Can a D.C. lawyer accept and keep a referral fee from a nonlawyer service provider, such as a financial services firm, for sending the client there?

Plain-English summary

Opinion 361 (published November 2011) addresses whether a lawyer who refers a client to a nonlawyer service provider may accept compensation from the provider for that referral. The specific scenario was a lawyer referring a client to a financial services firm in exchange for a referral fee, where the arrangement would be disclosed to the client in writing and is permissible under federal securities law. The opinion concludes the D.C. Rules permit such arrangements if certain criteria are satisfied, but cautions the prerequisites are exacting and the arrangement may fall outside the lawyer's professional malpractice insurance.

The opinion concludes the analysis is governed by Rule 1.7 and Rule 1.8 (conflicts) and Rule 5.7 (law-related services). It revisits the Committee's 1993 Opinion 245, which had concluded that a lawyer may not retain a referral fee or commission from a third party and that any such payment must be disclosed to the client, consented to, and turned over to the client (directly or as a credit against the legal bill). The opinion concludes that most of Opinion 245's precepts, on disclosure, consent, and protecting the lawyer's independent judgment, still apply, but that an intervening 1995 rule revision (a new Comment [36] to Rule 1.7) makes reconsideration appropriate.

Under the current rules, the opinion concludes the fee need not be turned over to the client if four conditions are met: (1) the client gives informed consent under Rule 1.7(c)(1) and Rule 1.0(e), after full disclosure of the conflict and its possible adverse consequences, to the lawyer's retention of the fee; (2) notwithstanding the lawyer's personal-interest conflict under Rule 1.7(b)(4), the lawyer reasonably believes she can provide competent and diligent representation, as Rule 1.7(c)(2) requires; (3) the requirements of Rule 1.8(a), governing business transactions between lawyer and client, are satisfied; and (4) if Rule 5.7 (law-related services) applies, its requirements are satisfied. To that extent, the opinion overrules Opinion 245.

In practice

Under the D.C. rules as they stood at the time of the opinion, a lawyer who refers a client to a nonlawyer service provider may accept and retain a referral fee, but only if the conditions the opinion identifies are satisfied. The opinion concludes those conditions are the client's informed consent after full disclosure (Rule 1.7(c)(1)), the lawyer's reasonable belief that she can still provide competent and diligent representation despite the personal conflict under Rule 1.7(b)(4) (Rule 1.7(c)(2)), compliance with Rule 1.8(a) on business transactions with a client, and compliance with Rule 5.7 where law-related services are involved.

The opinion concludes this changes the 1993 position in Opinion 245, which had required the fee to be turned over to the client; it overrules that part of Opinion 245 while retaining its emphasis on disclosure, consent, and independent judgment. The opinion also notes the criteria are exacting and that even a permitted arrangement may fall outside the lawyer's malpractice coverage. Because the opinion predates later rule developments, verify the current D.C. rules before relying on specific requirements.

Common questions

Q: Can a D.C. lawyer keep a referral fee from a nonlawyer provider?

A: The opinion concludes yes, if the criteria of Rule 1.7(c) and, where applicable, Rules 1.8(a) and 5.7 are met. This changes the prior rule in Opinion 245, which required turning the fee over to the client.

Q: What conditions must be satisfied to keep the fee?

A: The opinion concludes the client must give informed consent after full disclosure (Rule 1.7(c)(1)), the lawyer must reasonably believe she can provide competent and diligent representation despite the personal conflict (Rule 1.7(c)(2)), and the requirements of Rule 1.8(a), and Rule 5.7 if applicable, must be met.

Q: Does this overrule Opinion 245?

A: The opinion concludes it overrules Opinion 245 in part: the lawyer no longer must turn the fee over to the client, although Opinion 245's requirements of disclosure, consent, and protecting the lawyer's independent judgment continue to apply.

Q: Are there practical limits even when the arrangement is permitted?

A: The opinion concludes the prerequisites are exacting and cautions that, even when permitted by the Rules, the arrangement may fall outside the coverage of the lawyer's professional malpractice insurance.

Background and rules framework

The opinion interprets D.C. Rule 1.7, in particular the personal-interest conflict in Rule 1.7(b)(4) and the waiver conditions in Rule 1.7(c) (read with the informed-consent definition in Rule 1.0(e)), together with Rule 1.8(a) governing business transactions between a lawyer and client, and Rule 5.7 on law-related services. It relies on a 1995 revision adding Comment [36] to Rule 1.7 as the basis for reconsidering Opinion 245 (1993).

Citations and references

Rules of Professional Conduct:

• D.C. RPC 1.7(b)(4), 1.7(c) / Model Rule 1.7 (personal-interest conflicts; informed consent)
• D.C. RPC 1.8(a) / Model Rule 1.8 (business transactions with a client)
• D.C. RPC 5.7 / Model Rule 5.7 (law-related services)
• D.C. RPC 1.0(e) / Model Rule 1.0 (definition of informed consent)

Other opinions cited:

• D.C. Bar Legal Ethics Op. 245 (1993): overruled in part by this opinion

See also

• ABA Formal Op. 474: Referral Fees and Conflicts
• NY State Bar Op. 1086: Investment Referral Fees
• DC Ethics Op. 369: Fee Sharing With a Referral Service
• NY State Bar Op. 1237: Lawyer-Owned Brokerage Conflict

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-361