Can a lawyer accept a referral fee from a non-lawyer for sending the client to that person's services or products?

Plain-English summary

The opinion addresses whether an attorney may accept a fee from a non-lawyer third party for recommending that third party's services or products to the client. It notes that referral fees are offered by investment advisors, realtors, insurance agents, medical service providers, and others whose services a client may need, as flat fees or as a percentage of amounts charged, and that the opinion applies to all such transactions. It expressly does not apply to a division of fees between attorneys, which HRPC 1.5(e) addresses.

The opinion explains that making referrals to third parties when a need arises is part of an attorney's duties and practice of law, and must be made in the client's interests, free of conflict. When an attorney receives a fee from a third party for referring a client, the representation may be materially limited by the attorney's financial interest, impairing the exercise of independent professional judgment under HRPC 2.1; the attorney might refer the client to a provider whose goods or services do not serve the client's interests, and the duty of loyalty may be compromised by the relationship with the provider. The opinion frames this as a concurrent conflict of interest under HRPC 1.7(a).

The opinion concludes that the ethical problem cannot be mitigated by disclosure: even if the attorney informed the client of the relationship, the attorney could not reasonably believe, under HRPC 1.7(b)(1), that competent and diligent representation could be provided, and no meaningful consent could be obtained given the attorney's personal pecuniary interest. Accordingly, an attorney acting as an attorney for a client is prohibited from accepting a fee for referring the client to a third-party provider of non-legal services or products.

In practice

Under this opinion, a Hawaii lawyer cannot take a kickback or referral fee from a non-lawyer provider, such as a financial advisor or medical provider, in exchange for steering a client to that provider. The opinion holds that this is a conflict under HRPC 1.7(a) driven by the lawyer's personal financial interest, and, unlike many conflicts, it is non-consentable: HRPC 1.7(b)(1) cannot be satisfied because the lawyer cannot reasonably believe the representation will remain competent and diligent. The opinion is careful to exclude lawyer-to-lawyer fee divisions, which are governed separately by HRPC 1.5(e).

Common questions

Q: Can a lawyer accept a referral fee from a financial advisor or realtor for sending a client?

A: The opinion concludes no; an attorney acting for a client is prohibited from accepting a fee from a non-lawyer third party for referring the client to that party's non-legal services or products.

Q: Can the lawyer fix this by disclosing the arrangement to the client?

A: No. The opinion concludes the conflict cannot be cured by disclosure, because under HRPC 1.7(b)(1) the lawyer cannot reasonably believe the representation will be competent and diligent, and no meaningful consent is possible given the lawyer's pecuniary interest.

Q: Does this cover fee splitting between two lawyers?

A: No. The opinion states it does not apply to a division of attorney's fees between attorneys, which HRPC 1.5(e) addresses.

Background and rules framework

The opinion interprets HRPC 1.7(a) (concurrent conflict of interest, including a significant risk that representation is materially limited by the lawyer's personal interest), HRPC 1.7(b)(1) (non-consentable conflicts where the lawyer cannot reasonably believe competent and diligent representation is possible), and HRPC 2.1 (independent professional judgment and candid advice). These correspond to Model Rules 1.7 and 2.1. The opinion distinguishes HRPC 1.5(e) (division of fees between lawyers).

Citations and references

Rules of Professional Conduct (Hawaii; cf. Model Rules):

• HRPC 1.7(a), 1.7(b)(1) (concurrent and non-consentable conflicts) (cf. Model Rule 1.7)
• HRPC 2.1 (independent professional judgment) (cf. Model Rule 2.1)
• HRPC 1.5(e) (lawyer-to-lawyer fee division; expressly outside this opinion)

See also

• ABA Formal Op. 474: Referral Fees and Conflicts of Interest
• Alaska Ethics Op. 74-2: Propriety of Referral Fees
• Alaska Ethics Op. 76-9: Investigator on a Contingent Fee

Source

• Landing page: https://dbhawaii.org/legal-ethics-advice-for-hawaii-lawyers/
• Original PDF: https://dbhawaii.org/wp-content/uploads/FO4603-19-15.pdf

