March 28, 1995
A lawyer may not accept a fee from a nonlawyer which is paid because the lawyer refers the lawyer's client to the nonlawyer for services or treatment the lawyer believes necessary for the effective representation of the client.
References: MRPC 1.3, 1.4, 1.7(b), 1.8; RI-146.
Under a proposed arrangement a lawyer would refer a client to a third party for services and/or treatment which the lawyer deems are necessary for the effective representation of the client in pending litigation to recover money damages. The third party charges the client a fee for the services and takes an assignment of the client's recovery as collateral for the fee to be paid in full upon the recovery. The lawyer would receive a percentage of the third party's recovery. The inquirer asks whether there are ethical problems with the collection fee agreement.
The first question is whether a lawyer may accept a fee from a third party for forwarding business to the third party. Ethics rules do not per se prohibit a lawyer from accepting fees for forwarding work to other professionals. In RI-146, a lawyer in private practice was approached by a real estate brokerage company which offered to pay the lawyer a referral fee of 20% of the broker's commission received on the sale of any properties where the sale is attributable to a referral by the lawyer. The opinion reasoned that the lawyer clearly has a financial incentive to refer clients to the commissioning realtor, irrespective of the interests of the client. Even if the lawyer first, as required by MRPC 1.7(b)(2), preliminarily informed the client of the lawyer's arrangement with the realtor, and the client consented after consultation, the lawyer could not "reasonably believe the representation will not be adversely affected."
MRPC 1.7(b) states:
"(b)A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interest unless:
"(1)the lawyer reasonably believes the representation will not be adversely affected; and
"(2)the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved."
The lawyer is sending the client to the third party for services or treatment the lawyer feels are necessary in order for the lawyer to effectively represent the clients. The lawyer has a financial interest in determining who the third party will be. The client is relying on the lawyer to send the client to the person who will be the best for the client with regard to the pending litigation for the collection of money damages. The relationship between the client and lawyer is one of trust and confidentiality. The lawyer in representing the client must act in the client's interest. The Comments to MRPC 1.3 state in part:
"A lawyer should act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client's behalf."
The client expects the lawyer to be committed and dedicated to the client's interest and trusts the lawyer to send the client to the third party for services or treatment who will best serve the interest of the client in the particular legal matter and afford the best possible recovery for the client. When the lawyer has a financial interest in sending the client to a particular third party, it seems impossible to believe that the representation of the client "will not be adversely affected" by the desire of the lawyer to have the client use the third party who will compensate the lawyer for the client referral. MRPC 1.7(b) requires both the consent of the client be given and that the lawyer reasonably believe the representation will not be adversely affected. The trust and confidence imputed to the lawyer under these facts seem more compelling than those in RI-146, as the client is relying on the lawyer's advice to take action which will best enhance the chances of recovery in the pending litigation. However, the lawyer has an additional personal interest in the provider, i.e., the 20% fee to be paid the lawyer.
The disclosure requirements of MRPC 1.4, 1.7(b) and 1.8, if satisfied, remain insufficient to overcome the requirement of MRPC 1.7(b) with regard to the adverse affect on the representation of the client.
In C-240 we addressed whether an organization supplying an expert witness could receive a fee contingent upon the outcome of the lawsuit and computed as a percentage of the amount of settlement or judgment recovered for the client. It was determined that a lawyer could not ethically cooperate with, or acquiesce in the client using such a service under such a fee arrangement.
Finally, the 20% fee described under these facts appears to be in addition to the fee the lawyer directly charges the client. If the representation matter is a personal injury or wrongful death case, the total fee accepted by the lawyer may not exceed one-third of the recovery. MCR 8.121.