People often have a hard time finding a competent lawyer to take their case. Once they find a competent lawyer, people often have a difficult time affording the legal services the attorney can provide. Many bar association throughout the country try to solve these problems by managing non-profit lawyer referral services in their community. Non-profit lawyer referral services help the public find competent and affordable representation for a variety of different types of legal cases.
When a local bar association operates a nonprofit lawyer referral service, local attorneys in the community become members of various panels based upon their interest in a particular practice area. The panel members are required to remit to the bar association a portion of the fee earned for services from the referred client.
The attorney agrees in advance to remit a certain percentage of the earned fee to the bar association. Using these non-profit lawyer referral services do not violate the bar rules that prohibit improper fee-splitting. In fact, the courts have found the fee remittal agreements used by non-profit lawyer referral services run by local bar associations to be both legally and ethically proper.
The payment of a percentage of fees collected in particular cases to an approved lawyer referral service is considered permissible under fee-splitting rules.” ABA/BNA Lawyers Manual on Professional Conduct 41:804 (1990). This article discusses the policy reasons behind allowing a local bar association to manage a lawyer referral service on a non-profit basis in its community.
The non-profit service is contacted by a member of the public during their service for an attorney. The person will pay a small fee for a consultation with an attorney who belongs to a panel in the lawyer referral service. After the first consultation, the attorney and client decide if they want to continue the relationship so that additional legal services can be performed.
The attorney owes the remittal fee if the client contacts the attorney after a referral from the service, the attorney has an initial consultation with the client, and the referral resulted in a fee agreement. The bar association is typically released from any liability in connection with the referral.
Although the bar rules in most states prohibit certain kinds of fee-splitting among lawyers and the sharing of fees by a lawyer with a nonlawyer in most instances, those rules traditionally have not applied to non-profit lawyer referral services managed by a local bar association.
The potential undesirable byproducts of lawyer fee-sharing include:
In the ABA Formal Op. 93–374 (1993), the opinion found it was not ethically improper for a lawyer who undertakes pro bono litigation to agree in advance to share court-awarded fees with the referring nonprofit organization) (hereafter ABA Formal Op.).
The courts have found that the agreements for non-profit lawyer referral services managed by local bar associations to not offend the public policy because:
“The bar association seeks not individual profit but the fulfillment of public and professional objectives. It has a legitimate, nonprofit interest in making legal services more readily available to the public. When conducted within the framework conceived for such facilities, its reference service presents no risks of collision with the objectives of the canons on fee-splitting and lay interposition.”
Emmons, Williams, Mires & Leech v. State Bar, 6 Cal.App.3d 565, 574, 86 Cal.Rptr. 367, 372–73 (1970); American Bar Association Formal Opinion 291, published August 1, 1956. See ABA Formal Op. 291 (1956).
On October 8, 1968, Formal Opinion 291 was cited as controlling authority on the referral service fee-sharing issue in ABA Informal Opinion 1076 (1968). See ABA Common Ethics and Professional Responsibility Informal Op. 1076, 867 through 1284 (1975) (hereafter ABA Informal Op.).
ABA Formal Opinion 291 has been relied on by bar associations around the country. In that case, the committee was asked:
“May the association require members of the panel to assist in the financing of the [lawyer referral service], either by flat fee or by a sliding scale charge based on the fees derived by the panel members from the cases referred to them?” ABA Formal Op. 291.
The answer to that question was:
“The financing of the plan should be under the control of the association setting it up. Registrants may be required to contribute to the expense of operating it by a reasonable registration charge or by a percentage of fees collected by them. The latter arrangement would not, in the opinion of the Committee, constitute a violation of Canon 34 [the existing fee-splitting prohibition].” ABA Formal Op. 291.
In 1970, the ABA committee was asked whether specialized bar associations could establish lawyer referral services. The committee referred the inquirers to Formal Opinion 291, suggesting they review the opinion and the principles it espoused. ABA Informal Opinion 1139 (1970).
Since then, the ABA standing committee on lawyer referral and information service has firmly held to the view that “percentage fee funding is a widely accepted method of supporting lawyer referral programs.” Letter of Dennis Murphy, Chair, ABA Standing Committee on Lawyer Referral and Information Service, June 10, 1998.
As of 1986, at least forty state and local bar associations required attorneys to give their lawyer referral services a percentage of their fees. ABA Lawyer Referral & Information Service Comm., Reference Handbook, 41–42 (1986).
The number of lawyer referral services has substantially increased over the years. In 1998 an ABA survey reflected the use of percentage referral fees by 117 local and state bar associations. See “Profile 2000: Characteristics of Lawyer Referral and Information Service,” ABA Standing Comm. on Lawyer Referral & Information Service, 18 (1999).
The courts have found strong policy reasons to hold percentage fee-sharing without the assumption of legal responsibility by a non-profit referral service include:
The courts have found that bar associations are motivated to ensure the integrity and competency of the lawyers it refers. For these reasons, there is less likelihood the public will perceive these referrals as the sale of a client. In fact, these programs help reduce the number of improper solicitation.
This summary shows several bar association opinions approving of the practice of percentage fee-sharing with referral service lawyers.
