Can a lawyer-only mediation firm pay a nonlawyer accounting firm a referral fee for sending it mediation clients?

Plain-English summary

A law firm whose attorneys provided both legal and mediation services proposed forming a second corporation, a "Mediation Firm" owned by some or all of the same shareholders, to take mediation referrals from an accounting firm in exchange for a 20% referral fee. The Mediation Firm would have no separate facilities or staff; it would run out of the law firm's office, pay the law firm for use of its space and staff, pay the lawyers it employed, and distribute any remaining money to its shareholders, with the relationships disclosed to the parties.

The Committee concludes the arrangement violates Rule 5.4(a), which bars a lawyer from sharing legal fees with a nonlawyer, and Rule 7.2(b), which bars a lawyer from giving anything of value to a person for recommending the lawyer's services beyond the reasonable cost of permitted advertising. It treats the separately incorporated Mediation Firm "comprised entirely of lawyers" as a sham designed to circumvent those rules: because the firm is all lawyers, paying the accounting firm is still lawyers sharing fees with, and paying for referrals from, a nonlawyer. The Committee draws support from In re Discipio (Illinois Supreme Court finding improper fee-sharing with a disbarred nonlawyer) and its own Opinions 99-02 and 94-08, which rejected referral payments to nonlawyers.

The Committee expressly declines to decide whether mediation by a lawyer is the practice of law, noting the question remains disputed. It holds the referral arrangement improper regardless, and adds that the result does not change if the mediation is performed from the law firm's facilities, or if the firm's lawyers continue to provide other mediation services through the law firm.

Currency note

This opinion was issued in 2002, before Illinois adopted its current Rules of Professional Conduct effective January 1, 2010. The Illinois Rules cited here use the pre-2010 numbering. Subsequent rule amendments or later opinions may have changed the analysis. Verify against current rules before relying on any specific rule cited here.

In practice

Under the Illinois rules as they stood at the time, the opinion holds that a lawyer-only mediation entity paying a nonlawyer for client referrals violates Rule 5.4(a) and Rule 7.2(b), and that incorporating the referral relationship in a separate company owned by the same lawyers does not change the analysis. The Committee identifies the controlling factor as the substance of the arrangement, lawyers paying a nonlawyer for referrals, rather than the corporate form or the office location. It declined to opine on whether lawyer-provided mediation is itself the practice of law.

Common questions

Q: Can a lawyer pay a nonlawyer a fee for referring clients?

A: No. The opinion applies Rule 7.2(b), which bars giving anything of value for recommending a lawyer's services beyond the cost of permitted advertising, and Rule 5.4(a), which bars sharing legal fees with a nonlawyer.

Q: Does putting the referral arrangement in a separate corporation make it permissible?

A: No. The opinion treats a separately incorporated "mediation firm" made up entirely of lawyers as a sham to circumvent Rules 5.4(a) and 7.2(b); it remains lawyers paying a nonlawyer for referrals.

Q: Did the committee decide whether mediation by a lawyer is practicing law?

A: No. The opinion expressly declines to resolve that disputed question and holds the referral arrangement improper regardless of how it is answered.

Q: Does running the mediation from the law firm's own office change the result?

A: No. The opinion states the physical facilities are not relevant and the arrangement remains improper whether or not it operates from the law firm's space.

Background and rules framework

The opinion interprets Illinois Rule 5.4(a) (a lawyer shall not share legal fees with a nonlawyer, corresponding to Model Rule 5.4) and Rule 7.2(b) (a lawyer shall not give anything of value for recommending the lawyer's services, corresponding to Model Rule 7.2). The analysis turns on the substance of who is paying whom for referrals, not on the corporate structure interposed between them.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Illinois Rule 5.4(a) (sharing legal fees with a nonlawyer)
• Model Rule 7.2 / Illinois Rule 7.2(b) (giving value for recommending the lawyer's services)

Cases:

• In re Discipio, 163 Ill. 2d 515, 645 N.E.2d 906 (1995), improper fee-sharing with a nonlawyer

Other opinions cited:

• ISBA Advisory Opinion 99-02: no referral fee to a nonlawyer SSA representative
• ISBA Advisory Opinion 94-08: no referral fee to a nonlawyer tax representative

See also

• ABA Formal Op. 464: Fee Division With Lawyers Who Share With Nonlawyers
• ABA Formal Op. 474: Referral Fees and Conflicts of Interest

Source

• Landing page: https://www.isba.org/ethics/opinions/0105