Can a lawyer agree to use a referral source's affiliated title insurer in exchange for continued client referrals?
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This page answers the general question as of 2010. Ezel answers yours: whether it's allowed on your facts, under the current Illinois Rules of Professional Conduct, with citations.
Plain-English summary
The opinion addresses a lawyer who had received referrals from a real estate company for over thirty years. The company formed an affiliated title company and told the lawyer that, to keep receiving referrals, the lawyer must agree to use the affiliated title insurer exclusively for referred clients. The lawyer declined and the referrals stopped. The question is whether agreeing would violate the 2010 Illinois Rules.
The opinion concludes the arrangement would be improper in three respects. First, under Rule 2.1 a lawyer must exercise independent professional judgment, and under Rule 5.4(c) a lawyer may not permit a person who recommends or pays the lawyer to direct the lawyer's professional judgment; the exclusive, mandatory commitment would inevitably impair the lawyer's ability to give independent judgment on title insurance issues. Second, Rule 7.2(b) forbids giving anything of value for recommending the lawyer's services, and the lawyer's commitment to use the affiliated title company is something of value given in exchange for referrals; while Rule 7.2(b)(4) permits reciprocal referral arrangements with nonlawyer professionals, such arrangements may not be exclusive and the client must be informed of the agreement.
Third, the opinion concludes a conflict of interest arises under Rule 1.7(a)(2), because the lawyer's substantial personal interest in continued referrals creates a significant risk of materially limiting the representation. Although Rule 1.7(b) can permit a representation with informed consent, the opinion concludes it is unlikely an independent lawyer would find no material limitation, given the lawyer's strong interest in future referrals and the improbability that the affiliated title company would always be the right insurer for every referred client. The opinion adds that other Illinois and federal real-estate law may also apply, but that is beyond the Committee's function.
In practice
Under the Illinois Rules, the opinion holds that a lawyer may not enter an exclusive, mandatory referral arrangement that ties the lawyer's choice of a title insurer to a referral source. The opinion permits non-exclusive reciprocal referral arrangements with nonlawyer professionals only where they are not exclusive and the client is told of the agreement, and it treats the conflict here as one the lawyer is unlikely to be able to resolve through consent.
Common questions
Q: Can a lawyer agree to use a referral source's affiliated company to keep getting referrals?
A: No, where the agreement is exclusive and mandatory. The opinion concludes it impairs the lawyer's independent judgment under Rules 2.1 and 5.4(c) and gives value for referrals in violation of Rule 7.2(b).
Q: Are reciprocal referral arrangements with nonlawyers ever allowed?
A: Yes, within limits. The opinion notes Rule 7.2(b)(4) permits reciprocal referral arrangements with nonlawyer professionals only if they are not exclusive and the client is informed of the existence and nature of the agreement.
Q: Why is this also a conflict of interest?
A: The opinion concludes the lawyer's substantial personal interest in continued referrals creates a significant risk of materially limiting the representation under Rule 1.7(a)(2), and that the conflict is unlikely to be curable by consent.
Q: Does any other law apply to these arrangements?
A: The opinion notes that other Illinois and federal statutes and regulations governing real estate transactions may apply, but states their effect is beyond the Committee's function.
Background and rules framework
The opinion interprets Illinois Rule 2.1 (independent professional judgment and candid advice), Rule 5.4(c) (a third party who pays or recommends the lawyer may not direct the lawyer's professional judgment), Rule 7.2(b) (no value for referrals; conditions on reciprocal referral arrangements under Rule 7.2(b)(4)), and Rule 1.7 (concurrent conflicts of interest), including the informed-consent definition in Rule 1.0(e).
Citations and references
Rules of Professional Conduct:
- MR 7.2 (referrals; not giving value for recommendations) / IL Rule 7.2(b)
- MR 1.7 (concurrent conflicts of interest) / IL Rule 1.7(a), (b)
- MR 5.4 (professional independence) / IL Rule 5.4(c)
- MR 2.1 (independent professional judgment) / IL Rule 2.1
Other opinions cited:
- ISBA Opinion 96-06 (1996): a lawyer may not let a parent restrict representation of a child
- ISBA Opinion 84-01 (1984): bank referrals
- ISBA Opinion 99-02 (1999): social security referrals
See also
- ABA Formal Op. 474: Referral Fees and Conflicts of Interest
- ISBA Ethics Op. 16-04: Applicability of Fee-Division and Conflict-of-Interest Rules
- ISBA Ethics Op. 11-02: Agreeing Not to Use a Consultant's Legal Ideas
- 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.isba.org/ethics/opinions/1002
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