Can a lawyer join a chamber-of-commerce 'leads network' that requires members to exchange a quota of referrals to keep their spot?

Plain-English summary

An attorney asked about joining a professional "leads network," a chamber-of-commerce subgroup admitting only one member per profession, where members must earn a minimum number of "points" per quarter (a lead is one point, bringing a guest is two) to keep membership. The committee was asked whether joining and actively participating would violate the rules, and answered yes, under Rules 5.4 and 7.2.

The committee acknowledged that informal referrals are an important part of doing business and that not all referral groups are improper, citing ABA Formal Opinion 87-355's guidelines for evaluating referral plans. It found this network improper for two main reasons. First, under Rule 5.4(c), a lawyer may not permit a person who recommends, employs, or pays the lawyer to direct or regulate the lawyer's professional judgment; the tensions and demands of the point system could unduly bias the attorney's judgment and compromise duties to clients. Second, under Rule 7.2(c), the referrals or "leads" exchanged among members are things of value given by one member to another who recommends his services, valuable in a reciprocal system where "back scratching" is both compulsory and profitable.

The committee noted ABA Formal Opinion 87-355's further pitfalls for referral services (confidentiality, conflicts, competence, and solicitation under Rule 7.3) and observed that, while this network did not specifically require any cautioned activity, the potential to run afoul of those rules was ever present. It reiterated the value of legitimate referrals and structured referral programs that follow the rules, but concluded the reciprocal, point-driven, profit-promoting network at issue was not one in which the attorney should participate.

Currency note

This opinion was issued in 1996, before the State Bar of Montana's adoption of the 2004 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer join a networking group that requires exchanging referrals?

A: The opinion concludes no for this network, because the quota-driven reciprocal referral exchange violates Rules 5.4(c) and 7.2(c).

Q: Why does the point quota matter?

A: The opinion reasons the pressure to earn points could unduly bias the lawyer's professional judgment, contrary to Rule 5.4(c).

Q: Are referrals "things of value" under Rule 7.2(c)?

A: Yes. The opinion treats the exchanged leads as things of value given for recommending the lawyer's services, especially in a reciprocal, profit-driven system.

Q: Are all referral groups off-limits?

A: No. The opinion stresses that legitimate referrals and structured referral programs that follow the rules are valuable; only this quota-based reciprocal network is improper.

Background and rules framework

The opinion interprets Montana Rule of Professional Conduct 5.4(c) (no outside direction of professional judgment; Model Rule 5.4) and Rule 7.2(c) (no value for recommendations; Model Rule 7.2), with reference to Rule 7.3 (solicitation; Model Rule 7.3) and ABA Formal Opinion 87-355.

Citations and references

Rules of Professional Conduct:

• Mont. R. Prof. Cond. 5.4(c) (direction of professional judgment) / Model Rule 5.4
• Mont. R. Prof. Cond. 7.2(c) (value for recommendations) / Model Rule 7.2
• Mont. R. Prof. Cond. 7.3 (solicitation) / Model Rule 7.3

Other opinions cited:

• ABA Formal Op. 87-355 (1987): guidelines for legal service referral plans

See also

• State Bar of Montana Ethics Op. 950411: Fee-Splitting With a Collection Agency
• State Bar of Montana Ethics Op. 930927: Paying Runners for Referrals

Source

• Landing page: https://www.montanabar.org/For-Attorneys/State-Bar-Resources/Ethics-Opinions
• Original PDF: https://www.montanabar.org/Portals/MONTANA/Site Resources/Ethics Opinions/1.6 confidentiality/960227.pdf

Original opinion text

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

Ethics Opinion
FACTS: Attorney has inquired as to the ethical ramifications associated with joining a professional "leads network," a subgroup of his community's chamber of commerce. The stated purpose of the network is to "[h]elp member businesses flourish" through "exchanging leads," "meeting other professionals" and "involvement in the Chamber." Only one member per profession or specialty is eligible to participate in the network group. Eligibility for a network group is based on "industry conflict and a waiting list." Once a member is in the network, the member is required to earn a minimum of six "points" per quarter to maintain membership. A "lead" equals one point, while bringing a guest to a group meeting equals two points. "Leads" are defined as "true, possible business transaction[s]."

QUESTION PRESENTED: Would Attorney violate the Rules of Professional Responsibility in joining and becoming actively involved in such a network group?

SHORT ANSWER: Yes, according to Rules 5.4 and 7.2.

DISCUSSION: At the outset, it should be noted that informal referrals are an important part of doing business, for lawyers and other professionals. As well, not all network or referral groups run afoul of the ethical rules. In Formal Opinion 87-355, November 14, 1987, the ABA Standing Committee on Ethics and Professional Responsibility established guidelines for determining the propriety or impropriety of a particular legal service referral plan. In light of the guidelines set out in that opinion, the network at issue here is improper. Central to our conclusion is the Rule 5.4(c) provision that "[A] lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services." The potential for violating this provision is clear where there are strong interests competing with an attorney's mandatory devotion to the interests of his client - here, the tensions and demands of this network group's "point" system could conceivably unduly bias Attorney's professional judgment and compromise his duties toward his client.

Also central to our assessment is the provision of Rule 7.2(c), stating:

(c) A lawyer shall not give anything of value to a person for recommending the lawyer's services, except that a lawyer may pay the reasonable cost of advertising or written communication permitted by this rule and may pay the usual charges of a not-for-profit lawyer referral service or other legal service organization. (emphasis added)¹.

We consider the referrals or "leads" exchanged among members of the group to be things of value which are given by one member to another who recommends his services. Whether or not a referral in and of itself is of any value, it can often become valuable if a working relationship is formed and fees for service rendered are eventually collected. In addition, the group, whose purpose is to promote the profitability of its members, is based on a reciprocal referral system; as referrals are generated and exchanged, the profits of the individual members theoretically increase. Referrals are valuable to this scheme, where "back scratching" is both compulsory and profitable.

ABA Formal Opinion 87-355 explains that other potential pitfalls confronting referral services include difficulties of confidentiality, conflict of interest, competence and solicitation. The ABA Committee emphasized that a lawyer should not participate in a plan requiring a lawyer disclose information relating to the representation except in compliance with Rule 1.6. It also warned against group attempts to prohibit a participating lawyer from bringing certain action against other group members, noting that rejection of a matter in that circumstance might mislead the client into believing that the action has no merit. Another warning is that the plan must permit the lawyer to reject matters outside the lawyer's area of competence or which overextend the lawyer's existing workload. Finally, the ABA Committee warned of the potential for running afoul of the rule on solicitation, 7.3. While the "leads network" described above does not specifically require any of the cautioned activities addressed in Formal Opinion 87-355, the potential for running afoul of those rules is ever present.

CONCLUSION: We wish to reiterate our understanding of the importance of referrals in the professional world and of the benefits of legal service plans or groups. Referring clients to other lawyers with expertise in a certain area - or receiving such referrals - goes a long way toward sustaining the viability of the legal profession in many communities. As well, many communities are served by more structured referral programs which both abide by the ethical rules and provide an important service. However, the referral network at issue here is, in our opinion, not one in which Attorney should participate. The reciprocal referral system, the need to generate "points," and the drive to help fellow members increase profits are just a few of the factors which separate this species of referral service from those that are allowed by the rules.

THIS OPINION IS ADVISORY ONLY

ENDNOTES

1. For purposes of this opinion, we are not concerned with the fees Attorney is required to pay in order to be a member of the group, though the exception to 7.2(c) would seem to allow certain payment arrangements under other circumstances.