Does taking a referral fee make the referring lawyer subject to the conflict-of-interest rules?
ABA Formal Opinion 474: Referral Fees and Conflict of Interest
Short answer: The opinion concludes that a lawyer who refers a matter to a lawyer outside the firm and shares in the fee has thereby undertaken representation of the client, so the fee division is subject to Rule 1.7; where a conflict exists, the lawyer may not accept the fee absent informed consent confirmed in writing, and the fee-division agreement must be completed before or within a reasonable time after the representation begins.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the American Bar Association's Model Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The opinion begins with Model Rule 1.5(e), which permits lawyers not in the same firm to divide a fee only if the division is proportional to services or each assumes joint responsibility, the client agrees in a writing specifying each lawyer's share, and the total fee is reasonable. Citing Comment [7], the opinion explains that "joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership." From this it draws the central premise: "implicit in the terms of the fee division allowed by Rule 1.5(e) is the concept that the referring lawyer who divides a legal fee has undertaken representation of the client."
Because the client is represented by both lawyers, the opinion concludes that "fee arrangements under Model Rule 1.5(e) are subject to Rule 1.7." It works through a three-part hypothetical: where no conflict exists, the referral may proceed; where there is a significant risk of material limitation under Rule 1.7(a)(2), the lawyer must satisfy Rule 1.7(b); and where interests are directly adverse under Rule 1.7(a)(1), the lawyer again must satisfy Rule 1.7(b). Where a conflict exists, the lawyer must obtain each affected client's informed consent confirmed in writing under Rule 1.7(b)(4).
On timing, the opinion relies on the future tense in Rule 1.5(e)(2), which refers to "the share each lawyer will receive," and on Comment [7], reasoning that "the use of the future tense envisions that the fee division agreement will precede the division of fees." It concludes that "the division of fees must be agreed to either before or within a reasonable time after commencing the representation," not at the end of the relationship. The opinion also notes that in a contingent matter, the total fee cannot be increased because of the referral.
In practice
Under this opinion, a lawyer who refers a matter for a share of the fee is not a passive referral source but a lawyer for the client. The opinion holds that Rule 1.7's conflict analysis applies, so a lawyer with a directly adverse or materially limiting conflict may not take the fee without each affected client's informed consent confirmed in writing. It holds the fee-division agreement and written client consent must be in place before or within a reasonable time after the representation begins, and that a contingent fee may not be increased to fund the referral.
Common questions
Q: If I just refer a case and take part of the fee, am I the client's lawyer?
A: Per the opinion, yes. A lawyer who refers a matter outside the firm and divides the fee has undertaken representation of the client.
Q: Do conflict-of-interest rules apply to referral-fee arrangements?
A: The opinion concludes yes; because both lawyers represent the client, the arrangement is subject to the conflict provisions of Rule 1.7.
Q: When does the fee-division agreement have to be made?
A: The opinion says before or within a reasonable time after the representation commences, not toward the end of the relationship.
Q: Can the total contingent fee go up to cover the referral fee?
A: No. The opinion states the total fee must remain reasonable and cannot be increased because of the referral.
Background and rules framework
The opinion interprets Model Rule 1.5(e) (division of fees between lawyers not in the same firm), including 1.5(e)(1)-(3) and Comment [7], together with Model Rule 1.7 (concurrent conflicts), including 1.7(a)(1), 1.7(a)(2), and 1.7(b)(4). It references Model Rule 1.1 (competence) and the Rule 1.0 definitions of "informed consent" and "confirmed in writing."
Citations and references
Rules of Professional Conduct:
- ABA Model Rule 1.5(e) (division of fees), and Comment [7]
- ABA Model Rule 1.7 (conflicts), including 1.7(a)(1), (a)(2), (b)(4)
- ABA Model Rule 1.1 (competence); Rule 1.0(e), 1.0(b) (definitions)
Other opinions cited:
- ABA Informal Op. 85-1514 (basis for the Comment [7] amendments)
- Connecticut Informal Op. 2013-04; Maine Op. 145 (1994); Illinois Op. 90-26 (1991); Massachusetts Op. 80-10 (1980)
Cases:
- Saggese v. Kelley, 837 N.E.2d 699 (Mass. 2005)
- Cohen v. Brown, 93 Cal. Rptr. 3d 24 (Ct. App. 2009)
See also
- ABA Formal Op. 475: Safeguarding Fees Subject to Division
- ABA Formal Op. 487: Fee Division With a Client's Prior Counsel
- ABA Formal Op. 497: Conflicts Involving Materially Adverse Interests
Source
- Landing page: ABA Formal Ethics Opinions index
- Original PDF: aba-formal-opinion-474.pdf