Can a lawyer join a barter service exchange that takes a percentage of the lawyer's fees?

Currency note

This opinion was issued in 1981, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. It interprets former Rule 2-101 (then governing solicitation) and former Rule 3-102 (sharing fees with nonlawyers), areas now addressed by Model Rules 7.2 and 5.4 and California Rules 7.2 and 5.4. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, case, or requirement mentioned here.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's 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. The opinion text is reproduced at the bottom; the official source (linked) controls.

View original opinion

Plain-English summary

The committee revisited the service-exchange question it had first addressed in Opinion No. 1977-44, where it had said an ethical bar existed both because the arrangement was a form of solicitation contrary to former Rule 2-101 and because paying a percentage of fees to the exchange was fee splitting contrary to former Rule 3-102. After that opinion, Rule 2-101 was amended, and the committee was asked to consider a new exchange agreement. Under the new agreement, a lawyer who paid a membership fee (half in trade, half in cash) would provide services to other members at the lawyer's customary fee, credited on the exchange's books; the lawyer could then use the credit to obtain goods or services from other members after paying the exchange a cash fee of eight percent of the purchase amount, with member disputes decided by a binding five-member arbitration board.

On former Rule 2-101, the committee concluded the amended rule now permitted solicitation within the standards it set, and that a simple listing of the member as practicing law fell clearly within those parameters. The committee said it lacked enough facts to opine fully but found Rule 2-101 was no longer a bar to participating in a service exchange.

On former Rule 3-102, the committee concluded the arrangement was improper. Rule 3-102 prohibited directly or indirectly sharing fees with a nonlawyer and compensating a nonlawyer for securing professional employment. The requirement that the lawyer pay the exchange a cash fee equal to eight percent of the fees credited fell under both prohibitions: by listing the lawyer to other members, the exchange secured employment from which it would benefit by collecting eight percent of the fee, and the lawyer was splitting the fee. The committee concluded the agreement gave the exchange a monetary incentive to refer business based on its own financial benefit rather than the lawyer's competence, the precise vice the rule was meant to avoid. The committee added that it was also troubled by the binding arbitration clause, observing that under Business and Professions Code section 6200 the State Bar had adopted fee-arbitration rules whose subdivision (b) makes clear the purpose is to protect the client, and that the exchange's arbitration clause purported to waive that State Bar procedure for members who used credits to employ the lawyer, raising a serious question about a lawyer relying on the clause in a fee dispute a client wished to have the State Bar resolve.

Common questions

Q: Can a lawyer join a barter or service exchange that takes a percentage of the lawyer's fees?

A: No. The committee concluded that paying the exchange a cash fee equal to a percentage of the legal fees earned is improper fee splitting with a nonlawyer and compensation for securing employment under former Rule 3-102.

Q: Was simply being listed as a member of the exchange improper?

A: No. After former Rule 2-101 was amended to permit solicitation within its standards, the committee concluded a simple listing of the lawyer as a member practicing law was within the rule, so Rule 2-101 was no longer a bar to participation.

Q: What made the percentage payment fee splitting?

A: The committee reasoned that the exchange secured employment for the lawyer by listing the lawyer to other members and then collected eight percent of the fee, so the lawyer was sharing the fee with a nonlawyer and the exchange had a financial incentive to refer business based on its own benefit, not the lawyer's competence.

Q: Why was the committee troubled by the arbitration clause?

A: The committee observed that the binding five-member arbitration clause purported to waive the State Bar's fee-arbitration procedure under Business and Professions Code section 6200, which exists to protect the client, raising a serious question about a lawyer invoking the clause against a client who wanted the State Bar to resolve a fee dispute.

Background and rules framework

The opinion interprets former Rule 2-101 (then governing solicitation and advertising) and former Rule 3-102 (sharing legal fees with, and compensating, nonlawyers) of the California Rules of Professional Conduct, together with the State Bar's fee-arbitration authority under Business and Professions Code section 6200. Restrictions on sharing fees with nonlawyers and on referral compensation are now addressed by Model Rules 5.4 and 7.2 and their California counterparts.

