Can a Colorado lawyer pay or accept referral fees, pay a lawyer referral service, or join a networking group that sends the lawyer clients?

Plain-English summary

Opinion 106 (adopted June 19, 1999; revised October 21, 2013) helps a lawyer determine the permitted scope of participation in referral services, legal service organizations, and cooperative marketing arrangements with other firms. The starting point is that Rule 1.5(e) prohibits referral fees, so a Colorado lawyer may neither pay nor accept one, and Rule 7.2(b) bars a lawyer from giving anything of value for recommending the lawyer's services. The opinion identifies the rule's exceptions: paying the reasonable cost of permitted advertising and communications; paying the usual charges of a not-for-profit lawyer referral service or legal service organization; paying for a law practice under Rule 1.17; and non-exclusive reciprocal referral agreements where the client is informed of the existence and nature of the agreement (Rule 7.2(b)(4)).

Because the rules do not define "lawyer referral service," the opinion warns that an advertising arrangement may in fact be a referral service; for example, a company offering a lawyer all personal-injury referrals in an area for a monthly fee may be charging an impermissible referral fee rather than a publication cost, so the lawyer must scrutinize such arrangements. A lawyer may not give anything of value to a for-profit referral service, but the opinion concludes (following ABA Informal Op. 85-1510) that a lawyer may participate in a for-profit service that requires no payment from the lawyer, so long as participation does not otherwise violate the rules. For not-for-profit services, the opinion concludes a lawyer may participate in a duly organized not-for-profit private service or a bar-sponsored one, provided it does not require the lawyer to accept referred clients, is not compensated based on the fees a referred client pays, does not interfere with the lawyer's independent professional judgment, and otherwise allows compliance with the rules; the lawyer should make reasonable inquiry to confirm a purportedly non-profit service is legitimate.

The opinion also addresses cooperative arrangements among firms and the overlay of other rules. Reciprocal referral agreements are permissible if non-exclusive and disclosed; firms may not contract to refer business to one another (a binding promise would itself be a thing of value for referrals under ABA Formal Op. 94-388), but may agree to consider each other and engage in cooperative marketing. Fee division is constrained by Rule 5.4(a) (no division with nonlawyers) and Rule 1.5(d) (division between lawyers in different firms), and the Committee views a percentage-fee payment to a non-bar-sponsored referral service as problematic. Throughout, the lawyer must protect confidentiality at intake (Rule 1.6), watch for conflicts arising from a relationship with a referral source from which the lawyer expects future business (Rule 1.7(b)), ensure the fee charged is reasonable and that competent representation is possible within any fee limits (Rules 1.5(a), 1.1, 1.2(c)), and ensure the service does not make false or misleading communications about the lawyer (Rule 7.1).

In practice

Under the Colorado rules as they stood at the time of the 2013 revision, the analysis turns on whether the lawyer is giving something of value for a recommendation. The opinion holds that paying or accepting a referral fee is prohibited, that paying the usual charges of a legitimate not-for-profit referral service or a legal service organization is permitted, that a lawyer may join a for-profit service only if it charges the lawyer nothing, and that reciprocal referral arrangements must be non-exclusive and disclosed to the client. It overlays the duties of fee division (Rules 5.4(a), 1.5(d)), confidentiality (1.6), conflicts (1.7(b)), competence and reasonable fees (1.1, 1.5(a)), and truthful advertising (7.1). Because the advertising and referral rules (Rule 7.2 in particular) have continued to evolve since 2013, confirm the current rule text before relying on the specifics.

Common questions

Q: Can I pay another lawyer or a nonlawyer for sending me clients?

A: No. The opinion concludes that Rule 1.5(e) prohibits referral fees and Rule 7.2(b) bars giving anything of value for recommending the lawyer's services, so a lawyer may neither pay nor accept a referral fee, including from a bank that offers a cut of commissions.

Q: Can I pay a lawyer referral service?

A: You may pay the usual charges of a not-for-profit lawyer referral service or legal service organization. The opinion adds that you must make reasonable inquiry to confirm a purportedly not-for-profit service is legitimate, and may join a for-profit service only if it requires no payment from you.

Q: Can my firm and another firm agree to refer business to each other?

A: Not by binding contract. The opinion concludes that contracting to refer business would itself be giving something of value for referrals, but firms may use non-exclusive reciprocal referral agreements with client disclosure (Rule 7.2(b)(4)), may agree to consider each other, and may market cooperatively.

Q: What else do I have to watch when I take referrals?

A: The opinion points to confidentiality at intake (Rule 1.6), conflicts from a referral source you expect future business from (Rule 1.7(b)), the bar on fee division with nonlawyers (Rule 5.4(a)) and the limits on division between firms (Rule 1.5(d)), reasonable fees and competent representation (Rules 1.5(a), 1.1), and truthful advertising (Rule 7.1).

Background and rules framework

The opinion interprets Colo. RPC 1.5(e) (prohibiting referral fees) and Colo. RPC 7.2(b) (no value for recommendations, with its enumerated exceptions including the not-for-profit referral service and reciprocal-referral provisions), together with Colo. RPC 5.4(a) (no fee division with nonlawyers), 1.5(d) (division between lawyers in different firms), 1.5(a) and 1.1 (reasonable fees and competence), 1.6 (confidentiality), 1.7(b) (conflicts from third-party relationships), and 7.1 (truthful communications). It relies on ABA Formal Op. 94-388 (relationships among firms) and several ABA informal opinions on referral services and prepaid plans.

Citations and references

Rules of Professional Conduct:

• Colo. RPC 1.5(e) / Model Rule 1.5 (referral fees prohibited)
• Colo. RPC 7.2(b) / Model Rule 7.2 (no value for recommendations; exceptions)
• Colo. RPC 5.4(a) / Model Rule 5.4 (no fee division with nonlawyers)
• Colo. RPC 1.5(d), 1.5(a) / Model Rule 1.5 (division between firms; reasonable fee)
• Colo. RPC 1.7(b) / Model Rule 1.7 (conflicts); Colo. RPC 1.6 / Model Rule 1.6 (confidentiality)
• Colo. RPC 7.1 / Model Rule 7.1 (truthful communications); Colo. RPC 1.1 / Model Rule 1.1 (competence)

Cases:

• People v. Zimmermann, 938 P.2d 131 (Colo. 1997), discipline for paying an unapproved for-profit referral service
• People v. Carpenter, 893 P.2d 777 (Colo. 1995), operating an unapproved for-profit referral service violated the rules

Other opinions cited:

• ABA Formal Op. 94-388 (1994): relationships and networks among law firms
• ABA Informal Ops. 85-1510 and 85-1512 (1985): participation in for-profit and not-for-profit referral services

See also

• CBA Formal Op. 122: Internet Lawyer Marketing
• ABA Formal Op. 94-388: Relationships Among Law Firms
• ABA Formal Op. 474: Referral Fees and Conflicts
• RI EAP Op. 2007-11: Lawyer May Refer Clients to Nonlawyer Professionals Who Are Clients of the Lawyer's Marketing Company

Source

• Landing page: https://www.cobar.org/ethicsopinions
• Original PDF: https://www.cobar.org/Portals/COBAR/repository/ethicsOpinions/FormalEthicsOpinion_106_2011.pdf