Can a law firm give a corporate client fee discounts or rebates in exchange for the corporation steering its subsidiaries to hire the firm?

Plain-English summary

A corporation owned or planned to acquire interests of 80% or more in various business enterprises (the "controlled businesses"). To ensure that the firm already representing the corporation would handle all future legal matters for both the corporation and the controlled businesses, the firm and the corporation proposed a written agreement under which the corporation would encourage the controlled businesses to use the firm. If a controlled business engaged the firm, the corporation would receive either a discount on its own future legal bills or a rebate of fees it had already paid. The question was whether that agreement was permissible.

The Committee concluded it was not. The agreement transferred value from the firm to the corporation (reduced fees or rebates) as compensation for causing the controlled businesses to use the firm's services, contrary to Rule 7.01(i), which bars a lawyer from giving or promising anything of value to a lay person for referring clients or potential clients. The rule's exceptions (payments for advertising and public-relations services, and certain payments to referral organizations that do not profit from legal services) did not apply.

The Committee stressed that controlling equity ownership did not justify the arrangement. It contrasted permissible arrangements, a firm agreeing on reduced fees for legal services to members of a commonly controlled group, or a parent paying for the group's legal services and obtaining reimbursement from group members, which do not involve a firm paying one entity to cause another to hire it. The proposed discount-for-steering agreement, by contrast, was an impermissible promise to pay for client referrals under Rule 7.01(i).

Currency note

This opinion was issued in 1991, under the Texas Disciplinary Rules of Professional Conduct that took effect January 1, 1990. Texas did not adopt the ABA's Ethics 2000 revisions; its rules have been amended only piecemeal since, including the comprehensive 2021 revisions adopted by Texas Supreme Court order. 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 Treat this page as historical context, not current guidance.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 law firm pay a corporate client for sending its subsidiaries' legal work to the firm?

A: The Committee concluded no. Reduced fees or rebates given for causing the controlled businesses to use the firm are a promise of value to a lay person for referrals, barred by Rule 7.01(i).

Q: Does the corporation's ownership of the subsidiaries make the arrangement acceptable?

A: Per the opinion, no. Controlling equity ownership does not justify a firm paying one entity to cause another entity to employ the firm.

Q: What fee arrangements with a corporate group are permissible?

A: The Committee identified two: reduced fees for legal services to members of a commonly controlled group, and a parent paying for the group's legal services and obtaining reimbursement from group members. Neither involves paying for referrals.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 7.01(i) (prohibiting giving or promising anything of value to a lay person for referring clients; analogous to ABA Model Rule 7.2(b)). The analysis treats a fee discount or rebate tied to steering related entities to the firm as consideration for referrals, distinct from group-billing arrangements that allocate the cost of legal services among affiliated clients.

Citations and references

Rules of Professional Conduct:

• MR 7.2(b) (no giving anything of value for recommending a lawyer's services)
• Texas Disciplinary Rule 7.01(i)

See also

• TX Ethics Op. 507: Targeted Newspaper Ad and Reciprocal Referral Letter to a Layperson
• TX Ethics Op. 502: Panel Attorney Remitting Fees to a Nonprofit Lawyer Referral Service

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-469/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_469.pdf

Original opinion text

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

QUESTION PRESENTED

Is the proposed agreement between the corporation and the law firm permissible under the Texas Disciplinary Rules of Professional Conduct?

STATEMENT OF FACTS

A corporation either owns or contemplates acquiring 80% or greater interests in various business enterprises (these enterprises are referred to as the "controlled businesses"). In an effort to ensure that the law firm that now represents the corporation is engaged to represent the corporation and the controlled businesses with respect to all future legal matters, the law firm and the corporation propose to enter into a written agreement under which the corporation will encourage the use of the law firm by the controlled businesses. Under the agreement, if the controlled businesses engage the law firm to perform legal services, the client corporation will receive either a discount in billing rates for future legal work or a rebate of fees previously paid by the corporation to the law firm.

DISCUSSION

The proposed agreement provides for a transfer of value from the law firm to the client corporation (in the form of reduced fees or rebates of fees) as compensation to the corporation for causing the controlled businesses to use the law firm's services. Such an agreement is contrary to Rule 7.01(i) of the Texas Disciplinary Rules of Professional Conduct, which provides that "[a] lawyer shall not give or promise to give anything of value to a lay person for referring clients or potential clients to any lawyer or law firm . . . ." The exceptions stated in Rule 7.01(i), for payments of fees for advertising and public relations services and for certain payments to referring organizations that do not profit from the performance of legal services, have no application in this case.

A corporation's controlling equity ownership in controlled businesses does not justify an arrangement in which a law firm agrees to pay the corporation for causing other entities to use the law firm's services. For example, it is permissible for a law firm and a group of commonly controlled businesses to agree on reduced legal fees for legal services to members of the group. It is likewise permissible for a parent corporation of a group of controlled businesses to control and pay for legal services for all members of the group and to obtain reimbursement from group members for their shares of legal service costs. These permissible arrangements do not involve payment by a law firm to one entity for causing another entity to employ the law firm.

An arrangement between a law firm and a corporation under the terms of which the corporation would receive reduced legal fees or rebates of fees in exchange for causing controlled businesses to use the law firm's services would constitute an impermissible promise to pay for the referral of clients to the law firm in violation of Rule 7.01(i) of the Texas Disciplinary Rules of Professional Conduct.

CONCLUSION

An arrangement between a law firm and a corporation under the terms of which the corporation would receive reduced legal fees or rebates of fees in exchange for causing controlled businesses to use the law firm's services would constitute an impermissible promise to pay for the referral of clients to the law firm in violation of Rule 7.01(i) of the Texas Disciplinary Rules of Professional Conduct.

Tex. Comm. On Professional Ethics, Op. 469 (1991)