Can a lawyer pay a nonlawyer referral business a percentage of the recovery for sending clients, or a set fee instead?

Plain-English summary

A nonlawyer ran a "multiservices" business for a particular ethnic group, advertised his services from a separate office, and referred clients to various professionals. He proposed to add a lawyer to his referral list; in return, the lawyer would charge referred clients 25% of any personal-injury recovery, a reduced hourly rate for civil litigation, and a reduced set fee for traffic and criminal cases. The nonlawyer assisted in each referred case (obtaining witness statements, translating, photographing accident scenes, driving clients to providers) and charged clients his own fee, a set fee in civil and criminal matters and a 5%-to-8% percentage of the recovery in personal-injury matters, shown on the disbursement sheet as coming from the client's settlement. The committee was asked whether the lawyer's participation in the percentage-fee arrangement was improper, and whether a set-fee payment to the nonlawyer would be permissible instead.

The controlling rules were DR 2-103(A) and (F) (limits on in-person solicitation, with (F) barring it in personal-injury and wrongful-death cases), DR 2-103(D) (no compensating a person or organization to recommend or secure the lawyer's employment), and DR 3-102(A) (no sharing legal fees with a nonlawyer, with narrow exceptions).

The committee concluded the percentage-fee arrangement violated the Code. It found the arrangement generally violative of DR 2-103(A) and (D) because the lawyer would pay the nonlawyer a referral fee for a nondelegable function, the solicitation of clients (citing LE Op. 1290), and specifically violative of DR 2-103(F) as to personal-injury clients. The percentage payment also violated DR 3-102(A) as improper fee-splitting of a contingent fee with a nonlawyer intermediary, since what the lawyer collects is properly the lawyer's property and the payment was neither client reimbursement nor compensation to a bona fide employee (LE Op. 609, 835, 1438). As to a set fee, the committee said such a payment would not be improper if it reimbursed nonlegal services furnished by the nonlawyer, did not exceed fair market value, and did not circumvent DR 3-102(A), but it was not permissible on these facts because it could not be achieved without violating DR 2-103(A) and (D).

Currency note

This opinion was issued in 1994, under Virginia's former Code of Professional Responsibility (the disciplinary rules and ethical considerations it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. 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 source a percentage of what the client recovers?

A: Under this 1994 opinion, no. The committee concluded that paying a nonlawyer a percentage of the recovery is improper fee-splitting with a nonlawyer under DR 3-102(A) and compensates the nondelegable function of soliciting clients.

Q: Would paying the referral source a flat fee instead be allowed?

A: The committee said a set fee is not improper in the abstract if it only reimburses fair-market-value nonlegal services and does not circumvent the fee-splitting bar, but on these facts it still could not be paid without violating the solicitation rules.

Q: Why did personal-injury cases get singled out?

A: The committee noted DR 2-103(F) specifically bars in-person solicitation in personal-injury and wrongful-death cases, so the arrangement was specifically violative as to the referred personal-injury clients.

Background and rules framework

The opinion interpreted former Virginia DR 2-103(A), (D), and (F) (solicitation and paying for recommendations) and DR 3-102(A) (no sharing legal fees with a nonlawyer). Those concerns now correspond to ABA Model Rule 5.4(a) (sharing fees with nonlawyers), Model Rule 7.2 (paying for recommendations), and Model Rule 7.3 (solicitation).

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 2-103(A), (D), (F); DR 3-102(A) (Code of Professional Responsibility)
• ABA Model Rule 5.4(a) (fee sharing with nonlawyers); Model Rule 7.2; Model Rule 7.3 (solicitation)

Other opinions cited:

• Virginia LE Op. 1290: solicitation of clients is a nondelegable function a lawyer may not pay a nonlawyer to perform.
• Virginia LE Op. 609, 835, 1438: a percentage payment to a nonlawyer intermediary is improper fee-splitting.