Citations and references

Rules of Professional Conduct:

• Former California Rule 2-101 (solicitation of professional employment)
• Former California Rule 3-102 (sharing fees with, and compensating, nonlawyers)

Statutes:

• Business and Professions Code section 6200 (State Bar fee-arbitration program; subdivision (b) on protecting the client)

Other opinions cited:

• State Bar Committee on Professional Responsibility and Conduct Opinion No. 1977-44 (earlier service-exchange opinion)

See also

• CA Ethics Op. 1977-44: Barter Service Exchange and Fee Splitting
• CA Ethics Op. 1981-56: No Mandatory Binding Fee Arbitration as a Condition of Employment

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original opinion: https://www.calbar.org/ethics/Opinions/1981-60.htm

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 1981-60

ISSUE:

What are the ethical considerations involved in an attorney's participation in a service exchange in which a percentage of the legal fees earned are paid to the exchange?

DIGEST:

It is improper for an attorney to participate in a service exchange in which a percentage of the legal fees earned are paid to the exchange.

AUTHORITIES INTERPRETED:

Rules 2-101 and 3-102 of the Rules of Professional Conduct of the State Bar.

DISCUSSION

In 1977 we were asked if there was an ethical bar to an attorney becoming a member of a service exchange. We said there was because the arrangement was a form of solicitation of professional employment contrary to rule 2-101 of the Rules of Professional Conduct and because the payment of a percentage of the fees to the exchange was a form of fee splitting contrary to rule 3-102 of the Rules of Professional Conduct. (opn. No. 1977-44 of the State Bar's Committee on Prof. Responsibility and Conduct.)

After we issued our opinion, rule 2-101 of the Rules of Professional Conduct was changed and we have now been asked to consider another exchange agreement. Under the terms of this agreement, an attorney, after payment of a membership fee, half in trade and half in cash, would provide services for other members of the exchange, charging his or her customary fee. The amount of that fee would then be entered on the books of the exchange as a credit. The attorney could use that credit to obtain goods or services from other members of the exchange after paying a cash fee of eight percent of the amount of the purchase to the exchange. Should there be any disputes between members, they would be placed before an arbitration board consisting of five members whose decision is binding.

Rule 2-101 of the Rules of Professional Conduct now permits solicitation of professional employment in accordance with the standards set forth by the rule. We are not given enough facts to reach an opinion on this specific inquiry, but it appears the member would simply be listed as a member of the exchange practicing law. A simple listing is clearly within the parameters of rule 2-101. Hence this rule is no longer a bar to participation in a service exchange.

Among its provisions, rule 3-102 of the Rules of Professional Conduct prohibits (1) the direct or indirect sharing of fees with a person not licensed to practice law and (2) compensating a person not licensed to practice law for securing professional employment. The requirement here that the attorney pay a cash fee equivalent to eight percent of the amount of fees credited to his or her account comes under both prohibitions. By listing the attorney as a member to other members, the exchange secures employment in which it will eventually benefit by obtaining cash equivalent to eight percent of the legal fee. The attorney is splitting his or her fee. The terms of the agreement provide a monetary incentive for the exchange to refer business not because of the attorney's competence, but simply because the exchange benefits financially. This is the precise vice the rule is intended to avoid.

We are also troubled by that part of the agreement which requires arbitration by five other exchange members when disputes arise. Under the authority of Business and Professions Code section 6200, the State Bar has adopted rules for arbitration of fee disputes between attorneys and their clients. Subdivision (b) of section 6200 of the Business and Professions Code makes it clear that the purpose of such arbitration is to protect the client. Were an attorney a member of an exchange, the arbitration clause purports to be a waiver of the procedure established by the State Bar by all members of the exchange who used their credits to employ the attorney. There would be a serious question of the propriety of an attorney using the exchange clause in the defense of a fee dispute which a client wished to have resolved by the State Bar

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.