's own economic aspirations and in ensuring full and fair legal services to the public. In order to maintain an independent legal profession, it is important to preserve, maintain and enhance the profession and that lawyers work to assist their clients in obtaining their lawful objectives. When an individual lawyer is not able to meet the needs of the lawyer's clients for legal services, the lawyer has every right to assist that client in finding a proper provider of legal services. Although nothing prevents the lawyer from attempting to obtain an appropriate referral fee for this activity, when and if that objective cannot be reached, it would appear not to be in the interests of the legal profession or the public for the lawyer to refuse to provide a recommendation or referral to appropriate services.

MRPC 1.2(a) provides that a lawyer shall seek the lawful objectives of a client through reasonably available means permitted by law under these rules. Although this rule does not specifically mandate that a lawyer must make a referral even if the lawyer will receive no compensation therefor, it would be the antithesis of the concept of enhancing the legal profession if the lawyer willfully refused to provide such a referral solely because the client and/or the receiving lawyer declined to pay a referral fee for such assistance. Certainly, if a lawyer is not familiar with an area of law or the lawyers who are competent in that area of practice, the lawyer should decline to make a referral; however, the lawyer has a professional obligation to advise the client on how the client might obtain the necessary information, i.e., by contacting other lawyers or by contacting an appropriate lawyer referral agency. To indicate to a client that the lawyer will not make a referral because the client or the proposed receiving lawyer objects to the referral fee is inappropriate, demeans the profession and is unethical. Basic concepts of loyalty to the client, as well as placing the client's interests as primary, prohibit the lawyer from using the lawyer's position of trust and confidence to extract agreement from the client to pay a referral fee. See Comment to Rule 1.7, Conflict of Interest.

It is essential to our system of justice that lawyers do everything possible to ensure adequate, appropriate and proper representations of persons in need of legal services. To withhold useful, helpful and readily available information from a client because of the unwillingness of the client or another lawyer to ensure a stream of future compensation not associated directly with services, negatively impacts upon the profession and interferes with the professional responsibilities to guaranty the availability of legal services. MRPC 8.4(c) provides that it is professional misconduct for a lawyer to "engage in conduct that is prejudicial to the administration of justice."

If the lawyer in providing services to the lawyer's client knows of another lawyer competent to provide the services needed by the client, and no other ethical consideration prevents that referral, then the lawyer has the duty to make the referral even if the client or the other lawyer decline to agree to pay a "referral" fee. The lawyer preserves professional independence in picking the lawyer to whom the referral is made and is not required to refer to any specific lawyer as long the referring lawyer is satisfied that the referred lawyer is competent to handle the client's matter. The lawyer may not, however, decline to refer solely to preserve or protect the lawyer's own pecuniary interests.

 
     

 

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