By: Jenny R. Jeltes
Referring cases can be a mutually beneficial and profitable practice among solo
attorneys. Referring a case to another attorney raises many questions, however, therefore
it is important for attorneys to know when compensated referrals are appropriate.
Referrals are handled in several different ways, but there are fundamental requirements
that must be followed in all cases.
The ethics of attorney referrals are guided by Rule 1.5(e) of the Illinois Rules of
Professional Conduct. Rule 1.5(e) states:
(e) A division of a fee between lawyers who are not in the same firm may be made
(1) the division is in proportion to the services performed by each lawyer, or if the
primary service performed by one lawyer is the referral of the client to another lawyer
and each lawyer assumes joint financial responsibility for the representation;
(2) the client agrees to the arrangement, including the share each lawyer will
receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable.
Adopted July 1, 2009, effective January 1, 2010.
Referrals are most common in personal injury cases or other contingency matters.
In Illinois, a reasonable and common split is for the referring attorney to receive 1/3 of
any fees should the main attorney win and recover fees. Rule 1.5(e)(1) states, however,
that each lawyer must assume “joint financial responsibility” for the representation.
What does this mean? The notes under Rule 1.5 state that the lawyers must assume the
financial costs of the representation “as if they were in the same firm.” The referring
attorney is “on the hook” should the other attorney be sued for malpractice, which means
that he or she remains liable for any mistakes made regardless of his or her involvement.
A close reading of Rule 1.5 raises an important consideration regarding liability.
First, be sure that you know and trust the attorney to whom you are referring. Get
something in writing between the two of you and confirm that you both have current and
effective malpractice insurance. To be on the safe side, you may choose to ask the
attorney to whom you are referring whether or not they have been sued for malpractice in
the past. Although it may be an uncomfortable conversation, it is worth the discussion
when high stakes are involved. Due to liability concerns, some attorneys choose not to
be compensated for referrals. That decision can be difficult, however, when the
compensation is potentially high. There is nothing wrong with receiving compensation
for a referral. Many attorneys thrive on it and it can be very lucrative. If the referral is compensated, however, ensure your compliance with Rule 1.5 and remember you are not
immune from liability.
In addition to financial liability, Rule 1.5 contains a few other requirements. A
client must agree to the fee-sharing arrangement. If a client will not agree to the
arrangement, than the referring lawyer cannot be compensated. Attorneys must put their
agreement in writing (typically in the client’s Retention Agreement) stating that the client
understands the fee arrangement and consents to it. Lastly, Rule 1.5(e) states that the fee
must be “reasonable.”
Compensated referrals are less common in other practice areas, especially in
contentious, hourly work such as family law or probate litigation. In practice areas that
are not contingency fee based, compensating a referring lawyer can be an administrative
headache. If the total cost of representation is unknown and could go on for months or
even years, it is difficult to “share” the fees, especially when an attorney charges an upfront
retainer and cannot guarantee that future payments will be made.
Many attorneys agree to refer cases to each other when appropriate. A family
lawyer and an estate-planning lawyer may refer to each other, for example, or a real
estate attorney and an estate-planning lawyer may forge a good relationship. There are
several arrangements that may be mutually beneficial. Although these reciprocal
referrals are not necessarily exclusive, many attorneys will operate under the assumption
that they will give each other a case here and there on a good faith basis. This type of
practice can promote good will, test the waters for a more stable and continuing
relationship, and/or lay a foundation for a future partnership.
Law Offices of J. Jeltes, Ltd., Copyright 2013