Can a Massachusetts lawyer accept a fee from a software vendor for referring clients to the vendor's service?

Plain-English summary

A business lawyer was offered a fee by a cloud-software company for referring clients who subscribe to its tools, set at 10% of the first year's subscription, with additional payments for added services. The opinion concludes the arrangement implicates several fiduciary duties and is permitted only on strict conditions, and that in some cases it must be refused.

The opinion identifies three duties. Under Rule 1.8(b), the lawyer may not use confidential information for the lawyer's or a third person's advantage without consent, and the committee notes the Massachusetts rule is broader than the comparable Model Rule; deciding which clients to refer will often rely on confidential information. Under Rule 1.7(a)(2), accepting a third-party fee creates a personal-interest conflict. And under Rule 1.8(a), the committee follows ethics opinions from several other states treating a referral payment as a three-party business transaction with the client, subject to Rule 1.8(a)'s fair-terms, independent-counsel, and signed-writing requirements. The opinion notes the D.C. Bar's contrary view (Op. 361) that Rule 1.8(a) applies only where the lawyer has an ownership or management role, but concludes the general fiduciary rule against using one's position for third-party benefit still governs.

On consent, the opinion requires full written disclosure of all payments, discussion of alternatives such as a non-paying vendor, and a signed client writing. Applying Rule 1.7(b)(1)'s objective-reasonableness test, the committee finds the percentage fee and continuing payments troubling enough that the lawyer cannot reasonably expect to stay disinterested in any matter adverse to the vendor; so the lawyer must tell the client the lawyer will not represent the client against the vendor. Surveying a split of authority (some states permit the practice with strict compliance, others treat it as per se unethical), the committee declines to bar it in every case but stresses that the rules are exacting and that in some cases informed consent will be impossible to obtain.

In practice

Under this opinion, accepting a non-lawyer referral fee is permitted only if the lawyer satisfies Rule 1.8(a) (written, fair terms; advice to seek independent counsel; client's signed consent), obtains the consent before making the referral, and complies with Rules 1.7 and 1.6. The opinion identifies the size of the percentage fee and the prospect of continuing payments as the features that make the conflict serious.

The opinion holds that, given those features, the lawyer must tell the client the lawyer will not be able to represent the client in negotiations or disputes with the vendor. It also concludes that in some cases the informed-consent requirement will be impossible to satisfy, so the lawyer must decline the fee. The opinion notes it does not address referral fees among lawyers, which Rule 1.5(e) governs.

Common questions

Q: Can a Massachusetts lawyer ever take a referral fee from a non-lawyer vendor?

A: The opinion concludes the lawyer can, but only with the client's informed consent in writing under Rule 1.8(a) and compliance with Rules 1.7 and 1.6. It also concludes that in some cases the consent requirement cannot be met and the lawyer must refuse the payment.

Q: Why does the lawyer's use of confidential information matter here?

A: Per the opinion, choosing which clients to refer will often rely on confidential information, and Rule 1.8(b), which the committee notes is broader than the Model Rule, bars using that information for the lawyer's or a third party's advantage without consent.

Q: Does accepting the fee limit what the lawyer can do for the client?

A: Yes. Applying Rule 1.7(b)(1)'s objective-reasonableness test, the opinion concludes the lawyer cannot reasonably expect to remain disinterested against the vendor and must tell the client the lawyer will not represent the client in matters adverse to the vendor.

Q: Does this opinion cover referral fees between lawyers?

A: No. The opinion states it does not address lawyer-to-lawyer referral fees, which are governed by Mass. R. Prof. C. 1.5(e).

Background and rules framework

The opinion interprets Massachusetts Rules of Professional Conduct 1.8(a) (business transactions with clients), 1.8(b) (use of confidential information), 1.7 (personal-interest conflicts and the objective-reasonableness test in 1.7(b)(1)), and 1.6 (definition of confidential information), together with the informed-consent definition in Rule 1.0(g). The committee also invokes general agency principles, citing the Restatement (Third) of Agency sections 8.02 and 8.06(1).

Citations and references

Rules of Professional Conduct:

• MR 1.8 / Mass. R. Prof. C. 1.8(a) and 1.8(b) (business transactions with and use of information about clients)
• MR 1.7 / Mass. R. Prof. C. 1.7 (personal-interest conflicts; 1.7(b)(1))
• MR 1.6 / Mass. R. Prof. C. 1.6 (confidential information)
• MR 1.0(e) / Mass. R. Prof. C. 1.0(g) (informed consent)

Cases:

• Hendrickson v. Sears, 365 Mass. 83 (1974), the fiduciary nature of the attorney-client relationship

Other opinions cited:

• D.C. Bar Ethics Op. 361: Rule 1.8(a) limited to ownership or management roles
• Ill. State Bar Op. 97-04; Ky. Op. E-390; Mich. Op. RI-317; Utah Op. 99-07: referral payment as a Rule 1.8(a) business transaction
• Maine Op. 184; Ohio Advisory Op. 2009-10: practice treated as per se impermissible

See also

• ABA Ethics Op. 474: referral fees and conflict of interest

Source

• Landing page: https://www.massbar.org/publications/ethics-opinions/ethics-opinion-article/ethics-opinions-2024-opinion-24-4/opinion-24-4