Can a lawyer who switches to inactive status in New Hampshire still collect referral fees for matters referred to active lawyers after the status change?

Plain-English summary

A lawyer considering changing his New Hampshire Bar status from active to inactive asked whether he could still receive referral fees for matters he might refer to active lawyers after the change, complying with Rule 1.5(f). He relied on language in Opinion 2016-17/01 that inactive members are "nonetheless lawyers for purposes of fee-sharing." The Committee concludes the inactive lawyer may not enter such a referral-fee agreement for matters that first arise after the status change, regardless of whether the division is with the lawyer's prior firm, which makes the inquirer's remaining questions moot.

The opinion distinguishes Opinion 2016-17/01. That earlier opinion addressed fees paid after a status change for cases that began while the lawyer was active, and held those payments permissible; it did not address matters the inactive lawyer brings to a firm after he can no longer practice. The Committee notes the inquirer was misled by an annotation, not the opinion's text, and explains that annotations are written by individual members to assist the reader and are not part of the opinion itself, citing United States v. Detroit Lumber Co. on the status of an opinion's syllabus.

The Committee gives four reasons. First, by engaging in the necessarily substantive discussion with a prospective client, the inactive lawyer would be practicing law, and judging whether the receiving lawyer is competent to handle the matter is itself a legal judgment (citing Rule 5.5, ABA Comment 7, and Tormo v. Yormark). Second, there is a substantial danger the prospective client could be misled about the inactive lawyer's status, a concern reflected in prior NH opinions on listing inactive lawyers on letterhead. Third, the client may misunderstand whether the discussion is confidential or privileged, since the New Hampshire Rules of Evidence define a "lawyer" as one authorized or reasonably believed to be authorized to practice. Fourth, allowing such referral fees would not serve the purpose of New Hampshire's referral-fee rule, which is to remove a lawyer's incentive to keep a case better handled elsewhere; an inactive lawyer cannot keep the case in any event.

In practice

The opinion holds that, under the New Hampshire rules as they stood when it issued, an inactive lawyer cannot collect a referral fee for a matter that first arose after the lawyer went inactive, whether or not the fee split is with the lawyer's former firm. It preserves the narrower result of Opinion 2016-17/01: an inactive lawyer may receive fees from a prior firm for cases worked on or brought to the firm while still active, even if paid later. The opinion grounds the prohibition in Rule 5.5 (the referral discussion would be the practice of law), the risk of misleading the client about the lawyer's status and the confidentiality of the consultation, and the purpose of Rule 1.5(f).

Common questions

Q: Can a New Hampshire lawyer who goes inactive keep earning referral fees on new matters?

A: No. The opinion concludes an inactive lawyer may not enter a referral-fee agreement with an active lawyer for matters that first arose after the change to inactive status.

Q: Does it matter whether the referral fee is split with the lawyer's old firm?

A: No. The opinion states the prohibition applies regardless of whether the proposed division is with the lawyer's prior firm.

Q: Can an inactive lawyer still receive fees for cases from before going inactive?

A: Yes. The opinion reaffirms Opinion 2016-17/01: an inactive lawyer may accept fees from a prior firm for cases the lawyer worked on or brought to the firm before the status change, even if paid afterward.

Q: Why is making a referral treated as practicing law?

A: The opinion reasons that the necessarily substantive discussion with the prospective client, and the judgment that the receiving lawyer is competent for the matter, are legal activities, citing Rule 5.5 (ABA Comment 7) and Tormo v. Yormark.

Q: What was the confusion about Opinion 2016-17/01?

A: The inquirer relied on an annotation saying inactive members are "lawyers" for fee-sharing. The opinion explains annotations are written by individual members and are not part of the opinion, whose text was limited to cases that began while the lawyer was active.

Background and rules framework

The opinion interprets New Hampshire Rule 1.5 and its fee-division provision Rule 1.5(f) (division of fees between lawyers not in the same firm), read against Rule 5.5 (unauthorized practice; inactive status is not authorization to practice, per ABA Comment 7). It also draws on the New Hampshire Rules of Evidence definition of "lawyer" (Rule 502(a)(3)) for the privilege concern and on the Ethics Committee comment to Rule 1.5 describing the purpose of the state's referral-fee rule.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NH Rule 1.5, 1.5(f) (fees; division of fees between lawyers not in the same firm)
• MR 5.5 / NH Rule 5.5, ABA Comment 7 (unauthorized practice; inactive status)

Cases:

• Tormo v. Yormark, 397 F. Supp. 1159 (D.N.J. 1975), negligent-referral claim within a legal-malpractice action
• United States v. Detroit Lumber Co., 201 U.S. 321 (1906), status of a syllabus to an opinion

Other opinions cited:

