Can a law firm honor a non-lawyer referral service's contingency-fee contracts and pay the service a percentage of the client's recovery?

Plain-English summary

The Committee addressed a law firm approached by a non-lawyer client referral service to take on people claiming industry-related injuries. Those people had already signed contingency-fee contracts with the referral service, which would receive a percentage of any recovery from the firm's representation. The firm asked whether honoring the referral contracts when litigation proceeds were disbursed would violate the rules.

The opinion concludes the arrangement is prohibited. It describes the referral service as effectively a corporation organized to locate potential plaintiffs, sign them to contingency-fee contracts, and refer the contracts to law firms. It applies Rule 5.4(a), which bars a lawyer or firm from sharing legal fees with a non-lawyer except in narrow circumstances, and Rule 5.4(b), which bars forming a partnership with a non-lawyer for activities that include the practice of law; the opinion states that steady referral of clients to the firm would be tantamount to a business partnership. It applies Rule 5.5, which bars assisting a non-member of the bar in the unauthorized practice of law, and Rule 7.2(i), which bars giving anything of value for recommending the lawyer's services.

The opinion distinguishes Opinion No. 91, where the client retained the attorney first and only later agreed to a contingent-fee medical consultant; here the client signed a contingency-fee contract with the consultant or referral service before employing legal counsel. The opinion concludes that disbursing recovered funds pursuant to the referral service's contingency-fee contract would violate the Mississippi Rules of Professional Conduct.

In practice

Under this opinion, a firm that takes referrals from a non-lawyer service which has itself signed the clients to contingency-fee contracts may not pay that service a share of the recovery. The opinion treats the steady referral relationship as tantamount to a non-lawyer partnership and the payment as fee-sharing and paying for referrals, prohibited by Rules 5.4, 5.5, and 7.2(i). The opinion contrasts this with the situation in Opinion No. 91, where the client retained the lawyer first and then separately engaged a contingent-fee consultant.

Common questions

Q: Can a firm pay a non-lawyer referral service out of the client's recovery?

A: The opinion concludes no; sharing legal fees with a non-lawyer violates Rule 5.4(a), and a steady referral arrangement is tantamount to a prohibited non-lawyer partnership under Rule 5.4(b).

Q: Does it matter that the referral service used a contingency-fee contract signed before the lawyer was hired?

A: Yes. The opinion distinguishes Opinion No. 91 on exactly that point: there the client hired the lawyer first, while here the client contracted with the referral service before retaining counsel, which the opinion treats as the prohibited arrangement.

Q: Is paying the referral service a permitted advertising cost?

A: No. The opinion applies Rule 7.2(i), which bars giving anything of value for recommending the lawyer's services, so the payment to the referral service is not a permitted cost.

Background and rules framework

The opinion applies Mississippi Rules of Professional Conduct 5.4 (professional independence; no fee-sharing or partnership with non-lawyers), 5.5 (unauthorized practice of law), and 7.2 (advertising; the bar on paying for recommendations), which correspond to the same-numbered Model Rules.

Citations and references

Rules of Professional Conduct (Mississippi; cf. Model Rules):

• MRPC 5.4 (sharing fees and partnership with non-lawyers) (cf. Model Rule 5.4)
• MRPC 5.5 (assisting the unauthorized practice of law) (cf. Model Rule 5.5)
• MRPC 7.2(i) (no giving value for recommending services) (cf. Model Rule 7.2)

Other opinions cited:

• Mississippi Ethics Opinion No. 91 (March 23, 1984): contingent-fee consultant retained after the client hired counsel.

See also

• MS Bar Ethics Op. 212: Living-Trust Mills and UPL

Source

• Landing page: https://www.msbar.org/ethics-discipline/ethics-opinions/formal-opinions/209/
• Original PDF: https://www.msbar.org/media/1061/et_op_209-amended.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ETHICS OPINION NO. 209

OF THE MISSISSIPPI BAR

RENDERED May 28, 1993

AMENDED April 06, 2013

FEES - INDEPENDENCE OF LAWYER - UNAUTHORIZED PRACTICE OF LAW - SOLICITATION - A law firm may not share legal fees with a non-lawyer client referral service which has previously entered into a contingency fee contract with the client regarding a potential claim.

The Ethics Committee of The Mississippi Bar has been requested to render an opinion on the following facts:

A law firm has been approached by a non-lawyer client referral service to take on the legal representation of persons claiming industry related injuries. These persons have previously entered into contingency fee contracts with the referral service. The referral service would receive a percentage of any monetary recovery resulting from the law firm's representation of the client. The law firm inquires as to whether it would violate any rules of The Mississippi Bar by honoring these referral contracts when the proceeds of litigation are dispersed.

At first glance, the above client referral service appears to be no more than a thinly veiled corporation organized for the purpose of locating potential plaintiffs in the lucrative area of industry related personal injury. Potential clients are then signed to contingency fee contracts, and the contracts referred to law firms for prosecution. This type of activity is strictly prohibited by the Mississippi Rules of Professional Conduct.

The above factual situation is clearly covered in MRPC Rule 5.4 and 5.5. Rule 5.4, provides that: "(a) A lawyer or law firm shall not share legal fees with a non-lawyer except ( 1 ) an agreement by a lawyer with the lawyer's firm, partner or associate may provide for the payment of money, over a reasonable period of time after lawyer's death, through the lawyer's estate or to one or more specified persons; (2) a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer; and (3) a lawyer or law firm may include non-lawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement, and (b) A lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law." The Committee is of the opinion that steady referral of potential clients to the law firm would be tantamount to a business partnership. MRPC Rule 5.5 states that: "a lawyer shall not: (b) assist a person who is not a member of the bar in performance of activity that constitutes the unauthorized practice of law."

In a day and time when limited forms of advertising are available to attorneys, MRPC 7.2(i) remains intact. It provides that: "a lawyer shall not give anything of value to a person for recommending the lawyer's services. . . ."

Notwithstanding that the referral service has formed a corporation to give the appearance of providing professional services, the type services sought to be rendered are legal services which can only be provided by bona fide members of the bar. The end result is that a lawyer must eventually be obtained or associated in order to pursue the client's claim.

This committee has previously addressed the question of utilizing the services of consultants who are paid on a contingency fee basis in Opinion No. 91 of The Mississippi Bar rendered March 23, 1984. The factual situation presently before the committee differs from the factual situation set forth in Opinion No. 91. In Opinion No. 91, the client contacted the attorney first and entered into a contingency fee contract for the attorney's services. After representation was undertaken, the client agreed to retain a medical consultant to assist in the prosecution of the client's case. Due to the client's lack of funds, the medical consultant was likewise to be paid a contingent fee out of the client's funds received through settlement or judgment. In the factual situation before the committee at this time, the client entered into a contingency fee with the consultant and/or referral service prior to employing legal counsel. The distinctions between the two factual situations are clearly evident.

It is the opinion of the Committee that the law firm would violate Mississippi Rules of Professional Conduct if funds recovered on behalf of a client in a personal injury claim of a client were disbursed pursuant to the contingency fee contract entered into by the referral service which associated the law firm to handle the client's claim.