Lawyers often ask how to go about sharing legal fees with colleagues or entities outside their law firm. The answer depends on how you arrange the division, and with whom you intend to split the money. Lawyers who split fees as part of a referral arrangement must be careful to follow ethical guidelines, and to also take practical steps to avoid discipline or fee disputes with clients and colleagues.
The GuidelinesIn Oregon
Oregon rules permit the splitting of fees among lawyers in different law firms, but only if certain conditions are met. Oregon Rule of Professional Conduct 1.5(d) obligates the lawyer to get the informed consent of the client to any such division of fees. Under Oregon RPC 1.0(g), informed consent requires you to communicate both the risks, and any alternatives of a proposed course of action, to your client. Rule 1.5(d) does not require consent be provided in writing when sharing fees.
Additionally, when sharing legal fees outside the law firm, Oregon ethical rules prohibit the overall fee from being excessive. Oregon RPC 1.5(b) offers guidance on determining the reasonableness of a fee, so consult the rule when setting a shared fee with a lawyer outside your firm. Evaluating the time and effort your case requires, the fee customarily charged in your community for such legal services, and the skill required to perform the legal service needed in your case, may help you determine what fee might be reasonable and what might turn out to be excessive.
Also, keep in mind that the Oregon RPCs are distinct from the Model Rules of Professional Conduct published by the American Bar Association. Although ABA Model Rule 1.5(e) also permits the division of fees among lawyers in different law firms, the Model Rule allows the division only if the split is proportionate to the services performed by each lawyer. The Model Rule further states that the client must agree to the arrangement in writing. Several other states follow the Model Rules, so be sure to review the applicable state’s rules when deciding whether and how to divide fees with lawyers outside your firm.
Non-Lawyers & Referral Services
Lawyers sometimes ask for guidance on sharing fees with non-lawyers. Oregon RPC 5.4 prohibits a lawyer from sharing fees with a non-lawyer generally, but does offer some exceptions, including situations involving the estate of a deceased lawyer, or the purchase of a law practice.
Rule 5.4 also permits limited arrangements with referral services. Lawyers are permitted to pay standard charges associated with bar-sponsored or non-profit referral services. When dealing with these two entities, lawyers are also permitted to pay referral fees based on a percentage of the fee received from the referral.
However, arrangements with for-profit referral services or business referral clubs are handled differently. Oregon RPC 7.2(b) prohibits lawyers from giving anything of value to a person in exchange for recommending the lawyer’s services, while permitting the lawyer to pay standard charges and marketing costs associated with for-profit referral services. Formal Opinion 2005-168 explains that a for-profit referral service, even one owned by lawyers, is not itself licensed to practice law. As such, lawyers cannot split fees with the service, but may pay marketing charges. Similarly, Formal Opinion 2005-175 explains that placing conditions on a lawyer’s membership in a referral organization is also problematic. Professional organizations that require members to make referrals or create other quid pro quo arrangements may violate Oregon RPC 7.2(b), as well as RPC 5.4(e), by obligating members to give or receive something of value – like referrals – to other members in exchange for recommending each other’s services. Lawyers may not refer clients to non-lawyers with the expectation that the lawyer will receive a fee or anything of value in exchange for a referral.
Documenting the AgreementAlthough Oregon Rule 1.5(d) does not require a division of fees to be in writing, you should nonetheless document any such arrangement with a client or colleague. Putting the proposed division in writing at the outset can help you avoid fee disputes and ethics complaints down the road. Furthermore, documenting expectations and fees can be especially helpful in situations where a lawyer departs a law firm, and both the lawyer and the former firm claim a financial interest in the outcome of an ongoing case.
A written arrangement to divide fees outside the firm should include several pieces. Identify the parties to the agreement, including the referring lawyer, the accepting lawyer, and the client. Additionally, describe the legal matter at issue, along with the fees due to each lawyer. Remember to detail the responsibilities of each lawyer, clarifying what duties, if any, are required of the referring lawyer. This level of specificity may prove useful in the event of a fee dispute, complaint to the Bar, or a malpractice claim. Each party should also sign the written agreement. Visit the Fee Agreement Compendium, available via BarBooks, to see a sample written referral agreement.
Oregon lawyers are permitted to share fees outside their law firm under certain circumstances. If you find yourself dividing fees with colleagues at another firm, be sure to get the consent of your client, set a reasonable overall fee, and put your agreement in writing. While drafting written agreements can be time consuming, especially when simultaneously running a law practice and managing a busy caseload, a well-drafted agreement offers you the best protection against fee disputes and complaints to the Bar.