• NH Ethics Committee Advisory Opinion 2016-17/01, Fee Sharing / Referral Fees
• NH Ethics Committee Formal Opinion 1988/9-2, Letterhead Listing / Of Counsel if Inactive
• NH Ethics Committee Advisory Opinion 2006-07/02, Identification of Inactive Bar Member Status

See also

• NH Bar Ethics Op. 2016-17/01: Sharing Fees With Retired Lawyers
• Arizona Bar Op. 05-02: Referral Fees and an Inactive Lawyer
• ABA Formal Op. 06-444: Restrictive Covenants and Retirement Benefits

Source

• Landing page: https://www.nhbar.org/2021-22-01-inactive-lawyers-and-referral-fees/
• Original PDF: https://nhba.s3.amazonaws.com/wp-content/uploads/2021/10/29134934/EO-2021-22-01-Inactive-Lawyers-and-Referral-Fees-FINAL1.pdf

Original opinion text

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

NEW HAMPSHIRE BAR ASSOCIATION

                          Inactive Lawyers and Referral Fees

                        Ethics Committee Opinion #2021-22/01

ABSTRACT:

An inactive lawyer may not enter into a referral fee agreement with an active New Hampshire
lawyer for matters that first arose after the change in status because that would violate the
restrictions on the practice of law and present a great risk of misrepresentation.

ANNOTATIONS:

The Committee believes that an inactive lawyer may not enter into a referral fee agreement with
an active New Hampshire lawyer for matters that first arose after the change in status because
that would violate the restrictions on the practice of law and present a great risk of
misrepresentation.

We reaffirm our conclusion in Opinion 2016-17/01 that the inactive lawyer may accept fees from
his or her prior firm in cases on which the now inactive lawyer worked, or brought to the firm,
before the change of status, even though the fees are paid after the change.

The annotations are written by individual Committee members to assist the reader and are not
meant to be part of the actual opinion. See e.g., United States v. Detroit Lumber Co., 201 U.S.
321 (1906)(dealing with the syllabus of Supreme Court opinions).

Our first concern in this matter is that the inactive lawyer, by engaging in what will necessarily
be at least a somewhat substantive discussions with the prospective client, would be practicing
law.

Another concern is that there is a substantial danger that the prospective client could be misled
about the status of the inactive lawyer.

A third concern is that the prospective client may misunderstand the issues of confidentiality and
privilege during the discussion.

Finally, permitting payments of referral fees to inactive lawyers would not further the purpose of
New Hampshire’s somewhat unique referral fee rule.

Opinion:

A. Facts

An attorney inquired about amending his New Hampshire Bar status from "active" to "inactive."
The inquirer wanted to ensure that he would be able to receive referral fees for matters he might
refer after his status change. He indicated that he would comply with the terms of NHRPC 1.5(f),
governing referral fees, which requires that any division of fees between lawyers not in the same
firm be:

   (1) Either:
           a. in reasonable proportion to the services performed or responsibility or risks
           assumed by each, or
           b. based on an agreement with the referring lawyer;
   (2) in either case above, the client agrees in a writing signed by the client to the
   division of fees;
   (3) in either case, the total fee charged by all lawyers is not increased by the division of
   fees and is reasonable.

Presumably, the inquirer would utilize the provisions of subpart 1(b), an agreement between
the active and inactive lawyer, to satisfy this rule since, after the status change, he could not
assume any risk or responsibility for the actual representation.

The inquirer relies on language from a prior Committee opinion to support his belief that inactive
lawyers should be able to receive referral fees, even if the underlying case arose after the inactive
lawyer could no longer practice. He points to Ethics Committee Advisory Committee Opinion

2016-17/01, Fee Sharing/ Referral Fees, where the Committee’s annotation provided that

“‘[i]nactive’ members of the New Hampshire Bar are nonetheless lawyers for purposes of fee-
sharing and sharing management control with the inactive lawyer’s former law firm.” Id. at p. 1.

He also notes that as an inactive lawyer, he cannot practice law in New Hampshire, and suggests,
in all such matters, he would not provide any legal advice to the prospective client and would
strictly limit his interaction with the prospective client to the basic facts of the matter. He further
asserts that he would treat those facts as strictly confidential and privileged.

The inquirer’s specific questions are: 1. May "inactive" members enter into referral fee
agreements with active New Hampshire lawyers? 2. Are fee sharing/referral fees of inactive
members only permitted when sharing fees with their former law firms? and 3. Assuming
referral fees to "inactive" lawyers are treated differently as between those formerly with a law
firm and those without a former law firm, what is the rational basis of treating them differently?

B. Opinion

The Committee believes that an inactive lawyer may not enter into a referral fee agreement with
an active New Hampshire lawyer for matters that first arose after the change in status because
that would violate the restrictions on the practice of law and present a great risk of
misrepresentation. This is true, in our opinion, regardless of whether the proposed division is
with one’s prior firm. In light of this, the final two questions are moot.

