Fee Sharing

From time to time, lawyers talk about receiving a referral fee. The term “referral fee” means a fee paid to a lawyer who does nothing more than refer a client to another lawyer. The Rules are clear on this – – you cannot ethically do it.

Rule 7.2(i) of the Mississippi Rules of Civil Procedure state that a “lawyer shall not give anything of value to a person for recommending the lawyer’s services.”

There is an exception when the lawyer pays for advertising. In addition, the lawyer may pay the usual charges of a lawyer referral service or other legal service organization.

Although referral fees are prohibited, Rule 1.5(e) does allow a fee to be divided between lawyers who are not in the same firm. This division can be done in two ways:

(1) If the division is in proportion to the services performed by each lawyer, or

(2) Each lawyer signs a contract with the client and each assumes joint responsibility for the representation.

Thus, a lawyer does have an option of (a) referring a client to another lawyer and (b) sharing in the fee without actually working on the matter. But, that requires a written agreement with the client in which both lawyers assume joint responsibility for the representation. (The Comment to the Rule explains that it is not necessary to tell the client exactly how the fee will be split.)

Regardless of which fee sharing option the lawyers use:

(a) the client must be told and must not object, and

(b) the total fee must be reasonable.

Before you consider sharing a fee with another lawyer, bear in mind the decision of the Mississippi Supreme Court in Duggins v. Guardianship of Washington Through Huntley , 632 So. 2d 420, 422 (Miss. 1993).

In that case, attorney Duggins signed up a personal injury case involving a child. He then associated attorney Douglas Barfield. Unfortunately for Duggins, his co-counsel Barfield:

– Falsely stated that he had filed suit;

– Settled the case without telling the insurance company about Duggins’ interest in the matter; and

– Absconded with most of the settlement funds.

Barfield was disbarred and convicted of a felony. The evidence was that Barfield had deceived Duggins as well as the child’s parents.

That was not the end of the story for Duggins, however. The Guardianship filed suit against him for an accounting of the funds.

The Mississippi Supreme Court held that the relationship created between Duggins and Barfield was, at a minimum, a joint venture. As a result, Duggins was liable for the damage caused by Barfield.

Moreover, although the lower court found that Barfield (not Duggins) engaged in conduct that warranted a punitive damage award, the Supreme Court held that Duggins was vicariously liable for Barfield’s actions and, therefore, was liable for punitive damages as well.

(Also of interest in Duggins is a discussion about the potential liability of an attorney for making a negligent referral of a client to another lawyer.)

Rule 5.4 prohibits a lawyer from sharing legal fees with a non-lawyer. An exception is made, however, for including non-lawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.

In the case of In re Holmes , 304 B.R. 292, 295-96 (Bankr. N.D. Miss. 2004), an attorney was held to have violated Rule 5.4 by paying his staff $5.00 bonuses each time one of the following events occurred:

-When the client paid at least $300.00 and executed a retainer agreement.

-After the client completed and returned the bankruptcy questionnaire.

-When the client signed a living will and/or durable powers of attorney.

The court explained that “[t]he arrangement conveys a pecuniary interest to the non-lawyer employee that is directly dependent on a decision that the client is called upon to make.”

So, think carefully about fee sharing, and follow the Rule.

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Craig Painter

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