Are Attorney To Attorney Referral Fees Kosher?

Yes. Usually, it depends. Under ABA Model Rule 1.5, attorneys can share referral fees with other attorneys. Unfortunately, only South Dakota adopted Rule 1.5 verbatim.

That makes a clear answer rather elusive and fact/practice area dependent. Not only do you need to review your local rules but also the comments, ethics opinions and court decisions on point.

As a starting point, ABA Model Rule 1.5(e) provides:

"(e) A division of a 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 each lawyer assumes joint responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable."

Jumping over (e)(1), most states include (e)(2)'s a client consent requirement, usually in writing and apply (e)(3)'s reasonableness test. Even if your jurisdictions do not require the arraignment to be in writing - memorialize it and make sure both sets of attorneys agree to it as well. Also, more of a larger issue, "reasonable" does not mean whatever the client is convinced to pay. This can be a nebulous issue but if your fees seem almost too good to be true, they're probably too good to be ethical.

Stepping back, most state nuances revolve around Rule 1.5(e)(1) and the either or distinction between the "in proportion" or the "joint responsibility" standards.

The proportionality test is usually based on comparing the various attorneys' work and involvement in the matter, sort of an equitable analysis. On the other hand, the "joint responsibility" standard usually recognizes the risks - exposure to sanctions, ethics issues and legal malpractice - that lawyers are exposed to in any representation.

Any referral fee needs to be analyzed in the context of your jurisdiction's rules AND the rules for the other attorney (AND potentially even the client's jurisdiction). Long-standing referral relationships naturally collect inertia and can easily erode from the permissible to the prohibited over time. Set up a review system to make sure every single referral complies with the applicable rules and law.

Regardless of jurisdictional nuances, the best approach is to maintain both proportional involvement with the matter and joint responsibility or - even better - avoid referral arrangements all together.

Networking IS law firm risk management.

Instead of paying or receiving referral fees, look to build a referral network. Over time, the increase in quality work, in your practice area and geographic area, usually will outweigh the benefits of proportional or joint responsibility payments.

Combining a group of small firms into one large network allows you to stay focused on your particular practice area while still reaping the benefits of your reputation and marketing efforts. You shouldn't be a full service shop but that does not mean you shouldn't provide your clients full service.

Take care of your clients, colleagues and your firm in a safe and ethically compliant manner.

Let's chat, free consults.