The Ethics of Referrals, Part 2
Client Compatability, Ethics, Scope of RepresentationPART II: UNIQUE ISSUES IN ATTORNEY-TO-ATTORNEY REFERRALS
Part 1 of The Ethics of Referrals series provided an overview of attorney-to-attorney referrals. Part II examines unique issues in those referrals. For example, may a criminal defense attorney agree to refer all of his personal injury cases to his friend, a personal injury lawyer, so long as that personal injury lawyer refers all of her criminal cases to the criminal defense attorney? This Part isn’t intended as an exhaustive study of all of the unique situations that might arise in attorney-to-attorney referrals, but it serves as a reminder to examine the arrangement carefully, with the client’s best interests always at the forefront.
THREE (SHORT) HYPOTHETICALS
The following hypotheticals will guide our discussion:
- The Exclusive Referral Scenario – Chris is a criminal defense lawyer. His clients routinely ask him to help with personal injury cases. Chris isn’t interested in those kinds of cases, but his friend, Patricia, is a highly-reputable personal injury lawyer. Chris proposes to Patricia an exclusive referral relationship, where he agrees to send all of his personal injury cases to her, if she’ll send all of her criminal defense cases to him, and they each earn referral fees. Is this exclusive referral permissible?
- The Oops, There’s a Conflict After All Scenario – Celinda is approached by a prospective litigation client, and, after clearing a conflicts check, she agrees to perform the work. Celinda dutifully files the client’s lawsuit but soon thereafter discovers a non-consentable conflict of interest. She plans to refer the client to another lawyer. May she seek a fee split of her contingency fee contract? If her contract is flat fee or hourly, may she seek reimbursement from the client for fees earned prior to the recognition of the conflict?
- The Suspended Referral Attorney Scenario – Ricky referred a case to Rhonda. Ricky, Rhonda, and the client signed a referral agreement. Unbeknownst to Rhonda and the client, Ricky’s license was suspended at the time. May Ricky still receive the agreed-upon share of the fees? What if Ricky wasn’t suspended at the time of contracting but later became suspended?
THE EXCLUSIVE REFERRAL SCENARIO
At first glance, the “I’ll send you mine if you’ll send me yours” arrangement sounds like an ethically benign good business sense. After all, what’s wrong with an agreement among friends to boost each other’s business? But lawyers aren’t just regular businesses, and the TDRPC imposes additional strictures on the business of law. So let’s dive a little deeper into the Exclusive Referral Scenario.
Chris, the criminal defense lawyer, and Patricia, the personal injury lawyer, are old law school friends who lost touch after graduation more than a decade ago. They rekindled their friendship at the annual Texas State Bar meeting in June. Over cocktails, they discovered that each routinely received calls from prospective clients who matched the other’s practice profile; i.e. Chris received personal injury calls and Patricia received criminal defense calls. Sensing great business synergy and remembering the depth of their friendship in law school even though they hadn’t stayed in touch and really didn’t even know the other’s practice experience, they decided to exclusively refer to each other and to split the fees. This arrangement implicates several rules in the TDRPC, including solicitation rules and referral rules.
If Chris, Patricia, and the client sign a TDRPC-compliant fee sharing agreement establishing fee sharing between Chris and Patricia, the attorneys will not be violating the referral fee rules. However, they will still violate another TDRPC referral rule.
Rule 7.03(e)(2) authorizes “reciprocal referral agreements” only in certain circumstances. It states: “A lawyer may refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if: . . . .” What follows the “if” puts Chris and Patricia into the danger zone. TDRPC 7.03(e)(2)(i)-(iii).
Reciprocal referral agreements are permissible “if” the agreement is not exclusive and if Chris and Patricia “exercise[] independent professional judgment in making referrals.” Id. at 7.03(e)(2)(i), (iii). Chris and Patricia’s exclusive referral agreement violates the rule twice: by being exclusive and by failing to exercise independent judgment. The exclusivity violation is obvious, but why does the agreement violate the independent judgment provision? Looking back to the hypothetical, we know that Chris and Patricia lost touch for at least a decade after law school and consequently knew nothing of each other’s practices. It’s hard to say that referring a client to a friend whose practice you know nothing about is using good judgment, and, arguably, the judgment isn’t independent because it was induced by the improper exclusivity arrangement. Moreover, even if they knew all about each other’s practices, is Chris really the best criminal defense lawyer for every single one of the prospective client calls Patricia gets from the accused? No. So to, the reverse.
So what kind of agreement would pass muster under Rule 7.03(e)(2)? After getting to know each other’s practices better, Chris and Patricia could agree to refer (and split fees) to each other so long as the agreement isn’t exclusive. They could each tell the other, “my ideal client is _____” and then refer that client to each other, and so long as each uses their independent judgment, and the agreement isn’t exclusive, they are welcome to benefit each other’s businesses!
