Can an out-of-state lawyer who refers a case collect a referral fee based on a percentage of the receiving lawyer's fee when the receiving lawyer does all the work?

Plain-English summary

The Committee was asked about the use of a "referral fee" where a commercial collection matter is referred to an Alaskan attorney by an attorney in another jurisdiction, the Alaskan attorney performs substantially all the work, the outside attorney handles only routine matters requiring the client's signature, and the outside attorney then requests a fee calculated as a percentage of the Alaskan attorney's fee.

The opinion concluded that DR 2-107 covered the matter, particularly DR 2-107(A)(2), which provides that a lawyer shall not divide a fee with a lawyer who is not a partner or associate unless the division is made in proportion to the services performed and responsibility assumed by each. The opinion noted that DR 2-107(A)(2) is a direct successor to Canon 34, stating its two elements (division of services and responsibility) in the conjunctive rather than the disjunctive.

Drawing on Drinker's Legal Ethics and ABA Opinion 265, the opinion observed that no right to a division of fee arises out of mere recommendation of employment, and that a forwarding lawyer expecting a share should advise the receiving lawyer at the outset and agree on the basis in advance. The opinion concluded that, unless the division of services performed and responsibility assumed by the referring and the Alaskan attorney was in the same proportion as the proposed percentage division of the total fee, the proposed referral fee would be unethical.

Currency note

This opinion was issued in 1974, before the Alaska Bar Association's adoption of the Alaska Rules of Professional Conduct (it applies the former Code of Professional Responsibility) and before the 2009 revisions to those rules. The rules on fee division between lawyers have since been recodified. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific point mentioned here.

Common questions

Q: Could the referring lawyer collect a fee just for sending the case?

A: No. The opinion concluded that no right to a division of fee arises out of mere recommendation of employment, and that a fee division must track the services performed and responsibility assumed by each lawyer under DR 2-107(A)(2).

Q: When is a fee split between lawyers in different firms proper?

A: The opinion concluded a split is proper only when the division of the fee is in the same proportion as the actual division of services and responsibility between the lawyers.

Q: Did the lawyers need to agree on the split in advance?

A: Per the opinion, a forwarding lawyer expecting a share should advise the receiving lawyer of that expectation at the outset, with the basis of the division agreed on in advance.

Background and rules framework

The opinion applied DR 2-107(A)(2) of the former Code of Professional Responsibility, which permitted fee division between lawyers in different firms only in proportion to services performed and responsibility assumed. That subject is now treated by Model Rule 1.5(e). The opinion traced the rule to Canon 34 of the former Canons of Professional Ethics and relied on Drinker's Legal Ethics and ABA Opinion 265.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 2-107(A)(2) (division of fees in proportion to services and responsibility) (cf. Model Rule 1.5(e))
• Canon 34 and Canon 22 of the former Canons of Professional Ethics

Other opinions cited:

• ABA Formal Op. 265: no fee division for mere forwarding of a case

See also

• Alaska Ethics Op. 76-9: Investigator on a Contingent Fee
• Alaska Ethics Op. 78-5: Legal-Aid Referrals to Local Lawyers
• Alaska Ethics Op. 79-3: Law Firm Employing an Accountant

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/74-2.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.
Ethics Opinion No. 74-2
Propriety of "Referral Fees."
The Committee has been requested to give its opinion on the use of
"referral fees" where a case is referred to an Alaskan attorney by an attorney
from another jurisdiction. Specifically, the question pertains to a situation
where a commercial collection matter is referred to an Alaskan attorney by an
attorney from another jurisdiction. Substantially all work on the matter is
performed by the Alaskan attorney, with only routine matters involving the
client's signature being performed by the attorney from another jurisdiction.
The Alaskan attorney's compensation is calculated as a percentage of the total
amount collected, and after collection efforts have been completed, the outside
attorney requests a "referral fee" based on a percentage of the Alaskan
attorney's fee.
The Code of Professional Responsibility, DR 2-107, seems to cover the
matter adequately. Particularly DR 2-107 (A)(2) which provides that a lawyer
shall not divide a fee with another lawyer, unless "the division is made in
proportion to the services performed and responsibility assumed by each."
DR 2-107 (A)(2) is a direct successor to Canon 34 of the Canons of
Professional Ethics, with the exception that it states the two elements for
consideration (division of services and responsibility) in the conjunctive rather
than the disjunctive.
It is repeatedly held under Canon 34 that no right to a division of fee
arises out of mere recommendation of employment. Drinker, Legal Ethics, p.
186. Drinker has also noted that:
"The candor and fairness required under Canon 22 in dealings between lawyers
make it incumbent on one expecting a share of the associates fee to advise him of
this at the outset, the division between them or the basis thereof being agreed on
in advance. Where he does not do so, unless the case is one where obvious service
by the forwarder is required and performed after the forwarding, the associate is
warranted in assuming that the forwarder will be compensated directly by the
client . . ." Drinker, Legal Ethics, p. 187, accord A.B.A. op. 265.
In the Committee's opinion, both these propositions remain sound under
DR 2-107.
In the question presented, unless it can be reasonably said that the
division of services performed and responsibility assumed by the referring
attorney and the Alaskan attorney were in the same proportion as the proposed
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percentage division of the total fee, the course of action proposed by the
referring attorney would be unethical.
Adopted by the Board of Governors on May 15, 1974.
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