May 10, 1995
Prior to the division of a fee between lawyers who are not in the same law firm, the client must be advised of the identity of the lawyers who will divide the fee, which lawyer the client should contact for information on the case, what services each lawyer will be providing on the case, and which lawyer or lawyers will be responsible for the matter.
Both the referring lawyer and the receiving lawyer are responsible to see that the client is properly advised and does not object to the participation of the lawyers.
The total fee charged to the client must be reasonable in light of each factor set forth in MRPC 1.5(a).
A referral fee between lawyers may be calculated in a variety of ways, including on a percentage basis. The fee arrangement between the lawyers who divide a fee is a matter of contract between the lawyers.
References: MRPC 1.2(b), 1.4(a) and (b), 1.5(a) and (e); RI-32, RI-114, RI-124, RI-150, RI-158, RI-162.
A lawyer ("referring lawyer") refers a case to another lawyer ("receiving lawyer"). The referring lawyer stands to receive a substantial referral fee, in excess of $150,000, calculated as a percentage of the receiving lawyer's fee, i.e., one-third of one-third. The referring lawyer neither worked on the case nor participated in its handling. The client was advised of the division of the fee and did not object. Although the client does not object to the division of the fee, the referring lawyer ask whether accepting the full referral fee would violate the ethics rules since the referral fee calculation does not appear to comply with MRPC 1.5(a). The referring lawyer also asks whether the duty described in RI-150, to determine the reasonableness of fees and to adjust, applies only to the contingent fee and not to the referral fee agreement. Neither a referral nor a contingent fee agreement has been provided.
Under the referral arrangement, the lawyers propose a division of fee. They, therefore, appropriately sought to follow MRPC 1.5(e) which 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 lawyers involved; and
"(2) the total fee is reasonable."
Here, the client did not object to the division of fee. MRPC 1.5(e)(1) requires the client to be advised as to the "participation" of all of the lawyers. The rule does not detail the kind of "participation" advice that must be given to the client. Nevertheless, the clear wording of MRPC 1.5(e) does not limit the advice to merely the facts of referral and fee splitting. The Comment to MRPC 1.5(e) states in part:
"A division of fee is a single billing to a client covering the fee of two or more lawyers who are not in the same firm. A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist. Paragraph (e) permits the lawyers to divide a fee on agreement between the participating lawyers if the client is advised and does not object. It does not require disclosure to the client of the share that each lawyer is to receive."
The Comment does not detail the "participation" advice. Other ethics rules suggest that the client should be told more than those two facts, including what lawyer will be or will not be working on the case, and to whom the client should look for information. For example, MRPC 1.2(b) allows the lawyer and client to limit the scope of the representation. MRPC 1.4(a) requires a lawyer to promptly comply with client requests for information. MRPC 1.4(b) requires the lawyer to give the client information sufficient enough to make informed decisions about the representation. To make any such agreement, request, or informed decision, the client must know who will be working on the case, what services each lawyer will render to the client, and who is responsible for the matter, i.e., more than the facts of referral and fee splitting.
Advising the client of more than the facts of referral and fee splitting does not mean that the referring lawyer has to assume responsibility for the case. That is not required under the Michigan Rules of Professional Conduct.
Since both the referring lawyer and the receiving lawyer are required to comply with MRPC 1.5(e) in order for the division of fee to be proper, both the referring lawyer and the receiving lawyer are responsible to see that the client is properly advised and does not object to the participation of the lawyers. The lawyers may each advise the client as to the arrangement, jointly advise the client, or agree that one or the other lawyer shall be responsible for advising the client, as long as both ensure that the client is properly advised and given an opportunity to object.
The inquirer asks whether the referral fee calculation based upon one-third of one-third, violates the ethics rule. "[T]here are various forms of divisions of fees . . . ." RI-158. "[R]eferral fees most often consist of a percentage of contingent fees," which the lawyers agreed to. RI-124. As result, and so long as the requirements of MRPC 1.5(e) are met, the subject calculation does not violate the division of fee rule. A referral fee may also be computed "based upon a percentage of hourly billing receipts." See RI-32, RI-124, RI-158.
MRPC 1.5(e) requires that "the total fee is reasonable." In the context of the rule, the "fee" so mentioned is the fee charged to the client, not the division of fee between lawyers. Fee arrangements between lawyers do not have the same policy concerns as fees between client and lawyer. For instance, lawyers deal from equal knowledge and bargaining positions, they are equally able to craft a suitable fee arrangement, they are equally bound by ethics rules in the formulation of fee arrangements, the same ethics rules govern their conduct with clients and the same court rules govern their conduct toward the courts and opposing parties. A public interest is also served by allowing a lawyer to obtain for the client the assistance of another colleague who is positioned to be of assistance on the representation matter. For all these reasons, we conclude that the "reasonableness" criteria in MRPC 1.5(a) were not intended to apply to the fee arrangement permitted between lawyers under MRPC 1.5(e).
Therefore, the Committee's prior opinions and MRPC 1.5(e) require the client to be advised as to the "participation" of the lawyers. The client must not object to that "participation." The total fee charged to the client must be reasonable in light of each factor set forth in MRPC 1.5(a). The fee arrangement between the lawyers who divide a fee under MRPC 1.5(e), is a matter of contract between the lawyers.