Can a lawyer pay another lawyer outside the firm a share of the fee just for a referral, when that lawyer did no work and the client never agreed?

Plain-English summary

Attorney A referred an IRS estate-tax matter to Attorney B, who practiced in that area; the two were not in the same firm. There was no agreement, written or oral, between the lawyers or with the client about dividing the fee, the client was not told of any joint representation, and Attorney B did all the work. After Attorney B was paid, Attorney A asked for one-third of the fee as a referral share, consistent with arrangements A had with other lawyers. The matter was complicated by the fact that, to obtain a tax deduction for the client, Attorney B had made a fee disclosure to the IRS signed under penalty of perjury, and the client, told of the risk, refused permission for any fee split because reopening the question could jeopardize the estate's deduction.

The opinion concluded that Attorney B may not split any portion of the fee with Attorney A. Rule 2.6(d) allows lawyers not in the same firm to divide a fee only if the division is in proportion to the work each lawyer performed, or if the client agrees to the division in writing, each lawyer assumes joint responsibility for the representation, and the total fee is reasonable. Because Attorney A did no work on the matter and the client did not agree to the arrangement, a division would violate Rule 2.6(d). The opinion added that, given the situation with the IRS, the fee split might prejudice the client, in violation of Rule 7.1(a)(3).

The opinion then addressed whether the answer would change if the IRS-related facts were absent. It concluded the answer would not change: the fee-splitting proposal would still violate Rule 2.6(d) because the division was neither proportional to work done nor agreed to by the client with joint responsibility assumed.

Currency note

This opinion was issued in 1993, before the North Carolina State Bar's adoption of the 2003 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 Treat this page as historical context, not current guidance.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 pay a referring lawyer in another firm a share of the fee for sending the case?

A: Not on these facts. The opinion held that under Rule 2.6(d) a division between lawyers in different firms is allowed only if it is proportional to the work each did, or the client agrees in writing, each lawyer assumes joint responsibility, and the total fee is reasonable; a bare referral cut for a lawyer who did no work, without client agreement, violates the rule.

Q: Does the referring lawyer's usual practice of taking a one-third referral cut make it permissible?

A: No. The opinion held that the existence of such arrangements with other lawyers does not satisfy Rule 2.6(d); the division here was neither proportional to work performed nor agreed to by the client.

Q: Would the answer change if the IRS disclosure issue were not present?

A: No. The opinion held the proposal would still violate Rule 2.6(d) on its own terms; the IRS complication separately raised the prospect of prejudice to the client under Rule 7.1(a)(3).

Background and rules framework

The opinion applied North Carolina Rule 2.6(d), the fee-division provision for lawyers not in the same firm (corresponding to Model Rule 1.5(e)), which permits a split only when it tracks the work performed or when the client consents in writing, each lawyer assumes joint responsibility, and the total fee is reasonable. It also invoked Rule 7.1(a)(3), addressing conduct that would prejudice the client, in connection with the IRS deduction concern.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees; division of fees among lawyers not in the same firm)
• North Carolina Rule 2.6(d) (division of fees between lawyers in different firms)
• North Carolina Rule 7.1(a)(3) (conduct prejudicing the client)

See also

• NC Ethics Op. RPC 205: referral fees
• NC Ethics Op. RPC 9: corporate house counsel; lenders, borrowers, and loan closings

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-148/

Original opinion text

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

Inquiry #1:

Attorney A and Attorney B do not practice in the same firm. Attorney A refers a case to Attorney B because the nature of the case involves matters not normally handled by Attorney A but within the area of practice of Attorney B (IRS estate tax matter). There is no written or oral agreement between the attorneys or with the client concerning a division of fees before, during, or after the relationship (there has never been any written or oral agreement of fee sharing between Attorney A and Attorney B in any past relationship); the client is not advised of any joint representation and the work is performed by Attorney B.

After a fee is received by Attorney B, Attorney A contacts Attorney B asking that one-third of the fee be shared with Attorney A in accordance with a practice which Attorney A has with other attorneys. Attorney B has not had any prior arrangement with Attorney A or any other attorney concerning such a fee splitting, and Attorney B is primarily concerned about the ethical implications of such a fee splitting arrangement given the following additional facts:

In the course of his representation, Attorney B had to make a disclosure to a government agency (IRS) concerning his fee which was signed under penalty of perjury. The disclosure was necessary in order to obtain a benefit (tax deduction) for his client. Attorney B is now concerned that any fee splitting arrangement entered into between the parties after a resolution of the case may jeopardize the estate's deduction previously obtained for the client. Attorney B has disclosed this to the client who has denied permission for a fee split because of the potential problems that such a reopening could have on the estate. Attorney A believes there is no ethical conflict with his receiving a one-third fee for his referral.

May Attorney B ethically fee split any portion of the fee with Attorney A?

Opinion #1:

Attorney B may not split any portion of the fee with Attorney A. Rule 2.6(d) provides that attorneys not in the same law firm may split fees only if the division is in proportion to the work done by each lawyer or if the client agrees to the division in writing, each lawyer assumes joint responsibility for the representation, and the total fee is reasonable. The inquiry makes it clear that Attorney A has not done any work on the matter and that the client has not agreed to the fee splitting arrangement. Consequently, a division of the fee would violate Rule 2.6(d). Additionally, it appears that, in light of the situation with the IRS, that any fee splitting arrangement might prejudice the client, in violation of Rule 7.1(a)(3).

Inquiry #2:

Would the answer to question 1 above be different if the additional facts above were not in existence?

Opinion #2:

No. The fee splitting proposal would still violate Rule 2.6(d).