Can a bar lawyer referral service charge participating lawyers a percentage of the fee they earn on each referral?

Plain-English summary

The South Carolina Bar's Lawyer Referral Service proposed to charge each attorney who received a referral 10% of the collected net legal fee, on top of the normal annual fixed fee, using the money exclusively to operate and advertise the nonprofit service. The committee was asked whether this violated Rule 7.2's prohibition on paying for referrals.

The committee concluded it did. Rule 7.2(c) bars a lawyer from giving anything of value for recommending the lawyer's services, with exceptions for the reasonable cost of advertisements or communications and the "usual charges" of a not-for-profit lawyer referral service. The annual fixed fee was proper, but the 10%-of-fee charge was not: because the amount would differ in every case based solely on the legal fee the lawyer earned, it was not a "usual charge," and it bore no relation to the reasonable cost of the service's advertisements or communications. The committee acknowledged that Rule 7.2 gives bar-operated referral services greater leeway than private arrangements, making proper for them a referral charge that would be illegal for private individuals, but it found no blanket exception, and concluded the specific language of Rule 7.2(c) prohibited financing the service this way.

Currency note

This opinion was issued in 1993, before the South Carolina Bar's adoption of the 2005 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 Treat this page as historical context, not current guidance.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 nonprofit bar referral service take a percentage of each lawyer's fee?

A: No, under this opinion. The committee concluded a 10%-of-net-fee charge violated Rule 7.2(c) because it varied with each lawyer's fee and so was not a "usual charge."

Q: Why did the percentage charge fail when the annual fee was fine?

A: The committee said the cost of the service's advertisements or communications has nothing to do with the fee each lawyer earns; a charge that differs case by case based on the legal fee is neither a "usual charge" nor a reasonable ad or communication cost.

Q: Don't bar referral services get special leeway under Rule 7.2?

A: Some. The committee said Rule 7.2 allows bar-run services to charge fees that would be illegal for private individuals, but there is no blanket exception, and the specific language of Rule 7.2(c) still barred this percentage method.

Background and rules framework

The opinion applied Rule 7.2(c) (advertising; payment for recommendations), which corresponds to like-numbered Model Rule 7.2. The rule lets a lawyer pay the reasonable cost of advertisements or communications and the usual charges of a not-for-profit lawyer referral service, but otherwise bars giving value for a recommendation.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 7.2(c) / Model Rule 7.2(c): a lawyer shall not give anything of value for recommending the lawyer's services, except the reasonable cost of advertisements or communications and the usual charges of a not-for-profit lawyer referral service.

See also

• SC Bar Ethics Op. 93-21: Calling Referral-Service No-Shows
• SC Bar Ethics Op. 01-03: Paying for Internet Leads
• SC Bar Ethics Op. 16-06: Online Fee-Split Referrals

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-93-09/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 93-09

The SC Bar Lawyer Referral Service desires to impose an additional payment from each attorney receiving a referral of 10% of the collected net legal fee, in addition to the normal annual fixed fee.

The LRS would not in any way impair or control the independent professional judgment of the lawyers receiving the referral. The money collected by the LRS under this percentage arrangement would be used exclusively for the continued operation of the service, including advertisement through the public of the existence of the LRS. The administrative function of the LRS would be performed by the employees of the SC Bar under the supervision of the officers of the Bar and a committee composed of members of the Bar. The LRS would operate as a nonprofit entity.

Question:
Does this proposal violate the prohibition against paying referral fees under Rule 7.2?

Summary:
This proposal violates Rule 7.2(c) because the referral fee does not constitute the "usual charges" of a not-for-profit legal referral service. Also, the percentage arrangement does not represent the reasonable pro rata costs of advertising or communications; instead, the percentage fee would differ in each case and therefore would not relate to the reasonable costs of advertisements or communications. For the same reasons, these costs would not represent "usual charges" because the charges vary in each case.

Opinion:
Rule 7.2(c) states that 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 advertisements or communications" and may pay the "usual charges" of a not- for-profit LRS. In this case, the lawyer would pay an initial annual fee, which is proper under current practice. In addition, the lawyer would pay 10% of the fee which the attorney subsequently earned from the referral to the LRS.

The comment to Rule 7.2(c) states: "a lawyer may participate in a not-for-profit LRS and pay the usual fees charged by such programs." The problem presented is whether the words "usual charges" and the words "reasonable costs of advertisements or communications" are violated when a different fee is paid in every case dependent solely upon the fee received by the lawyer as opposed to the reasonable costs to the LRS. It is clear that the "usual charges" are not charged in a situation wherein in every case the fees differ based solely on the legal fee subsequently received. Similarly, the cost of the advertisements or communications have nothing to do with the fee charged to each lawyer in each particular case.

Instead, the referral fee paid is totally dependent on the success of the attorney in handling the particular case. It is clear that Rule 7.2 is intended to give a greater leeway to lawyer referral services operated by the Bar in charging fees to their members than would normally be allowed. For this reason, it is proper to charge a fee for a referral system which would be illegal were it done by private individuals. However, the rule does not include a blanket exception for lawyer referral services from Rule 7.2 regarding payment of referral fees. Therefore, it appears that the specific language of Rule 7.2(c) prohibits this method of financing.