Can a lawyer on a nonprofit legal-aid referral panel pay the referral service a set fee plus a share of fees earned on referred cases?

Plain-English summary

The question (PEC No. 92-6) was whether a panel attorney violates the Disciplinary Rules by remitting part of her legal fees to a lawyer referral service operated, in compliance with Article 320d of Vernon's Annotated Revised Civil Statutes, by a nonprofit legal-aid organization funded by public and private contributions. Under the arrangement, the service refers cases to enrolled panel attorneys (screened by application, interview, insurance and reference checks, and a State Bar status check), who agree to a maximum fee schedule, collect a $20 referral fee at the initial consultation that is remitted to the service, give a free first half-hour, and remit one-sixth of any fee that equals or exceeds $480. Referrals are made on a random rotational basis, and the service disclaims any interference with the attorney's independent professional judgment.

The Committee analyzed the arrangement under Rules 1.04(f) (no fee splitting between lawyers not in the same firm) and 5.04(a) (no sharing of legal fees with a nonlawyer), noting Comment 1's rationale of preventing improper solicitation and the unauthorized practice of law by nonlawyers. It observed that Comment 3 to Rule 5.04 allows a lawyer to reimburse a bona fide or pro bono legal services entity for reasonable expenses connected to a referred matter, outside the meaning of fee sharing. It found the solicitation and unauthorized-practice concerns unfounded for a referral service operated under Article 320d, whose legislative purpose (Section 2(b)) is to support lawyer referral services for the public benefit under State Bar supervision.

The Committee relied on Rule 7.01(f), which permits a lawyer to pay the usual charges of, and cooperate with, an organization that refers clients if the organization does not profit from the rendition of legal services by lawyers. Because the fees collected fund the service's operation and it is a nonprofit, the Committee concluded the service may collect a reasonable fee earned by its panel attorneys without an impermissible division of a legal fee, so a nonprofit referral service operating in compliance with Article 320d may collect a reasonable fee within that statute's guidelines without violating the Disciplinary Rules.

Currency note

This opinion was issued in 1994, 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, which reorganized the lawyer-advertising and referral rules in Part VII. The statute governing lawyer referral services has also been recodified since this opinion. 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 referral service a portion of fees earned on referred cases?

A: The Committee concluded a panel attorney may remit a fixed charge and a fee share to a nonprofit referral service operated under Article 320d; the nonprofit may collect a reasonable fee earned by its panel attorneys.

Q: Why isn't this prohibited fee splitting with a nonlawyer?

A: The Committee concluded Rule 7.01(f) permits paying the usual charges of an organization that refers clients if it does not profit from the rendition of legal services, and Comment 3 to Rule 5.04 treats reimbursement of a bona fide or pro bono legal services entity as outside fee sharing.

Q: Does the analysis depend on the referral service being a nonprofit operated under the statute?

A: Yes. The Committee assumed compliance with Article 320d and emphasized the service's nonprofit status and the statutory purpose of supporting referral services for the public under State Bar supervision.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.04(f) (division of fees between lawyers not in the same firm), Rule 5.04(a) and Comments 1 and 3 (professional independence; no sharing of legal fees with a nonlawyer; ABA Model Rule 5.4), and Rule 7.01(f) (paying the usual charges of an organization that refers clients if it does not profit from legal work; related to Model Rule 7.2). It assumes the referral service complies with Article 320d.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer), MR 7.2 (advertising and referral arrangements)
• Texas Disciplinary Rules 1.04(f), 5.04(a) (Comments 1, 3), 7.01(f)

Statutes:

• Article 320d, Vernon's Annotated Revised Civil Statutes (lawyer referral services; legislative purpose at Section 2(b))

See also

• TX Ethics Op. 503: Sharing Court-Awarded Fees With a Nonprofit Referrer
• TX Ethics Op. 548: A Law Firm Sponsor Listing on a Nonprofit Website
• TX Ethics Op. 536: Referral Fees From an Investment Adviser

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-502/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_502.pdf

Original opinion text

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

QUESTION PRESENTED

[PEC No. 92-6]
Is it a violation of The Texas Disciplinary Rules of Professional Conduct for a panel attorney to remit a part of her legal fees to a lawyer referral service operated in compliance with Art. 320(d) Vernon's Ann.Rev.Civ.Stat. (Supp.1944) by a not-for-profit legal aid organization that is funded by public and private contribution?

STATEMENT OF FACTS

A not-for-profit legal aid organization that is funded by public and private contributions operates a lawyer referral service. This lawyer referral service is intended to benefit Texas state citizens 60 years of age or older without regard to the citizens' income level, subject to certain exceptions not material herein.

