Practice Tips: Referral fee basics
Do I have to worry about the referral fee rules if I’m only getting the standard 25% referral fee? Can I get a referral fee in a family law case? What about a criminal case? Do I have to work on the case to get a referral fee? Does my name have to be on the fee contract if I am getting a referral fee? Do I need to sign the closing statement? What happens if I need to refer a case because of a conflict of interest? What do I do if the lawyer I had a referral fee arrangement with gets suspended or disbarred? These questions about referral fees are commonly asked to the Bar’s Ethics Hotline. This article will discuss the basics of referral fees between Florida lawyers.
Sharing the Fee
For purposes of the Rules of Professional Conduct, referral fees are considered fee divisions. This article will use the term “referral fee” as that is the term commonly used. The starting point for referral fees is Rule 4-1.5(g). Under this rule, a fee can be shared between lawyers who are in different firms if the total fee is reasonable and the lawyers follow one of the two different methods set forth in the rule for sharing the fee. The first method, under subsection (g)(1), is to share the fee in proportion to the services performed by each lawyer. The second method, under subsection (g)(2), is to have a written agreement between the lawyers and client where each lawyer assumes joint legal responsibility for the representation and agrees to be available for consultation with the client. This second method also requires the written agreement to disclose that the fee will be divided and how it will be divided.
Generally, either method under Rule 4-1.5(g) can be used. However, when the fee to be charged is a contingent fee, the lawyers must also follow the contingency fee rules found in subsection (f) of Rule 4-1.5. Rule 4-1.5(f)(2) requires referral fees to be in writing. Rule 4-1.5(f)(2) also requires that the client must consent to the referral fee in writing, and that each lawyer or law firm participating in the fee must sign the contract and agree to assume joint legal responsibility to the client for representation.
There is an additional requirement for certain contingency fee cases. Specifically, for cases involving personal injury, property damage, or wrongful death based on the tortious conduct of another, Rule 4-1.5(f)(4)(D) requires that the primary lawyer gets at least 75% of the fee and the secondary lawyer gets a maximum of 25% of the fee. If there is more than one secondary lawyer, the secondary lawyers can get no more than 25% of the fee. Rule 4-1.5(f)(4)(D) also has a provision to address situations where lawyers in different firms are going to do substantially equal work on the case. In those particular cases, the rule provides that the lawyers can apply to the applicable court for permission to share the fee so that the second lawyer or law firm can get more than 25% of the fee.
The above rules apply to cases in which a lawyer refers a case to another firm and wishes to receive a share of the fee. These rules also apply any time lawyers from two different firms share fees, such as when lawyers in different firms act as co-counsel in a case. In either situation, the application of the rules is the same.
Lawyers sometimes think the referral fee rules only apply if they are getting more than what they term the “standard 25% referral fee.” Yet there really is no standard 25% referral fee. Most likely this idea comes from the rule for referral fees in 4-1.5(f)(4)(D), even though it only applies to certain kinds of contingency fee cases.
As long as the applicable referral fee rules are followed, a lawyer may receive a referral fee in any type of case. Thus, referral fees are not prohibited in family or criminal cases. For example, a lawyer can get a referral fee in a divorce case as long as the lawyer either works on the case and is paid in proportion to the services the lawyer performs or the lawyer enters into a written agreement with the other lawyer and the client where each lawyer assumes joint legal responsibility, agrees to be available for consultation with the client, and the agreement sets out how the fee will be shared.
Do I have To Work On The Case?
A related question is whether a lawyer must work on the case to receive a referral fee. While the answer to the question is “no,” a lawyer cannot get a referral fee just for making a referral. Where a lawyer is not going to work on the case, the lawyer will be required to enter into a written agreement with the client and the other attorney where the lawyer assumes joint legal responsibility for the matter, agrees to be available for consultation with the client, and the agreement discloses how the fee will be shared between the lawyers.
A lawyer receiving a referral fee must sign the fee agreement if the case is a contingency fee case or, if not a contingency fee case, the referral fee is not going to be paid in proportion to the work done by each lawyer. The referral fee agreement must be in writing and signed by each lawyer under Rule 4-1.5(g)(2). In contingency fees cases, Rule 4-1.5(f)(2) also requires each lawyer sign the referral fee agreement. If the referral arrangement is contemplated at the beginning of the matter, the lawyers and client would likely make this part of the fee agreement at the outset. If the referral arrangement happens at a later time, the referral fee arrangement must still be in writing and should be done within a reasonable time after the referral agreement is made.
If the matter does not involve a contingency fee and the referral fee is being paid in proportion to services performed by each lawyer under Rule 4-1.5(g)(1), the lawyer receiving the referral fee is not required to sign the fee agreement. However, the lawyers involved must still notify the client of the referral arrangement and obtain the client’s consent. While this consent is not required to be in writing, it is recommended. Rule 4-1.4 is the rule regarding a lawyer’s duty to communicate with clients. Subsection (b) of this rule states that a lawyer “shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” Additionally, in The Florida Bar v. Roberts, 770 So. 2d 1207 (Fla. 2000), a lawyer was disciplined for not informing a client when the lawyer referred the case to another lawyer and did not tell the client that the lawyer was in a different firm.
