A national not-for-profit bar association for attorneys who speak Russian is interested in referring potential Russian-speaking clients in Washington to a Washington attorney who speaks Russian. To cover the costs of the referral service, the national not-for-profit bar association proposes an agreement where it receives a percentage of the amount recovered or charged. It appears from the inquiry that the fee is based upon a percentage of the fees charged.
The inquirer asks:
1. Whether a Washington lawyer can enter such a fee-sharing agreement with a national not-for-profit bar association;
2. Whether RPC 7.2(b)(2) can be construed to allow fee-sharing if the referring organization’s “usual charge” is a percentage of the attorney fee earned; and
3. If the proposed agreement is not permissible under the present facts, whether there is a way for the not-for-profit organization to become a “duly authorized lawyer referral service” as that phrase is used in RPC 1.5 (e)(2).
II. APPLICABLE RULES OF PROFESSIONAL CONDUCT
RPC 1.5(e)(2), 5.4(a), 7.2(b)(2), and [Comments 6 and 7 to RPC 7.2], as well as Advisory Opinions 1404 and 1445 should be considered.
III. ISSUES PRESENTED
1. May a Washington lawyer share a fee with a national non-profit bar association?
No. Such an arrangement is not permitted under RPC 5.4(a) and RPC 1.5(e)(2).
2. If the national organization charges a fixed percentage for referrals in all other states, would the proposed agreement be a permissible referral fee under RPC 7.2(b)(2), which allows a lawyer to pay the “usual charges” of a not-for-profit lawyer referral service?
No. RPC 7.2(b)(2) is not a recognized exception to RPC 5.4(a), which generally prohibits a lawyer from sharing a fee with a non-lawyer.
3. If the proposed agreement is impermissible under the present facts, may a national non-profit bar association obtain status to be considered “a duly authorized lawyer referral service” of the Washington State Bar Association pursuant to RPC 1.5(e)(2)?
The organization is currently not a “duly authorized lawyer referral service” of the WSBA or any County Bar Association in Washington. This inquiry thus appears to address procedures and authorizations of the WSBA not governed directly by the Rules of Professional Conduct, which are outside the purview of the RPC Committee.
RPC 5.4(a) sets forth the general rule that a lawyer “shall not share legal fees with a non-lawyer.” Although RPC 5.4(a) contains certain exceptions, none of the exceptions apply to the facts presented. Therefore, the proposed agreement is impermissible.
RPC 7.2(b)(2) does not create an exception to RPC 5.4(a). The plain language of RPC 5.4(a) is clear and unequivocal. The recognized exceptions to the RPC 5.4(a) are set forth clearly within the rule, without reference to any external exceptions. The prohibition against fee-splitting with a non-lawyer cannot be avoided by calling the split a “usual charge” of a not-for-profit legal referral service.
RPC 1.5(e) allows lawyers in different firms to share fees under certain circumstances. In addition, part (2) of that rule allows certain organizations to be treated as if they are lawyers who are allowed to share fees. In pertinent part, RPC 1.5(e) provides that “[a] division of a fee between lawyers who are not in the same firm may be made only if . . . the division is between the lawyer and a duly authorized referral service of either the Washington State Bar Association or of one of the county bar associations of this state.”
RPC 1.5(e)(2) does not define the phrase “duly authorized referral service.” There do not appear to be any other rules or comments that define or otherwise shed light on this phrase. However, the rule clearly requires some kind of affirmative approval by the Washington Bar Association, or by one of the county bar associations of this state. This committee does not have the power to grant such approval, and it does not have any special insights to offer the inquirer on how to obtain such approval.
Assuming that the organization in question becomes “duly authorized” as that term is used in RPC 1.5(e)(2), the inquirer should be mindful of other rules that are intended to prevent referral fees from interfering with the lawyer’s professional judgment.
In particular, RPC 5.4(c) provides that, “[a] lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.”
RPC 7.2(b)(2) further provides that “[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 legal service plan or a not-for-profit lawyer referral service.” RPC 7.2(b)(2).