Original opinion text

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

Disciplinary Board of the Hawai#i Supreme Court 201 Merchant Street, Suite 1600 Honolulu, Hawai#i 96813 Telephone (808) 599-1909 www.odchawaii.com

James L. Branham, Esq.
Gary M . Farkas, Ph.D., M BA
Diane D. Hastert, Esq.
Philip D. Hellreich, M .D.
Shelton G.W. Jim On, Esq.
Harrilynn K. Kame#enui, Esq.
Hon. Evelyn B. Lance (Ret.)
Philip H. Lowenthal, Esq.
Jeffrey P. M iller, Esq.
Carolene N. Kawano Neely, M .S.W., M .Ed. Jeffrey S. Portnoy, Esq. Irwin J. Schatz, M .D. Judith A. Schevtchuk, Esq. Asst. Chief Eugene Uemura, (Ret.), M A.Ed.

Chairperson

Hon. Clifford L. Nakea (Ret.)
Vice Chairperson

Hon. Leslie A. Hayashi
Secretary

Nathan J. Sult, Esq.
Treasurer

Joy M . M iyasaki, Esq.
Filing Clerk

Faye F. Hee
Board Counsel

Bradley R. Tamm, Esq.

FORMAL OPINION NO. 46
REFERRAL FEES
This Opinion concerns whether an attorney may accept a fee from a third-party who is not an attorney for recommending the third party's services or product to the client. Third party professionals offer referral fees in a variety of circumstances. For example, referral fees are sometimes offered by investment advisors, realtors, insurance agents, medical service providers, or others whose services are needed by the attorney’s client. Referral fees could be offered as flat fees or as a percentage of amounts charged to the client. Irrespective of the status of the third-party to whom the client is referred, or the manner in which the referral fee is proposed, this Opinion applies to all transactions in which an attorney might be offered or be tempted to demand compensation for referring a client to a third party who is not an attorney and provides a product or service to the client. (This opinion does not apply to a division of attorney's fees between attorneys which is addressed in HRPC 1.5(e).) HRPC Rule 1.7(a) states: (a)

Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1)

the representation of one client will be directly adverse to another client; or

The Disciplinary Board’s mission is to maintain the integrity of the legal profession and protect the public from professional misconduct by attorneys.

(2)

there is a significant risk that the
representation of one or more clients
will be materially limited by the
lawyer's responsibilities to another
client, a former client, or a third
person, or by a personal interest of the lawyer.

HRPC 2.1 states, in part:
In representing a client, a lawyer shall exercise independent professional judgment and render candid advice * * * It is part of an attorney's duties to a client to make referrals to third-parties if such a need becomes apparent during the attorney's representation. These referrals are part of the attorney's practice of law and should be made in the client's interests, free of conflict. When an attorney receives a fee from a third-party for referring a client, the attorney's representation may be limited by the attorney's financial interest and may impair the attorney's exercise of independent professional judgment. As an example, the attorney may make a referral to a third-party when the services or goods provided by the third-party do not serve the client's interests. Additionally, if the client receives deficient or inappropriate products or services as the result of the referral, the attorney's duty of loyalty owed to the client may be conflicted by the relationship with the third party provider of those goods and services. The ethical problems inherent in the arrangements addressed by this Opinion cannot be mitigated by disclosure. Indeed, even if the attorney informed the client of the relationship with the third party, the attorney could not “reasonably believe[ ] . . . the lawyer will be able to provide competent and diligent representation to [the] affected client.” HRPC 1.7(b)(1). Even with full disclosure, no meaningful consent could be obtained, given the attorney’s personal pecuniary interest. Accordingly, an attorney [acting as an attorney for a client] is prohibited from accepting a fee for referring the client to a third-party provider of non-legal services or products.

DATED:

Honolulu, Hawai#i, June 26, 2003
Carroll S. Taylor
Chairperson, Disciplinary Board

UPDATED:

Honolulu, Hawai#i, March 19, 2015
________
Hon. Clifford L. Nakea (Ret.)
Chairperson, Disciplinary Board

FORMAL OPINION No. 46, Page 2.