A related question is whether the lawyer receiving a referral fee in a contingency case must sign the closing statement. Rule 4-1.5(f)(5) provides a clear answer. This rule specifically states that each lawyer participating in the fee must sign the closing statement. Thus, a lawyer who is getting a referral fee must sign the closing statement.
Conflict of Interest
One limitation on a lawyer’s ability to get a referral fee is when the lawyer refers a case because the lawyer has a conflict of interest. A lawyer with a conflict of interest is not able to comply with the referral fee rules because that lawyer could not work on the case or agree to be available for consultation due to the conflict of interest. Florida Ethics Opinion 73-2 states that a law firm that referred a case due to a conflict of interest could only be paid the reasonable value of its services before the conflict arose. Florida Ethics Opinion 89-1 similarly states that a lawyer who refers out a case because of a conflict cannot receive a referral fee as that lawyer cannot ethically assume responsibility for the representation or consult with the client. However, the opinion notes that the lawyer can receive reasonable compensation for work done before the conflict arose, as long as the conflict was not present at the outset of the representation. Where the conflict existed at the outset of the representation such that the lawyer should not have undertaken the representation, Opinion 89-1 states that the lawyer cannot ethically receive any portion of the fee because the conflict renders the lawyer unable to comply with Rule 4-1.5(g) as the lawyer cannot either work on the matter or agree to assume joint legal responsibility and agree to consult with the client.
Occasionally, lawyers will run into a situation where they have followed all of the applicable referral fees rules, but in the course of the representation, the referring lawyer becomes suspended, disbarred, or resigns from the Bar. This situation was addressed in Florida Ethics Opinion 90-3. In that opinion, the Professional Ethics Committee stated that the disbarred or suspended lawyer could be paid quantum meruit for the work done before the suspension or disbarment or for the responsibility the lawyer assumed and the time that the lawyer was available for consultation prior to the lawyer’s suspension, disbarment, or resignation from the Bar. Additionally, Florida Ethics Opinion 72-16 states that a lawyer may properly pay a suspended co-counsel a portion of the fee awarded for their representation based on work done prior to the suspension. Similarly, Florida Ethics Opinion 66-20 states that a lawyer who was associated in a litigated matter with another lawyer at the time of the other lawyer’s disbarment may, upon conclusion of the case, share the fee with the disbarred lawyer to the extent realistically and fairly earned by the disbarred lawyer for services and responsibility before the disbarment. These opinions are available at The Florida Bar’s website, www.floridabar.org.
Contingency Fee Cases
However, if the matter involves a contingency fee, lawyers need to be aware of caselaw governing when lawyers can get fees in contingency fee case where their representation ends before the contingency occurs. Generally, if a lawyer withdraws from representation before the contingency occurs, the lawyer forfeits a fee unless the client’s conduct would make the lawyer’s continued representation legally impossible or would cause the lawyer to violate the Bar rules. See, Faro v. Romani, 641 So. 2d 69 (Fla. 1994). In Santini v. Cleveland Clinic Florida, 65 So. 3d 22 (Fla. 4th DCA 2011), the court held that a lawyer who had to withdraw from representation because of a suspension forfeited the fee under Faro because the withdrawal was not made necessary by the client’s conduct. In contrast, the court in Chastain v. Cunningham Law Group, P.A., 16 So.3d 203 (Fla. 2nd DCA 2009) held that a suspended lawyer (who later resigned from the Bar) was entitled to quantum meruit for contingent fee cases where the suspended lawyer entered into agreement with the law firm taking over the cases in which the suspended lawyer would be paid quantum meruit for pending contingent fee cases and would be paid on hourly basis as a paralegal. The court in Chastain distinguished the case from Faro because the suspended lawyer was not seeking a charging lien against the former client. Rather, the court stated, the suspended lawyer was seeking to enforce a written agreement with the successor law firm. Lawyers facing a situation where a lawyer who is a party to the referral fee agreement in a contingency fee case is suspended or disbarred subsequent to the agreement, are cautioned to carefully review the applicable case law.
To sum up, lawyers in Florida can get referral fees in any kind of case as long as they follow the applicable fee division rules. Lawyers can either be paid in proportion to the work they perform under Rule 4-1.5(g)(1) or be paid according to a written agreement where they assume joint legal responsibility for the representation, agree to be available for consultation with the client, and state that the fee is being shared and how it is being shared under Rule 4-1.5(g)(2). Matters involving contingency fees must also comply with the requirements of Rule 4-1.5(f)(2) as to all contingency fee cases and, in cases involving personal injury, property damage, or wrongful death based on the tortious conduct of another, Rule 4-1.5(f)(4)(D) also applies. Where the matter involves any contingency fee, the lawyers must sign the closing statement. If a lawyer has a conflict of interest, the lawyer should review Florida Ethics Opinions 73-2 and 89-1 and may not get a referral fee. Finally, if a lawyer getting a referral fee becomes suspended or disbarred, Florida Ethics Opinion 90-3 provides guidance on whether the lawyer can receive quantum meruit for the time before the suspension or disbarment. However, in contingency fee cases a lawyer needs to also consult with applicable caselaw.
The Ethics Hotline can be reached at 800-235-8619. The Ethics Hotline is open Monday through Friday from 9 a.m. through 5:30 p.m.