See also

• VA LEO 1751: Percentage Fee for Referral Service
• VA LEO 1739: Referral Fees Without Responsibility
• VA LEO 1764: Fee Sharing With a Finance Company

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1572.pdf

Original opinion text

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

Committee Opinion
February 8, 1994
LEGAL ETHICS OPINION 1572

REFERRAL FEES - IN-PERSON
SOLICITATION - SPLITTING LEGAL
FEES WITH A NONLAWYER: LAWYER
PARTICIPATION IN FOR-PROFIT
REFERRAL SERVICE.

You have presented a hypothetical situation in which Nonlawyer operates a
"multiservices" business for his particular ethnic group. Nonlawyer advertises his
services and has his own separate office "across town" from Lawyer. Nonlawyer, who
has no affiliation with Lawyer, refers his clients to particular professionals who provide
various services (i.e., accounting, real estate, computers and insurance).
You further indicate that Nonlawyer proposes to put Lawyer on his referral list; in
return, Lawyer charges the client 25% of any recovery on a personal injury matter, a
reduced hourly fee for any civil litigation, and a reduced set fee for traffic and criminal
cases. Nonlawyer assists in each case referred (i.e., obtaining witness statements,
translating, photographing the accident scene, and driving the client to and from
health care providers).
You indicate that Nonlawyer charges a set fee for services in civil and criminal cases.
For personal injury cases, however, Nonlawyer charges client a fee which consists of a
percentage of the client's recovery, usually 5% to 8%. The client agrees to this
arrangement in writing. At the time of disbursement of settlement proceeds, Nonlawyer's
fee is shown on the disbursement sheet as coming from the client's settlement proceeds.
You have asked the committee to opine under the facts of the inquiry, (1) whether it is
improper and violative of the Code of Professional Responsibility for Lawyer to
participate in the proposed percentage fee payment to Nonlawyer; and (2) whether, in the
alternative, a set fee payment to Nonlawyer would be violative of the Code of
Professional Responsibility.
The appropriate and controlling Disciplinary Rules related to your inquiry are DR:2103(A) which proscribes in-person solicitation under certain circumstances; DR:2-103(D)
which states, in pertinent part, that a lawyer shall not compensate or give anything of
value to a person or organization to recommend or secure his employment by a client, or
as a reward for having made a recommendation resulting in his employment by a
client; DR:2-103(F) which prohibits in-person solicitation in personal injury and
wrongful death cases; and DR:3-102(A) which prohibits the sharing of legal fees with a
nonlawyer, with very limited exceptions.
The committee opines relative to your inquiries as follows:

1. The committee is of the opinion that the proposed fee arrangement violates the Code
   of Professional Responsibility.

Committee Opinion
February 8, 1994
First, the committee believes that the arrangement is generally violative of DRs 2103(A) and (D) in that Lawyer pays Nonlawyer a referral fee for the performance of a
nondelegable function, i.e., solicitation of clients. See LE Op. 1290. In solicitation of
personal injury clients, the arrangement would also be specifically violative of DR:2103(F).
The committee further opines that the percentage fee payment to Nonlawyer violates
DR:3-102(A) since it is improper for the attorney to share his legal fees from the client
with a nonlawyer intermediary. See LE Op. 609. All that is collected is properly the
property of the attorney and may not be paid to the intermediary. Here, the percentage fee
payment is neither a reimbursement to the client, nor a permissible payment to a bona
fide employee, but rather improper fee-splitting of a contingent fee with a nonlawyer. See
LE Op. 835, LE Op. 1438.

2. The committee feels that although the payment of a set fee would not be improper
   provided that the fee represents reimbursement for nonlegal services furnished by
   Nonlawyer, does not exceed the fair market value for such services, and is not otherwise
   an attempt to circumvent the prohibitions contained in DR:3-102(A), it would not be
   permissible under the facts presented because it could not be achieved without the
   violation of DR:2-103(A) and (D).
   Committee Opinion
   February 8, 1994
   Legal Ethics Committee Notes. – Rule 1.5(e) permits fee sharing between lawyers in
   different firms provided the client consents and the fee is reasonable. The referring
   attorney may charge a fee for referring a case to another lawyer without further
   participation in the client’s matter.