Attorney Referral Fees in Alabama - A Complete Guide

How to Ethically Share Fees With Other Alabama Attorneys

Like the Model Rules, Alabama permits a division of fees where attorneys are compensated in proportion with the work they perform, or if the referring attorney assumes joint responsibility, but Alabama is unique in that it permits attorneys to split fees in contingency fee matters without assuming joint responsibility. Regardless of the type of referral, the rules require attorneys to inform the client and obtain client consent.

Alabama Rule

Alabama Rules of Professional Conduct Rule 1.5 covers attorney fees. Subsection (e) deals with division of fees and states:

(e) A division of fee between lawyers who are not in the same firm, including a division of fees with a referring lawyer, may be made only if:

1. either
   • (a) the division is in proportion to the services performed by each lawyer, or
   • (b) by written agreement with the client, each lawyer assumes joint responsibility for the representation, or
   • (c) in a contingency fee case, the division is between the referring or forwarding lawyer and the receiving lawyer;
2. the client is advised of and does not object to the participation of all the lawyers involved;
3. the client is advised that a division of fee will occur; and
4. the total fee is not clearly excessive.

As a 2023 Ethics Opinion confirms (see below), attorneys can choose between basing the fee on the work each attorney completes or when attorneys assume joint responsibility. In the latter case, their share of a fee is not based on work completed. In all cases, attorneys must inform the client and check that the client does not object to the division.

Disclosure

The Rule 1.5 Comment notes that the rule does not require that attorneys tell clients the proportion each attorney is to receive. If a client asks, however, attorneys must disclose the share each will receive. The comment attributes this requirement to Rule 1.5(b), which provides:

“When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client preferably in writing, before or within a reasonable time after commencing the representation.”

Consent

Rule 1.5 does not require that an attorney advise a client in writing or that a client signs off on the fee division. Attorneys should consider the advantages of providing a document outlying the division and obtaining a client’s signature.

The comment to Rule 1.5(a), while fees in general, points out that “a written statement concerning the fee reduces the possibility of misunderstanding.” In addition, Rule 1.5(a), discussed below, indicates that a written agreement signed by the client can be an indicator that a fee is not clearly excessive.

For the division of fees, a written and signed document is an easy way to show that the attorneys informed the client and the client does not object.

Clearly Excessive Fees

The Alabama Rules of Professional Conduct uses the standard of “clearly excessive” for determining what attorneys may charge. ARPC Rule 1.5(a) states:

(a) A lawyer shall not enter into an agreement for, or charge, or collect a clearly excessive fee. In determining whether a fee is excessive the factors to be considered are the following:

1. the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;
2. the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
3. the fee customarily charged in the locality for similar legal services;
4. the amount involved and the results obtained;
5. the time limitations imposed by the client or by the circumstances;
6. the nature and length of the professional relationship with the client;
7. the experience, reputation, and ability of the lawyer or lawyers performing the services;
8. whether the fee is fixed or contingent; and
9. whether there is a written fee agreement signed by the client.

No bright-line rule exists to differentiate between a reasonable or clearly excessive fee. A fee does not have to meet all of these factors to be considered clearly excessive. In addition, the language of Rule 1.5(a) indicates other factors may come into play when determining if a fee is clearly excessive.

The comment to Rule 1.5(e) provides additional guidance on what constitutes a clearly excessive fee for purposes of a fee division. It states:

That the total percentage applicable to a contingency fee arrangement is increased when a matter is referred does not indicate that the fee is excessive. Nor is excessiveness shown merely because the receiving lawyer would have accepted the matter for a lesser total fee had that lawyer been the only lawyer receiving a fee.

In Alabama Ethics Opinion RO-2005-02, the Disciplinary Commission of the Alabama State Bar provides another way to look at fees and whether they meet the standards set out in ARPC:

Since the basic lawyer’s fee is governed by a “reasonableness” approach, likewise, all fees and expenses which are charged back to a client during the course of the representation should be reasonable, and not considered as a secondary opportunity for a lawyer to generate additional income from the lawyer-client relationship.

A 2023 Ethics Opinion echoed this opinion in stating that a fee division does not entitle attorneys to any additional fees.

Ethics Opinion: Fee Splitting

A 2023 Ethics Opinion, F0 2023-01, focuses on Rule 1.5(e) and when attorneys may divide fees.

This opinion dealt with whether Attorney A could share court-awarded fees with Attorney B, who had referred the case to Attorney A. The Commission found that splitting fees would be allowed if:

• The court had not expressly banned Attorney A from sharing fees
• Both attorneys satisfy all requirements of Rule 1.5(e)

The opinion, while not binding, mentioned other details that could be relevant. When a case involves contingency fees, attorneys may split court-awarded fees. Even if Attorney B did not do any work other than referring the case to Attorney A, if Attorney B had assumed joint responsibility, Attorney B would be entitled to a referral fee.

Advertising and Referral Fees

A 1999 Ethics Opinion, RO-99-01, also touches on referral fees in relation to advertising. The opinion involved several ethics rules. For purposes of the division of fees and Rule 1.5(e), the facts in question are whether one attorney or law firm could pay for advertising for another attorney or law firm in exchange for referrals.

The Commission found that this arrangement would be a violation of Rule 1.5(e). The opinion based its analysis on the lack of full disclosure to clients regarding the referral fee agreement. The Commission stated this arrangement would violate the spirit and purpose of the law.

Conclusion

Attorneys in Alabama can use referral fees in certain circumstances. They must inform the client of the division, confirm that the client does not object, and keep fees reasonable.