Comment 6 to RPC 7.2 explains:
A lawyer may pay the usual charges of a legal service plan or a not-for-profit lawyer referral service. A legal service plan is a prepaid or group legal service plan or a similar delivery system that assists prospective clients to secure legal representation. A lawyer referral service, on the other hand, is any organization that holds itself out to the public as a lawyer referral service. Such referral services are understood by laypersons to be consumer-oriented organizations that provide unbiased referrals to lawyers with appropriate experience in the subject matter of the representation and afford other client protections, such as complaint procedures or malpractice insurance requirements. Consequently, this Rule only permits a lawyer to pay the usual charges of a not-for-profit lawyer referral service.
Comment 7 to RPC 7.2 further explains:
A lawyer who accepts assignments or referrals from a legal service plan or referrals from a lawyer referral service must act reasonably to assure that the activities of the plan or service are compatible with the lawyer's professional obligations. See Rule 5.3. Legal service plans and lawyer referral services may communicate with prospective clients, but such communication must be in conformity with these Rules. Thus, advertising must not be false or misleading, as would be the case if the communications of a group advertising program or a group legal services plan would mislead prospective clients to think that it was a lawyer referral service sponsored by a state agency or bar association. Nor could the lawyer allow in-person, telephonic, or real-time contacts that would violate Rule 7.3.
As Comment 6 to RPC 7.2 makes clear, the lawyer is allowed to pay the referral fee directly, so long as it is not a “fee sharing” arrangement, and the lawyer referral service provides “ . . . unbiased referrals to lawyers with appropriate experience in the subject matter of the representation and afford other client protections, such as complaint procedures or malpractice insurance requirements.”
Advisory Opinion 1404 (1991) addressed the division of fees with a non-lawyer consulting firm in the context of a contingent fee arrangement and states in full:
The Committee reviewed your inquiry concerning an arrangement with a consulting firm whereby the consulting firm would be paid by your law firm out of the fees earned by the law firm. Neither your firm nor the consulting firm would be paid unless a professional athletic contract was executed. In addition, you have put a "cap" [of 30% of fees received by law firm] on the total compensation to be paid to the firm.
The Committee was of the opinion that as presently structured, this arrangement would constitute fee splitting with a non-lawyer in violation of RPC 5.4. The Committee was of the opinion that there would be nothing improper with restructuring the arrangement so that there was a separate fee contract between the client and the consultant. In addition, the Committee was concerned that the "cap" might not ensure a reasonable fee, and directs your attention to the consideration in RPC 1.5 regarding a reasonable fee.
Advisory Opinion 1445 (1991) also addressed sharing a contingent fee with a third party consultant and states:
The Committee reviewed your inquiry concerning a contingent fee agreement with a third-party consultant. The Committee is of the opinion that the proposed transaction would be improper under RPC 5.4 because the agreement would provide for a referral or finder’s fee.
The inquirer’s proposed agreement would violate RPC 5.4(a). RPC 7.2(b)(2) does not create an exception to the prohibition against splitting fees with a non-lawyer. At the present time, the organization in question has not been “duly authorized” by the WSBA or by any county bar association of this state, so RPC 1.5(e)(2) does not allow this arrangement. Whether the non-profit organization in question may later apply for recognition as a “duly authorized” referral service is a question of procedure that is beyond the purview of the Committee.
Advisory opinion 1404 provides one solution to the attorney, which is to have the referral service structure a separate contract between the client and the referral service that does not have the attorney share part of the fee with the referral service. In addition, the lawyer should be mindful of the limitations of RPC 5.4(c) and ensure that the referral service does not influence the lawyer’s professional judgment in representing the referred client.
The inquiring lawyer should not share a portion of the contingent fees with a non-lawyer referral service, where the referral service is not recognized as a duly authorized referral service of the WSBA. The lawyer is advised that such an arrangement, as presently structured, would not be considered the “usual charges” of a legal services plan. Such arrangements must also not impact the lawyer’s independent professional judgment.