Fee to Lawyer for Recommending Service Providers
E-00-04: Fee to Lawyer for Recommending Service Providers
Professional Ethics Opinion E-00-04 considers
whether lawyers may accept fees for recommending service providers to
their clients.
by State Bar Professional Ethics Committee
Issued: January 31,2001
MAY A LAWYER ACCEPT A FEE for recommending the services of a
nonlawyer to a client during the course of representation?
Opinion
When lawyers represent clients, certain types of service other than
legal representation are necessary to advance the client's interests. In
such circumstances, lawyers commonly are called upon to recommend one or
more service providers to their clients. To encourage such client
referrals, some service providers offer monetary payments, commissions,
referral fees, or other consideration to lawyers.
The Rules of Professional Conduct explicitly prohibit lawyers from
giving anything of value to any person for recommending the lawyer's
services. See SCR 20:7.2(b). The rules also prohibit lawyers from
sharing fees with nonlawyers. See SCR 20:5.4(a). The rules, however, do
not per se prohibit lawyers from receiving anything of value for
recommending another's nonlawyer services to their clients. It may be
argued that the cost of these referral fees is not borne by clients, but
comes out of the service provider's revenue. The underlying economic
facts of the transaction may or may not support such an assertion.
However, a referral fee paid to a lawyer that, in substance, increases
the client's costs violates the Rules of Professional Conduct as an
impermissible sharing of legal fees with a nonlawyer. See SCR 20:5.4(a).
In such cases, the nonlawyer service provider is collecting fees for the
lawyer's benefit.
In recommending another's services to a client, a lawyer is acting
within the scope of the lawyer-client relationship. Clients seek and
place a high degree of trust in such recommendations by their lawyers.
They expect such recommendations to be considered, competent, objective,
and free of conflicting interest. The Rules of Professional Conduct
express and protect these reasonable expectations. See SCR 20:1.1, 1.4,
2.1, and 1.7(a). When a lawyer receives consideration for referring a
client to a particular service provider, the potential exists that the
lawyer's independence and objectivity may be compromised by the lawyer's
own interests. A lawyer must be especially scrupulous in protecting his
or her client from the inherent risk of exploitation in such an
arrangement.
Should the lawyer continue to represent the client, the lawyer must
determine that his representation of the client will not be adversely
affected by the referral arrangement. See SCR 20:1.7(b). For example,
such an arrangement cannot restrict the lawyer's advice so that the
client does not receive information or opinions needed to make fully
informed decisions about the representation. See SCR 20:1.4(b) and 2.1.
The existence of such an arrangement may also preclude the lawyer from
continuing to represent the client if the representation would involve
monitoring or evaluating the service provider's work from which the
lawyer is receiving or may receive consideration for referrals. See SCR
20:1.7(b).
Whenever a lawyer receives compensation or other consideration for a
referral to another service provider, the lawyer must fully disclose to
the client the nature and extent of any such benefit she will receive
and the advantages and disadvantages to the client of the referral
compared to any reasonably available alternatives. To the extent the
lawyer may reasonably know, this disclosure includes such factors as
relative cost; suitability to the client's needs; and the competence,
character, and reputation of the person to whom the lawyer refers the
client. This also requires the lawyer to evaluate the merits of the
particular service provider and the likelihood that the client will
benefit from that person's particular services. This degree of
disclosure is meant to assure that the client's decision regarding
accepting the lawyer's recommendation is suitably informed. A lawyer may
make such a recommendation only when the lawyer reasonably believes that
the services of the service provider are compatible with the client's
best interests.
A lawyer's duty to render uncompromised independent professional
advice to a client takes precedence over any benefit the lawyer may
realize from recommending a service provider to a client. Where
consideration for a referral to another service provider is nominal, the
likelihood that the lawyer's recommendation will be unduly influenced is
probably small. However, the committee notes that the benefit or other
consideration a lawyer may obtain for referring a client could be so
substantial as to preclude a reasonable belief that the referral was
uninfluenced by the lawyer's own interest in securing that benefit. A
lawyer cannot receive so substantial a benefit for referring a client to
another professional. The determination of what would constitute so
substantial a benefit can only be determined based on all the facts on a
case-by-case basis.
Wisconsin Lawyer