Eligible attorney participants in the lawyer referral service include all attorneys licensed in Texas and who satisfy the enrollment requirements of the lawyer referral service. These enrolled attorneys constitute the referral panel.

The enrollment procedure includes a written application by the attorney, an interview of the attorney by the managing attorney for the lawyer referral service, confirmation of insurance coverage, review of work samples and follow- up of references furnished by the applying attorney. Additionally, the status of the applying attorney with the State Bar of Texas is checked.

The applying attorney once approved as a referral panel attorney is required to execute a written Referral Attorney Agreement with the lawyer referral service. This Agreement details the relationship between the referral panel attorney and the lawyer referral service. Under the express terms of the Referral Attorney Agreement the referral panel attorney is required to charge for legal services rendered to referred clients in accordance with a maximum fee schedule incorporated into the Referral Attorney Agreement. Provided for therein is a referral fee of $20.00 which is collected by the referral panel attorney at the initial consultation and then remitted to the lawyer referral service to fund in part its cost of operation. Further, the maximum fee schedule provides that the first one-half hour of consultation with the referral attorney is without charge to the client. If, however, services beyond the first one-half hour are desired, the referral panel attorney will bill for services rendered in accordance with the fee schedule. Various calculations of the fee, including flat fees, contingent fees and percentage fees are allowed. Should the fee generated equal or be greater than $480.00 then one-sixth (1/6) of the fee collected is remitted to the lawyer referral service. The percentage fee is not capped.

The lawyer referral service disclaims any interference with the independent professional judgment of the referral panel attorney in the handling of the referred matter. All referrals are made on a random rotational basis by computer.

The Referral Attorney Agreement mandates that the procedures of the Referral Panel shall comply with the Texas Disciplinary Rules of Professional Conduct.

The Committee assumes in its Opinion the lawyer referral service complies with Art. 320(d) Vernon's Ann.Rev.Civ.Stat. (Supp.1994). The legislative purpose of Art. 320(d) is stated in part in Sec. 2(b): "Bona fide lawyer services are uniquely qualified to provide referral services under the supervision of the State Bar of Texas for the benefit of the public. It is the public policy of the state to support the establishment of lawyer referral services . . ."

Rule 1.04(f) prohibits fee splitting between lawyers who are not in the same firm subject to exceptions not applicable here.

Rule 5.04(a) prohibits a lawyer from sharing or promising to share a legal fee with a non-lawyer subject to exceptions not applicable here. Further Comment 1 to Rule 5.04 addresses the reasons for the curbs on fee sharing with non- lawyers, prevention of improper solicitation by non-lawyers and discouragement of the unauthorized practice of law by non-lawyers.

Comment 3 to Rule 5.04 allows a lawyer to reimburse a bona fide or pro bono legal services entity for reasonable expenses incurred in connection with the matter referred to or incurred by the attorney. Such reimbursement is deemed outside the meaning of fee sharing contemplated by Rule 5.04.

The spirit of Rule 5.04(a) addresses improper financial gain by non-lawyers from the services of lawyers and the unauthorized practice of lawyer by non- lawyers. Concerns regarding impermissible solicitation and the unauthorized practice of law appear to be unfounded within the context of a lawyer referral service operated in accordance with Art. 320d. The legislative purpose is accomplished through the rendition of legal services to targeted clients.

Further, Rule 7.01(f) permits the lawyer to "pay the usual charges and otherwise cooperate with organization that refer clients if the organization does not profit from the rendition of legal services by lawyers."

The fees collected by the lawyer referral service are used to fund its operation. As a non-profit entity the lawyer referral service is permitted by the Rules to collect a reasonable fee generated by its Referral Panel attorneys. Such fee sharing does not constitute impermissible division of a legal fee under the Rules.

A non-profit lawyer referral agency operating in compliance with Art. 320(d) Vernon's Ann.Rev.Civ.Stat. (Supp.1994) may collect a reasonable fee within the guidelines set forth in Art. 320(d) earned by its Referral Panel Attorneys without violating the Texas Disciplinary Rules of Conduct.

CONCLUSION

A non-profit lawyer referral agency operating in compliance with Art. 320(d) Vernon's Ann.Rev.Civ.Stat. (Supp.1994) may collect a reasonable fee within the guidelines set forth in Art. 320(d) earned by its Referral Panel Attorneys without violating the Texas Disciplinary Rules of Conduct.

Tex. Comm. On Professional Ethics, Op. 502 (1994)