The Ethics of Referrals, Part 3
Ethics, Fees, Firm ManagementPART III: REFERRALS FROM NON-LAWYER SOURCES
Part I of The Ethics of Referrals series provided an overview of attorney-to-attorney referrals. Part II examined unique issues in those referrals. Part III, the final article in this series, discusses referrals from legal referral services and through websites that act as internet legal directories. Both of these types of services are not typically run by lawyers or law firms, so the usual rules governing fee sharing don’t apply. In fact, an increasing number of states are reconsidering the prohibition on lawyers sharing fees with non-lawyers, but Texas still forbids it (TDRPC 7.03(e)). This article examines how these third-party referral sources fit within the general prohibition on sharing legal fees with non-lawyers and shows how these referral mechanisms can benefit attorneys interested in increasing their business development.
WHAT ARE LAWYER REFERRAL SERVICES?
Comment 14 to TDRPC 7.03 defines a lawyer referral service (“LRS”) as “any organization that holds itself out to the public as a lawyer referral service.” Texas Occupations Code section 952.002 defines a LRS as “a person or the service provided by the person that refers potential clients to lawyers regardless of whether the person uses the term ‘referral service’ to describe the service provided.” LRSs are distinct from legal service plans (“LSP”)–a form of prepaid legal services or legal insurance–which Comment 14 defines as “a prepaid or group legal service plan or a similar delivery system that assists people who seek to secure legal representation.”
LRSs may be familiar to many readers because the State Bar and many metro and large city bar associations have formed them. The local bars of Austin, Dallas, Houston, and San Antonio offer a few examples of local bar associations’ LRS, and the Texas State Bar provides its Lawyer Referral & Information Service to the 246 counties not covered by a local bar association’s LRS.
WHAT RULES APPLY TO LAWYER REFERRAL SERVICES IN TEXAS?
Chapter 952 of the Texas Occupations Code governs LRSs in Texas. To lawfully operate a LRS in Texas, the operator must obtain a certificate issued under Chapter 952 of the Texas Occupations Code. Applicants for certificates must be a governmental entity or non-profit, operate primarily for the public’s benefit, and provide a list to the State Bar of at least 25 lawyers from different firms who have contracted with the applicant to receive referrals. Lawyer members of the LRS must be in good standing with the State Bar and agree to certain restrictions on their fees, including a maximum fee of $20 for the first 30-minute consultation. The LRS lawyer may be required to pay a membership fee or registration to the LRS and may be required by the LRS to obtain errors and omissions insurance.
WHAT ARE THE LAWYER’S DUTIES WHEN ACCEPTING A REFERRAL FROM A LRS?
Comment 15 to TDRCP 7.03 requires the lawyer to “act reasonably to assure that the activities of the plan or service are compatible with the lawyer’s professional obligations.” But that is not a referral-receiving lawyer’s only duty. They must also agree not only to the $20 maximum for the first 30-minute consultation and are not allowed to upcharge the LRS-referred client. In other words, Chapter 952 limits the lawyer to their regular fees and costs schedule for LRS-referred clients. Additionally, some LRSs charge a membership fee and take a percentage of any fees earned by the member attorney. For example, the Lawyer Referral Service of Central Texas earns a 15% referral fee on each referral that earns a fee.
WHAT ARE SOME OF THE BENEFITS OF A LRS REFERRAL?
Both the client and the attorney benefit from a LRS referral. The client gets a vetted attorney at a discounted rate, for at least the first 30 minutes. The attorney gets additional business development through a less time-consuming avenue. The Houston LRS expounds on the benefits, noting that the attorney can use its LRS to build a client base, obtain pre-screened referrals, serve the community, learn what practice area(s) are appealing, and get free CLEs. According to the Houston LRS, its member attorneys earn on average $20,000 per year from referrals through that LRS.
WHAT ABOUT THOSE WEBSITES THAT LOOK LIKE LAWYER REFERRAL SERVICES?
Since the early days of the internet gaining popularity, third-party websites have been immensely popular among attorneys seeking additional referrals. If you haven’t seen one of these sites, simply search for “personal injury attorney near me,” and dozens will pop up. Often, these sites include “listicles” purporting to identify the top lawyers in a subject matter within the relevant geographical region. These websites are typically not certified lawyer referral services under Chapter 952 and are usually for-profit search engines, replete with banner ads, popup ads, and all the other usual methods for search engines to generate revenue. The TDRPC treats these as attorney advertising.
In 2006, the Professional Ethics Committee considered what requirements must be met for these kinds of sites to pass muster under the advertising rules and to not merely be prohibited referral service. The resulting Opinion, number 573, distinguished between LRSs and these websites by noting that a LRS usually leaves the client with the sense that the LRS made a recommendation of a lawyer, which is the essence of a referral. On the other hand, these websites act more like a directory, where, even though the site can be intelligently searched to narrow the list of names presented down to a few, the website is really just an internet version of the old school phone book, which users knew was not actually recommending lawyers but merely providing names and contact information.
Opinion 573 prescribes six characteristics of such a website that, when met, satisfy the advertising and referral rules thereby allowing a lawyer to participate. These characteristics include a wholly automated response feature without the exercise of any discretion to determine which lawyers are displayed in response to an inquiry; the website includes certain disclaimers, including a notification that the lawyers who respond to the inquiry have paid for the privilege; the service doesn’t game the system by creative limitations on fee structures or geographic areas such that the result is only certain lawyers obtain certain referrals; and the lawyer identified through the search may not contact the prospective client until the client requests such contact. A website operating under these rules is another alternative business development source just like LRSs.
SUMMARY
If a lawyer is seeking new business, both an LRS and a legal directory website are ethical choices. When the applicable rules are followed, neither becomes an impermissible referral source nor runs afoul of the rules prohibiting fee sharing with nonlawyers. Importantly, both can provide an additional income stream for practicing attorneys.
