Ethics and the Law: Sharing the Wealth – What You Need to Know About Shared Fees and Referrals

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The majority of us have been there. If you haven’t, it will come soon enough (pay attention young lawyers).

We are criminal defense lawyers. No one needs us until they need us. And when they need us, they really need us. For many people who find themselves with that need, they may only know the lawyer who, for example, took care of their divorce or handled their uncle’s personal injury case. They think any lawyer can handle a criminal case, so they call that lawyer first.

Of course, those lawyers may know nothing about handling a criminal case or simply don’t want to handle the case. But, there is something that catches their interest.

They see a client in need — a need that is typically unlike one they have seen with other clients — and they see that the client is willing to spend whatever amount of money it takes to get them out of the trouble they’ve found themselves in. Rather than focus on meeting that need, the lawyer cannot help but see a financial opportunity.

So, the lawyer calls you, a buddy from law school who is a top‑notch criminal defense lawyer, and lays it on you: “I’ve got a person looking for a criminal defense lawyer. I want to send them your way, but I need a referral fee.”

I scratch your back, you scratch mine, right? Quid pro quo. These are concepts as old as time. And, back in the “good old days,” paying what was referred to as a “naked referral fee” was a common and acceptable practice.

That all changed in the late 1990s and early 2000s as part of a push to maintain professionalism within our line of work with, among other things, the adoption of Rule 1.04(f) of the Texas Disciplinary Rules of Professional Conduct.1 The current version of that Rule provides:

f. A division or arrangement for division of a fee between lawyers who are not in the same firm may be made only if:

    1. the division is:
      1. in proportion to the professional services performed by each lawyer; or
      2. made between lawyers who assume joint responsibility for the representation; and
    2. the client consents in writing to the terms of the arrangement prior to the time of the association or referral proposed, including:
      1. the identity of all lawyers or law firms who will participate in the fee‑sharing agreement, and
      2. whether fees will be divided based on the proportion of services performed or by lawyers agreeing to assume joint responsibility for the representation, and
      3. the share of the fee that each lawyer or law firm will receive or, if the division is based on the proportion of services performed, the basis on which the division will be made; and
    3. the aggregate fee does not violate paragraph (a).
    1.  

In sum, there are three key elements of a shared fee: (1) proportional or joint responsibility, (2) client consent, and (3) the total fee must be reasonable. More simply, you cannot accept or pay a referral fee to another lawyer (or non‑lawyer for that matter) for referring you a case nor can you require or request a lawyer to pay a referral fee for simply referring you a case.

So, with this in mind, you politely tell the lawyer, unless they are willing to associate with you on the case, share a proportion of the work or joint responsibility, and the client consents to the sharing of a reasonable fee for the work, you cannot pay them a referral fee. What happens then, when the lawyer replies by telling you, “Well then, how about we agree to refer each other cases? I’ll send you any calls I get for criminal matters and you send me all your calls for family law cases.” How does this comport with the Disciplinary Rules?

The recent amendments to the Disciplinary Rules last year addressed this very scenario and put some serious limits on it. Rule 7.03 added subsection (e)(2) which provides the following:

(2) A lawyer may refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if:

    1. the reciprocal referral agreement is not exclusive;
    2. clients are informed of the existence and nature of the agreement; and
    3. the lawyer exercises independent professional judgment in making referrals.

Under this new Rule, the lawyer’s proposal could work as a viable alternative. The problem, however, are the absolutes: “any calls I get for criminal matter” and “all your calls for family law cases.” As the Rule states, the agreement cannot be exclusive. Further, there must be assurances (in writing) from both attorneys that they will inform clients of the “existence and nature of the agreement.” To properly operate under this new Rule, it is best to have a list of lawyers that, based on your independent professional judgment, are fit to handle a particular matter that you can provide to a potential client.

Say then, for instance, the lawyer finally says, “Look, I get what you’re saying. I don’t want to lose my bar license over this. I’m going to give the client your name and number. Just take good care of them.” Do the Rules absolutely prohibit you from giving that lawyer anything of value for referring you the client?

Rule 7.03(e) states that, while a lawyer cannot “pay, give, or offer to pay or give anything of value to a person not licensed to practice law for soliciting or referring prospective clients for professional employment,” the Rule does explicitly create an exception for “nominal gifts given as an expression of appreciation that are neither intended nor reasonably expected to be a form of compensation for recommending a lawyer’s services.” Although this Rule refers to a person “not licensed to practice law,” it is reasonable to interpret the Rule to permit giving nominal gifts such as a gift certificate or event tickets to that lawyer for referring you the potential client.

The bottom line is that we should be focused on providing quality legal representation to clients and, when we cannot provide those services ourselves, making sure they are referred to good lawyers who can do so. It should not be about the money. As Robert Pelton once wrote, “If the other attorney gets hired and collects a handsome fee, good for the other attorney. I consider the referral a ‘gift’ to the other attorney for which I expect nothing in return (nor will I accept anything in return), and I make the referral based only upon my confidence in that attorney’s abilities.” No one can doubt that is good advice to follow.

Stay ethical my friends.

Footnotes

  1. See Ethics Opinion 568.
TCDLA
TCDLA
Thomas Brent Mayr
Thomas Brent Mayr
Brent Mayr is the Co-Chair of the TCDLA Ethics Committee and has been a member of that committee for over 10 years. He is Board Certified in Criminal Law by the Texas Board of Legal Specialization, a former briefing attorney to Judge Barbara Hervey on the Texas Court of Criminal Appeals, and a former Assistant District Attorney for the Harris County District Attorney’s Office. He has spoken and written on a variety of topics related to legal ethics for the Texas Criminal Defense Lawyers Association and various local criminal defense lawyers’ associations around the State. In 2020, he was awarded Lawyer of the Year by the Harris County Criminal Lawyers Association and the President’s Award from TCDLA.

Brent Mayr is the Co-Chair of the TCDLA Ethics Committee and has been a member of that committee for over 10 years. He is Board Certified in Criminal Law by the Texas Board of Legal Specialization, a former briefing attorney to Judge Barbara Hervey on the Texas Court of Criminal Appeals, and a former Assistant District Attorney for the Harris County District Attorney’s Office. He has spoken and written on a variety of topics related to legal ethics for the Texas Criminal Defense Lawyers Association and various local criminal defense lawyers’ associations around the State. In 2020, he was awarded Lawyer of the Year by the Harris County Criminal Lawyers Association and the President’s Award from TCDLA.

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