Can a Texas lawyer join a federal GSA schedule program that refers federal agencies to listed lawyers if the lawyer pays the program one percent of fees earned?
Texas Ethics Opinion 562: A Federal GSA Schedule Program and a One-Percent Fee
Short answer: Per the Committee, a Texas lawyer may participate in a federal GSA schedule program that refers federal agencies to listed lawyers and charges one percent of fees earned, because, as to services for federal agencies, the payment is a negotiated fee discount rather than prohibited fee sharing or a prohibited referral payment.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Texas Disciplinary Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
A General Services Administration (GSA) program offers Executive Branch departments and agencies a schedule of pre-negotiated contracts for goods and services, including legal services. The GSA's Federal Supply Service (FSS) solicits bids, awards contracts, and places them on a schedule from which federal agencies may select a lawyer at a reduced cost, though an agency is free to hire counsel off-schedule. The program funds itself by charging each participating provider one percent of the fees it earns through the program, so a lawyer selected by a federal agency would owe the FSS one percent of the legal fees earned. The program is not certified as a lawyer referral service under Texas law. The Committee treats the program as a single entity (the Executive Branch) in which one part, the FSS, helps other parts, the federal agencies, obtain legal services; it limits the opinion to services for federal agencies and expresses no view on services to others.
On fee sharing, the Committee notes Rule 5.04(a) generally bars sharing legal fees with a non-lawyer, but Comment 3 to Rule 5.04 excludes reimbursement of a bona fide legal-services entity's reasonable expenses, and a negotiated fee discount with a client is not a prohibited fee division, whether the discount is applied before or after payment and whether it is a fixed amount, reduced rate, or percentage of the fee. Because the one-percent FSS charge for services to federal agencies is properly viewed as an agreed reduction in fees negotiated with a client, paying it does not violate Rule 5.04(a), and for the same reason it does not violate the rule against payments to solicit employment.
On referrals, Rule 7.03(b) bars paying a non-lawyer for referring clients, with an exception for the usual charges of a certified lawyer referral service under the Texas Lawyer Referral Service Quality Assurance Act (Texas Occupations Code chapter 952). The program is not certified, but the Committee concludes that does not matter here, because the FSS is part of the federal government recommending and negotiating legal services for other parts of itself. For Rule 7.03(b) purposes, the program is a client entity negotiating the terms of lawyers it employs, not an arrangement to pay a third party for referring other clients, so it does not violate Rule 7.03(b).
In practice
Under this opinion, and under the Texas rules as they stood at the time, a Texas lawyer may participate in the GSA schedule program for legal services to federal agencies and pay the one-percent fee. The Committee treats that fee as a negotiated discount with a single client entity rather than fee sharing under Rule 5.04(a), and treats the FSS's referral of agencies to itself as the client's own negotiation rather than a referral payment under Rule 7.03(b), so no Texas Lawyer Referral Act certificate is required. The Committee expressly limits the opinion to services for federal agencies and declines to opine on services to other entities.
Common questions
Q: Can I join a GSA schedule for legal services if I have to pay GSA one percent of my fees?
A: Per Opinion 562, yes, for services to federal agencies. The Committee concludes the one-percent payment is a negotiated fee discount with a client entity, not fee sharing barred by Rule 5.04(a).
Q: Isn't paying GSA for being referred to agencies a prohibited referral payment under Rule 7.03(b)?
A: The Committee says no. Because the FSS is part of the federal government negotiating legal services for other parts of itself, the program is the client entity setting the terms of lawyers it employs, not a third party being paid to refer other clients.
Q: Does the program have to be a certified Texas lawyer referral service?
A: The Committee concludes a certificate is unnecessary here. It finds the program does not violate Rule 7.03(b) regardless of certification, because the arrangement is the client's own negotiation, not a referral by an outside service.
Background and rules framework
The opinion interprets Texas Disciplinary Rule 5.04(a) (professional independence; sharing fees with a non-lawyer, ABA Model Rule 5.4), with Comment 3 to Rule 5.04, and Rule 7.03(b) (prohibited solicitations and payments; payments for referrals, ABA Model Rule 7.3), with Comment 3 to Rule 7.03. It applies the Texas Lawyer Referral Service Quality Assurance Act (Texas Occupations Code chapter 952). The analysis turns on viewing the GSA program as a single federal client entity, so the one-percent charge is a negotiated fee discount and the agency selection is the client's own, rather than fee sharing or a referral by an outside service.
Citations and references
Rules of Professional Conduct:
- MR 5.4 (professional independence of a lawyer)
- MR 7.3 (solicitation of clients; payments for recommendations)
- Texas Disciplinary Rule 5.04(a) and Comment 3 to Rule 5.04; Rule 7.03(b) and Comment 3 to Rule 7.03
Statutes:
- Texas Occupations Code chapter 952 (Texas Lawyer Referral Service Quality Assurance Act), including sections 952.002, 952.101, 952.102, 952.154, and 952.155
See also
- TX Ethics Op. 561: Paying to Be Listed on a For-Profit Client-Matching Website
- TX Ethics Op. 558: Paying a Lender a Percentage of the Contingency Fee
Source
- Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-562/
- Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_562.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
QUESTION PRESENTED
Do the Texas Disciplinary Rules of Professional Conduct permit a lawyer to participate in a federal government program that negotiates contracts with lawyers to provide legal services to federal agencies and then recommends or refers those lawyers to the federal agencies, where the program is not certified as a lawyer referral service under Texas law and the lawyer is required to pay to the program one percent of the legal fees earned through the program to be used for paying the costs of operating the program?
