Practice Pointer: Fee Splitting and Referral Fees Under the Rules of Professional Conduct
| Jurisdiction | Utah,United States |
| Citation | Vol. 12 No. 7 Pg. 17 |
| Pages | 17 |
| Publication year | 1999 |
August 1999
Kate A. Toomey, J.
A client retains counsel to represent him in a personal injury action. The client heard from a friend that the attorney is compassionate and hard-working, and in similar situations has obtained favorable settlements in a relatively short period. The attorney knows that she will be unable to effect an advantageous settlement for the client, however, in part because she has no experience as a litigator and the case is almost certain to proceed to litigation. Mindful of her obligation under the Rules of Professional Conduct to provide competent representation, she associates with an attorney from a well-respected litigation firm. Although she performs no work in preparing the case for trial and does not participate in the settlement negotiations that occur immediately before the scheduled trial date, she expects to be paid a share of the anticipated contingency fee. Absent an agreement that she will receive a significant portion of the ultimate fee, the attorney would have taken the case to another litigation firm willing to agree to her terms. After all, she was the one the client initially retained, and if it weren't for her, the litigators wouldn't even be involved in the case. Moreover, from time to time she communicates with the client to promote good client relations, so she feels she has earned a share of the fee.
This is a common scenario - the most respected and otherwise ethical attorneys sometimes accept or refer cases in which they have agreed to share the fees, even though they are aware that by doing so, they may be in violation of the Rules of Professional Conduct. Although it is not inherently unethical to divide fees with attorneys in another firm, there are serious restrictions on doing so, and attorneys should be aware that referral or forwarding fees, "which by their nature involve an economic benefit for little or no actual services performed beyond the referral" are not permitted in Utah. Phillips v. Joyce, 523 N.E.2d 933, 939 n.5 (HI. App. Ct. 1988).
THE POLICY REASONS FOR RESTRICTING FEE SPLITTING
The rule restricting fee splitting is founded on the belief that lawyers should not be compensated merely for referring a client to another lawyer because of the potential harm it causes the client and the harm it inflicts on the image of the profession. The Supreme Court of Kansas put it this way:
The evils of the referral fee have been well recognized. It has been said that admission to the practice of law is something more than admission to an association of business or tradesmen. It is membership in an ancient and honorable profession that has for its goal the furtherance of the administration of justice, and the attorney is an instrument for the achievement of this noble purpose... . Members of the public who seek the services of an attorney cannot be treated by him as mere merchandise or articles of trade in the market place. A client is not an article of property in which a lawyer can claim a proprietary interest, which he can sell to other lawyers expecting to be compensated for the loss of a property right.
Palmer v. Breyfogle, 535 P.2d 955,965-66 (Kan. 1975) (citations omitted).
The Appellate Court of Illinois has also discussed the policy considerations underlying the prohibition against referral fees, with an emphasis on the potential harm to the client.
[A]ttorneys have long been ethically and legally prohibited from sharing with other members of the profession fees generated from the disposal of a legal matter when the only 'service' rendered by the claimant attorney is the referral of the case. Profiting from the solicitation of professional employment is injurious to the legal profession and to the public. As the various authorities reveal, this practice is injurious to the legal profession since the public loses confidence in those who treat clients as merchandise in a market place rather than the recipients of the attorneys' skills and abilities. More importantly, the best interest of the clients is jeopardized by the arrangements when it becomes more profitable for attorneys to sell clients than to give them a legal service.
Kate A. Toomey is an Assistant Counsel with the Office of Professional Conduct. The views expressed in this article reflect Ms. Toomey's informal opinion, based upon a reading of the Rules of Professional Conduct and the authorities cited herein, and are not necessarily the views of the Utah State Bar or the Office of Professional Conduct.
Instead of prohibiting fee splitting, many jurisdictions have adopted some form of disciplinary rule that safeguards clients' interests by imposing a series of restrictions. Utah is among them. Thus, the Utah Rules of Professional Conduct permit lawyers to divide a fee, but restrict such an arrangement as follows:
A division of fee between lawyers who are not in the same firm may be made only if: (1) The division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer...
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