Can a lawyer pay a government referral or schedule program a percentage of legal fees without it being improper fee-sharing with a non-lawyer?
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This page answers the general question as of 2001. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
Opinion 307 (adopted May 2001) addressed whether a law firm could participate in a General Services Administration (GSA) Federal Supply Service (FSS) schedule program for legal services, where participants had to remit a one percent "industrial funding fee" (IFF) on the legal fees earned through the program. The question was whether paying that percentage violated Rule 5.4(a), which bars sharing legal fees with non-lawyers.
The Committee concluded the arrangement was permissible. Under Rule 7.1, Comment [6], a lawyer may participate in lawyer referral programs and pay their usual fees, and Rule 7.1(b)(5) required the lawyer to inform the client of any consideration paid to the intermediary and its effect on the fee. The opinion distinguished its Opinion 286: a non-contingent referral payment is not fee-sharing, while a contingent payment tied to a particular representation's fee can be. But it concluded the IFF, though a percentage of fees, did not raise the concerns Rule 5.4 targets, because FSS was an established, nonprofit, government-run referral-type service, not an individual intermediary positioned to influence the lawyer's professional judgment.
The opinion drew on a long line of authority (ABA Formal Op. 291 (1956), ABA Informal Op. 1076 (1968), and state opinions from Michigan, Pennsylvania, and others, plus Emmons v. State Bar of California) approving percentage-based funding of nonprofit bar-association referral services, and found the same rationale applied to a nonprofit government program serving public objectives such as holding down the cost of legal services to agencies. It noted the one percent fee was reasonable (small compared to percentages approved elsewhere) and that agencies could contract outside the schedule, reducing any risk of inflated fees. The lawyer still had to disclose the IFF and its effect to the government client under Rule 7.1(b)(5). The opinion distinguished Opinion 302, where the client (not the lawyer) paid the system fee.
Currency note
The D.C. Bar flags this opinion with the note: "See how Opinion 307 has been substantively affected by the amendments to the D.C. Rules of Professional Conduct that became effective on February 1, 2007." The Rule 7.1 referral provisions on which this opinion relied (including former Rule 7.1(b)(5)) were revised in that amendment, which postdates this 2001 opinion. Treat this page as historical context, not current guidance, and verify against the current D.C. Rules of Professional Conduct before relying on any specific rule or arrangement described here. (For the post-2007 treatment of paid referral arrangements, see D.C. Opinion 342.)
Common questions
Q: Could a lawyer pay a percentage of fees to a government referral or schedule program?
A: The opinion concluded yes. Paying the one percent industrial funding fee to the GSA program did not violate Rule 5.4(a), because the program was an established nonprofit referral-type service that did not threaten the lawyer's independent judgment.
Q: Why was a percentage-of-fees payment not improper fee-sharing here?
A: The opinion concluded the concern behind Rule 5.4 is protecting the lawyer's independent professional judgment from a non-lawyer intermediary's influence, which an established nonprofit, government-run program does not present, so the percentage funding fee was acceptable.
Q: Did the lawyer have to tell the client about the fee?
A: The opinion concluded yes. Under Rule 7.1(b)(5), the lawyer had to inform the government client of the one percent fee paid and its effect, if any, on the total legal fee.
Q: How was this different from a client paying the fee directly?
A: The opinion concluded that where the lawyer remits a fee based on a percentage of fees earned, Rules 5.4 and 7.1 apply; that differs from Opinion 302, where the client directly paid a fee to use a bidding system and the lawyer was merely remitting it.
Background and rules framework
The opinion interpreted D.C. Rule 5.4 (professional independence; the bar on sharing fees with non-lawyers, whose purpose Comment [1] ties to protecting the lawyer's independent judgment) and Rule 7.1 (communications about a lawyer's services; Comment [6] on participating in referral programs and Rule 7.1(b)(5) on disclosing intermediary payments). It built on prior D.C. Opinions 286 and 302 and a body of ABA and state opinions on referral-service funding. As the Currency note records, the Rule 7.1 referral provisions were revised effective February 1, 2007.
Citations and references
Rules of Professional Conduct:
- D.C. RPC 5.4(a) / Model Rule 5.4 (sharing fees with non-lawyers)
- D.C. RPC 7.1 and former 7.1(b)(5) / Model Rule 7.1 (communications; intermediary payments; revised effective Feb. 1, 2007)
Statutes:
- 48 C.F.R. 552.238-77 (GSA industrial funding fee)
Cases:
- Emmons v. State Bar of California, 6 Cal. App. 3d 565 (1970) (referral-service funding distinguished from improper fee-splitting)
Other opinions cited:
- D.C. Ethics Opinions 286, 302
- ABA Formal Op. 291 (1956); ABA Informal Op. 1076 (1968)
- Michigan Op. RI-75 (1991); Pennsylvania Op. 93-162 (1993); California Op. 1983-70 (1983)
See also
- DC Ethics Op. 329: Nonprofit Referral Fee Costs
- DC Ethics Op. 342: Paid Internet Lawyer Referral Services
- AL Ethics Op. 1995-08: LRS Percentage-Fee Programs
Source
- Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-307
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