STATEMENT OF FACTS
A federal program (the "Federal Program") of the General Services Administration (the "GSA"), and agency of the Executive Branch of the United States Government, provides to other departments and agencies of the Executive Branch of the United States Government ("Federal Agencies") a schedule of pre-negotiated contracts for goods and services, including legal services. An office of the GSA, the Federal Supply Service (the "FSS") solicits the bids and awards the contracts. The FSS then recommends or refers the providers to Federal Agencies by placing these contracts on a "schedule" from which Federal Agencies may select the service provider, in this case a lawyer, at a substantially reduced cost. A federal agency is not required to select a lawyer from this schedule but is free to independently hire counsel not on the schedule.
The Federal Program's costs are paid by charging each participating provider a fee of one percent of the fees earned by the provider through the program. Thus, a lawyer who bids under the Federal Program to participate on a schedule contract to provide legal services to Federal Agencies would be obligated to pay the FSS one percent of the legal fees thereby earned if the lawyer is selected by a Federal Agency to provide legal services under the schedule contract.
The FSS has not sought to have the Federal Program certified as a lawyer referral service under Texas law.
DISCUSSION
The Committee believes that the Federal Program should properly be viewed as a program involving a single entity, the Executive Branch of the United States Government, under which one part of the entity (the FSS) assists other parts of the entity (the Federal Agencies) in obtaining legal services under the schedule contracts. This opinion applies only in the case of legal services provided to Federal Agencies and the Committee expresses no opinion as to a Texas lawyer's participation in the Federal Program to the extent that services are provided to agencies or entities that are not included within the definition of "Federal Agencies" set forth above.
Rule 5.04(a) of the Texas Disciplinary Rules of Professional Conduct generally prohibits a lawyer or law firm from sharing or promising to share legal fees with a non-lawyer. However, as Comment 3 to Rule 5.04 explains, "[r]eimbursement by a lawyer made to bona fide or pro bono legal services entity for its reasonable expenses in connection with the matter referred to or being handled by the lawyer" does not constitute a prohibited division of legal fees. Nor would the negotiation with a client of a discount on legal fees constitute a prohibited division of legal fees.
This is true regardless of whether the discount is applied before legal fees are paid by the client or is applied after legal fees are paid by the client so that the discount is paid back to the client. This is also true regardless of whether the discount is in the form of a fixed amount, a reduced hourly rate, or a percentage of the entire fee. Since the one percent fee paid to the FSS under the Federal Program with respect to services to Federal Agencies should properly be viewed as an agreed reduction in fees negotiated with a client, the lawyer's payment of the one percent fee under the Federal Program with respect to services to Federal Agencies is not prohibited by Rule 5.04(a). Likewise, since the Federal Program is properly viewed as involving a negotiated reduction in fees, a Texas lawyer's participation in the Federal Program does not result in a violation of Rule (c) (which with limited exceptions prohibits a lawyer from making or offering payments to a prospective client or other person in order to solicit professional employment).
Rule 7.03(b) of the Texas Disciplinary Rules of Professional Conduct generally prohibits a lawyer from paying a non-lawyer for referring clients or prospective clients to the lawyer. That Rule states in pertinent part that
"A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed to practice law for soliciting prospective clients for, or referring clients or prospective clients to, any lawyer of firm ...." The purpose of this rule is to prohibit a lawyer from circumventing the disciplinary rules on improper solicitation by hiring a non-lawyer to do the actual solicitation, a course of conduct that is considered against the best interest both the public and the legal profession. See Comment 3 to Rule 7.03.
One exception to the general prohibition of Rule 7.03(b) on payments for referrals exists for payments of "the usual charges of a lawyer referral service that meets the requirements of" chapter 952 of subtitle B of title 5 of the Texas Occupations Code, which is known as the Texas Lawyer Referral Service Quality Assurance Act (the "Texas Lawyer Referral Act"). The Texas Lawyer Referral Act creates a licensing scheme for any service or program that refers potential clients to lawyers regardless of whether the program or service characterizes itself as a "referral service" and specifically prohibits the operation of a lawyer referral service in Texas unless the service holds a certificate issued under the Texas Lawyer Referral Act. See Texas Occupations Code Sections 952.002 and 952.101. To obtain a certificate under the Texas Lawyer Referral Act, a referral service must be operated by a governmental entity or a tax-exempt non-profit entity and the service must meet a number of requirements, including the establishment of "specific subject matter panels" and a limitation to $20 on the fee for a first consultation with a participating lawyer. See Texas Occupations Code sections 952.102, 952.154, and 952.155.
In the circumstances presented, the Federal Program does not hold a certificate under the Texas Lawyer Referral Act to operate a lawyer referral service. However, the Committee believes that, without regard to whether the Federal Program holds a certificate under the Texas Lawyer Referral Act, the Federal Program does not involve conduct that violates Rule 7.03(b). The FSS is a part of the United States Government which recommends and negotiates for legal services for other parts of the Executive Branch of the United States Government. The actions of the FSS under the Federal Program are thus properly viewed as actions by the United States Government to evaluate, negotiate with, and recommend lawyers on behalf of itself or divisions of itself or groups within itself. Accordingly, for purposes of applying Rule 7.03(b), the Federal Program involves negotiation by a client entity of the terms of employment of lawyers providing services to the entity and not an arrangement in which a lawyer agrees to pay a third party for referring other clients to the lawyer. Consequently the Federal Program does not involve a lawyer's payment to a non-lawyer for referring clients in violation of Rule 7.03(b).
CONCLUSION
The Texas Disciplinary Rules of Professional Conduct do not prohibit a Texas lawyer from participating in a federal government program that is administered by an agency that is part of the Executive Branch of the United States Government, that refers departments and agencies of the Executive Branch of the United States Government to lawyers who participate in the program, and that requires each participating lawyer to pay to the administering federal agency a fee equal to one percent of legal fees received by the lawyer under the program.
Tex. Comm. On Professional Ethics, Op. 562 (2005)