We reaffirm our conclusion in Opinion 2016-17/01 that the inactive lawyer may accept fees from
his or her prior firm in cases on which the now inactive lawyer worked, or brought to the firm,
before the change of status, even though the fees are paid after the change. But as noted above,
that is not the case presented by the inquirer.

The opinion the inquiring attorney relies on addressed both management of a law firm after
inactive status and whether the firm can share fees that are paid after the change of status with
the inactive lawyer. The opinion holds that both are permissible. However, that opinion did not
address fee sharing for matters that the inactive lawyer brings to a firm after he or she is no
longer able to practice law, due to the inactive status, the issue we will address below.

We can see why the inquirer may have been confused about the scope of the opinion. The
annotation to which he cited provides that “‘Inactive’ members of the New Hampshire Bar are
nonetheless lawyers for purposes of fee- sharing and sharing management control with the
inactive lawyer’s former law firm.” However, the actual text of the opinion is far more limited in
scope. On page 2, the Committee states: “… [B]oth classes [active and inactive] remain
‘lawyers’ for purposes of this opinion.” (emphasis supplied). Thus, the opinion related only to
cases that began when the lawyer was active. The language cited is from an annotation, as
opposed to the actual opinion. The annotations are written by individual Committee members to
assist the reader and are not meant to be part of the actual opinion. See e.g., United States v.
Detroit Lumber Co., 201 U.S. 321 (1906)(dealing with the syllabus of Supreme Court opinions).

As noted above, the distinction we are drawing is not between fee splits within law firms and
those outside a former law firm. It is between permissible payments that occur after the change
of status but are based on practice of law activities that occurred before the lawyer took inactive
status, and the situation posed by the inquirer of a referral made after taking inactive status.

Our first concern in this matter is that the inactive lawyer, by engaging in what will necessarily
be at least a somewhat substantive discussions with the prospective client, would be practicing
law. These discussions would most often occur because the prospective client knew that the
person at one time was a practicing lawyer. See NHRPC 5.5, ABA cmt. 7 (“… admitted…
contemplates that the lawyer is authorized to practice in the jurisdiction in which the lawyer is
admitted and excludes a lawyer who while technically admitted is not authorized to practice,
because, for example, the lawyer is on inactive status”). Also, the judgment that the lawyer to
whom the referral is made is competent to handle this particular matter is a legal judgment. See
e.g., Tormo v. Yormark, 397 F.Supp. 1159 (D.N.J. 1975)(denying summary judgment in a
negligent referral claim within a legal malpractice action).

Another concern is that there is a substantial danger that the prospective client could be misled
about the status of the inactive lawyer. We have issued two prior opinions on this. See Ethics
Committee Formal Opinion 1988/9-2, Letterhead Listing- Of Counsel if Inactive (stating that it is
misleading under Rules 7.1 and 7.5 to list an inactive member as of counsel); and Ethics
Committee Advisory Opinion 2006-07/02, Identification of Inactive Bar Member Status
(cautioning a firm about including an inactive lawyer on its website or letterhead, even with a
designation that he or she is inactive, due to concerns about misleading the public).

A third concern is that the prospective client may misunderstand the issues of confidentiality and
privilege during the discussion. While it is possible under the Evidence Rules that the
conversation with an inactive lawyer might be privileged, this is far from a foregone conclusion.
See Rule 502(a)(3) of the New Hampshire Rules of Evidence (A "lawyer" is a person authorized,
or reasonably believed by the client to be authorized, to engage in the practice of law in any state
or nation). The inquirer’s communication with us reflects his belief that he could protect the
information from forced disclosure.

Finally, permitting payments of referral fees to inactive lawyers would not further the purpose of
New Hampshire’s somewhat unique referral fee rule. See Ethics Committee cmt. to NHRPC 1.5.
When the Ethics Committee recommended this change to the Supreme Court and its Advisory
Committee on Rules, the purpose was to remove any incentive for a lawyer to retain a case that
would better be handled elsewhere, and thus to enhance client representation. Since the inactive
lawyer is unable to retain the case, allowing a referral fee would do little to guarantee competent
representation.

C. Conclusion

For these reasons, the Committee believes that inactive lawyers may not receive referral fees for
matters that arose while they were not able to practice law.

N.H. Rules of Professional Conduct:

NHRPC 1.5.
NHRPC 1.5(f)
NHRPC 5.5, ABA cmt. 7

N.H. ETHICS COMMITTEE OPINIONS AND ARTICLES:

Ethics Committee Advisory Committee Opinion #2016-17/01, Fee Sharing/ Referral Fees

Ethics Committee Formal Opinion 1988/9-2, Letterhead Listing- Of Counsel if Inactive

Ethics Committee Advisory Opinion 2006-07/02, Identification of Inactive Bar Member Status

SUBJECTS:

Fees

Attorney Client Relationships

       •   This opinion was submitted for publication to the NHBA Board of Governors at
           its October 21, 2021 Meeting.