THE OOPS, THERE’S A CONFLICT AFTER ALL SCENARIO
How in the world does a lawyer clear a conflicts check, file a lawsuit, and then discover a non-consentable conflict? That’s a fair question, and Opinion 688 provides a good example. Let’s put Celinda from the hypothetical above into the fact pattern from Opinion 688 for discussion purposes here. Celinda is hired by Carrie Client to file a personal injury lawsuit against Delvin Driver for personal injuries arising from a car crash. Celinda promptly files the lawsuit. Delvin Driver answers and files a third-party action against Bronte Braker who Delvin claims slammed on her brakes in front of Delvin causing him to side swipe Celinda’s client. Delvin Driver’s allegations cause Celinda to realize she must amend her client’s petition to add Bronte Braker as a defendant. However, Celinda has been representing Bronte Braker for years in personal injury defense litigation because Bronte Braker is a notoriously bad braker. Celinda determines that she cannot represent her Carrie Client against Bronte Braker, and that her representation of Carrie would be materially affected by her relationship with Bronte Braker, which makes this conflict non-consentable. TDRPC 1.06. Celinda withdraws from representing Carrie and refers Carrie to Francisco Friend, one of Celinda’s best friends and an accomplished personal injury lawyer in his own right.
By the time of the withdrawal, Celinda had incurred court costs; filing fees; propounded, responded to, and reviewed written discovery; obtained witness statements; and paid the retainer for a crash reconstructionist with whom she had one in-depth phone conversation. She also had spent about 30 hours on Carrie’s case, which was under a contingency fee agreement. Celinda is eager to either split fees with Francisco or to recoup from Carrie her costs, fees, and time up to the point of the withdrawal. What are Celinda’s options?
May Celinda and Francisco, with Carrie’s consent, enter into a fee sharing agreement under Rule 1.04? They may be able to enter into a proportional division fee agreement if Celinda’s efforts prior to withdrawal are “substantial legal services,” which those listed above likely are. However, Celinda and Francisco will have to be very diligent in the division to ensure that there is a reasonable correlation between the value of Celinda’s efforts and the share she will get, while also keeping in mind that what are “substantial legal services” is a question of fact. Op. 688. On the other hand, Celinda and Francisco may not enter into a joint representation because one of the hallmarks of such an arrangement is the referring attorney’s duty to monitor the litigation, assist in the litigation when necessary, and ensure that the client remains informed about it. Id. Because Celinda withdrew, it is impossible for her to remain informed about the litigation at a depth sufficient to keep the client informed or to assist in the litigation because the conflict that required the withdrawal precludes any form of ongoing representation in the litigation. See id.
May Celinda recoup any of the time and expenses she incurred prior to the withdrawal? Maybe. She has two likely avenues available to her. She can seek an agreement with Carrie to pay her for the time and expenses, or she can sue Carrie under quantum meruit, but as Opinion 688 notes, quantum meruit may not be available if the termination is without “just cause.” Id. Given that the original agreement between Celinda and Carrie was a contingent fee agreement, any change to that agreement after the withdrawal will be intensely scrutinized by the court to ensure that the changes are fair and reasonable to Carrie Client. Id.
THE SUSPENDED REFERRAL ATTORNEY SCENARIO
Ricky refers a client to Rhonda, but Ricky is suspended at the time of the referral, or is later suspended. May Ricky share in the fees (assuming an otherwise proper referral fee agreement)? Let’s look first at the scenario where Ricky is already suspended at the time of the referral.
TDRPC 5.04 establishes the applicable rule in this scenario. A lawyer may not share or promise to share legal fees with a non-lawyer. TDRPC 5.04. A suspended lawyer is a non-lawyer, according to Opinion 592. Op. 592; see Op. 568. This means that Ricky cannot share in the attorney’s fees whatsoever. But what if Rhonda didn’t know that Ricky was suspended at the time of the referral? The Professional Ethics Committee says “no” because rule 5.04 applies regardless of the knowledge of the lawyers involved. Op. 592.
What happens if Ricky refers the case to Rhonda, enters into a proper referral fee agreement, and then is later suspended? Two possible outcomes arise, depending on whether the fee was earned but not paid before the suspension, or whether the fee was not yet earned at the time of the suspension. Discussing the predecessor rule to Rule 5.04, the Committee determined in Opinion 432 that an attorney who had not yet completed the agreed-to work (i.e. earned the fee) prior to becoming a non-lawyer (there, by disbarment), was not entitled to the fee. Op. 432. Opinion 432 left open the question of what happens if the fee is earned prior to becoming a non-lawyer. See id. The Committee finally answered that question in Opinion 568, concluding that the non-lawyer may share in the fee if it is earned prior to the suspension. Op. 568. However, citing a Texas Supreme Court opinion, the Committee warned that an attorney cannot share in fees arising from the case that got him disbarred or suspended. See id.
These three scenarios demonstrate that creating an ethical referral arrangement isn’t as simple as agreement to the fee split. Instead, the agreement must reflect a proper fee split, and not be exclusive, and avoid non-consentable conflicts, and not be made with nonlawyers. Referral arrangements remain a crucial part of an attorney’s business development, but they must be diligent to ensure that the rules are followed.