Alabama - Alabama Formal Ethics Opinion RO–95–08 (1995) - “A percentage fee program is an ethically permissible way to generate funds for a lawyer referral service, as long as the income generated thereby is used to defray the costs of operating the service or to support other public service programs.”
Arkansas - Arkansas Bar Association Advisory Opinion 95–01 (June 1995) - Arkansas Rules of Professional Conduct, adopted in 1986, provided in Rule 5.4(a) “a lawyer shall not share legal fees with a non-lawyer” and in Rule 7.2(c) “a lawyer shall not give anything of value to a person for recommending the lawyer's services except that a lawyer may pay * * * the usual charges of a not-for-profit lawyer referral service.” The “usual charges” could be a percentage of the fee earned. Other issues, including the reasonableness of the charges and whether a maximum and minimum fee should be established, were left to the good judgment and discretion of the Lawyer Referral Service Committee.
California - Opinion 1983–70 (1983) - Attorney who participates in an approved bar association lawyer referral service may pay a percentage of his fee collected but may not raise fees to cover the charge for the service.
Connecticut - Connecticut Bar Association Informal Opinion 87–9 (1987) - Interpreting Rule 7.2(c) of the Connecticut Rules of Professional Conduct, the Committee on Professional Ethics was asked to decide whether a lawyer referral service could charge a “fixed percentage” of the fee received by the referred attorney. It saw “no ethical problem” with the practice.
Illinois - Chicago Bar Association, Docket # 75–38 (1975) - CBA Committee on Professional Responsibility, interpreting DR 2–103, determined lawyer participants in bar-sponsored lawyer services may ethically contribute to the expense of operating the service by remitting a reasonable percentage of the fees collected by the referred attorney. Because the CBA had adopted the ABA Code, the Committee said the CBA should be deemed to have incorporated the settled construction of its provisions by the ABA (referring to ABA Formal Opinion 291 (1956) and ABA Informal Opinion 1076 (1968)). IN Docket # 87–1 (1987) - Despite the omission of a specific reference to lawyer referral services in the Illinois Code of Professional Responsibility (adopted in 1980), the Professional Responsibility Committee of the CBA again decided lawyer participants in bar-sponsored lawyer referral services could ethically be required to contribute to the expense of operating the service by remitting a reasonable percentage of the fees collected by the referred attorney. The decision was based on the “overwhelming authoritative interpretation under the Canons and the long history of permitting such programs in the State of Illinois.”
Kentucky - Kentucky Bar Association Opinion KBA E–288 (September 1984) - Ethically proper for an attorney who is a member of the Kentucky Bar Lawyer Referral Service to “participate in that organization's proposed plan for funding its expenses” including the payment of 10% of any fee collected from a referral.
Maryland - State Bar Association Opinion 82–35 (February 1982) - A state bar referral service may collect a surcharge on all contingency fee cases referred by the service.
Ohio - Ohio Opinion 92–1 (February 1992) - Because Ohio Disciplinary Rule 2–103(c) expressly allowed a lawyer to request referrals from a lawyer referral service operated, sponsored, or approved by a bar association and “pay the fees incident thereto,” it was not unethical for a bar association to require a lawyer to pay a percentage of the legal fees earned from clients referred if needed to support the service to the public. The Board approved of the practice only if: the attorney did not raise rates to cover the fee and the funds raised by the service were used to cover the administrative costs of operating the service and for educating the public on the availability of legal services.
Pennsylvania - Opinion 93–162 (October 1993) - Interpreting Rule 7.2(c) of the Pennsylvania Rules of Professional Conduct (identical to ABA rule 7.2(c)) the PBA found the “earned fee” method of financing bar-sponsored lawyer referral services had become so widely adopted over the years it is one of the acceptable “usual charges of a not-for-profit lawyer referral service within the contemplation of Rule 7.2(c).” The only requirement was that the referred attorney not increase his normal fee to cover this cost and that any profit realized by the bar association be utilized for pro bono purposes.
Rhode Island - State Bar Association Ethics Advisory Opinion 95–3 (1995) - Asked to consider whether a lawyer could be required to turn over 10% of any fee over $500 to a lawyer referral service, the advisory panel interpreted Rule 7.2(c) of the Rhode Island Rules of Professional Conduct [which allows attorneys to pay the “usual charges” of a not-for-profit lawyer referral service] in light of Rule 5.4(a) [which prohibits lawyers from sharing fees with non-lawyers]. The Advisory Panel decided the percentage fee was a “well-established method of funding lawyer referral services.”
Tennessee - Opinion 89 F–115 (September 1988) - A fee of 10% of the amount collected by the referred attorney could be charged by a lawyer referral service if the funds collected were used “exclusively for the administration expenses of the referral service” and members did not pass on the cost to the clients by increasing rates.
Wisconsin - State Bar Formal Opinion E–88–8 (1988) - Rules of Professional Conduct permit an attorney registered with a bar-sponsored lawyer referral service to remit an agreed percentage of attorney's fees collected. Fee should be reasonably related to the cost of administration and referred attorney may not raise his normal rates to cover this cost.
This article was last updated on Wednesday, August 7, 2019.