Attorney Referral Fees in Michigan - A Complete Guide
How to Ethically Share Fees With Other Michigan Attorneys
Michigan is one of a handful of states that operates as a pure referral fee state. That means attorneys do not have to assume joint responsibility or base the division on work performed (as required under the ABA Model Rules). A recent Michigan Supreme Court, however, has stated that an attorney must have an attorney-client relationship with a client to participate in a fee division.
Michigan Rule
Michigan Rules of Professional Conduct Rule 1.5(e) governs fee division. It states:
A division of a fee between lawyers who are not in the same firm may be made only if:
- the client is advised of and does not object to the participation of all the lawyers involved;
and the total fee is reasonable.
Michigan has few requirements for any fee division. Attorneys do not have to disclose their proportion of the fee to the client. Clients do not have to agree to the division, merely “not object.” Michigan also does not have any written requirement, although attorneys may wish to have a written document as evidence.
Reasonable Fees
One of Michigan’s few requirements is that fees be reasonable. MRPC Rule 1.5(a) provides:
A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. The factors to be considered in determining the reasonableness of a fee include the following:
- the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
- the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
- the fee customarily charged in the locality for similar legal services;
- the amount involved and the results obtained;
- the time limitations imposed by the client or by the circumstances;
- the nature and length of the professional relationship with the client;
- the experience, reputation, and ability of the lawyer or lawyers performing the services;
and- whether the fee is fixed or contingent.
The comment to Rule 1.5 states that only the factors relevant to the situation should be considered when determining a fee. While not required, the comment also suggests the benefits of a written agreement to reduce misunderstanding.
Sherbow Opinion
In 2021, the Supreme Court of Michigan issued its opinion in the case of the Law Offices of Jeffrey Sherbow, PC. V. Fieger & Fieger, PC. This case dealt with whether an attorney was entitled to divide a fee after forwarding several potential clients to another law firm. The court reaffirmed that Michigan requires neither services performed nor the assumption of joint responsibility for a division under Rule 1.5(e). For an attorney to collect a fee, however, the court found that an attorney must have an attorney-client relationship with the individual.
The Supreme Court’s decision hinged on how to define “participation” in Rule 1.5(e). For a referral, the minimum of participation was the establishment of the attorney-client relationship. The court also pointed to the use of the word client in Rule 1.5(e), which would indicate an established professional relationship.
The Court also highlighted the importance of avoiding conflicts of interest within the legal profession. Requiring an attorney-client relationship for Rule 1.5(e) maintains that ethical standard.
One point, which was not addressed by the Supreme Court, is that Sherbow did not have a written agreement with the clients for the division. Sherbow had entered into a written agreement with the Fieger law firm, but two of the clients were not even aware of Sherbow’s role in the referral. While not required, this case highlights the importance of having a written document with clients for a referral.
Doherty Opinion
A 2003 opinion from the Court of Appeals of Michigan explained when an inactive attorney could collect a referral fee. In Doherty v. Lockwood, an attorney became an inactive member of the bar after accepting a teaching position. Two years later, she referred a client to a law firm. After the law firm reached a settlement, the inactive attorney claimed she was entitled to a 30 percent referral fee.
The appeals court stated that the inactive attorney could not collect the referral because she had not been a practicing attorney at the time she entered into the agreement. For an inactive or suspended attorney to collect a referral fee in Michigan, the agreement must have been made when the attorney was an active member in good standing with the state bar.
Ethics Opinions
In addition to these opinions, Michigan has several ethics opinions relating to referral fees. These opinions are non-binding, but very persuasive.
In 2021, Ethics Opinion RI-382 reaffirmed a 1994 opinion that Michigan-barred attorneys may split fees with attorneys from other jurisdictions when they satisfy the ethics requirements from both jurisdictions.
Ethics Opinion RI-114, issued in 1992, answered the question of whether an attorney could handle some matters for a client and refer a different matter to another attorney. In this situation, the attorney handled probate on an hourly basis while referring a wrongful-death action to another law firm and agreeing to a percentage of any settlement or proceeds. The court found that, assuming the requirements of Rule 1.5(e) were met, this division would be allowed.
Ethics Opinion RI-068, issued in 1991, looks at when lawyers who have government contracts may use referral fees. In this case, the lawyer specifically inquired about referring individuals who did not meet eligibility criteria to private attorneys. The committee found such referrals met Michigan’s ethics rules.
In 1997, Ethics Opinion RI-294 considered how referral fees and conflicts of interest rules could potentially interact. In the given fact pattern, A, an attorney, referred a case to B, a law firm. While this case was active, A began to represent C, a client. C was a member of a union that was represented by B. A then filed a lawsuit on behalf of C against B’s client, the union. The opinion focused on whether this fact pattern raised any ethical issues.
The committee found no violation of ethics rules. The referral fee predated representation of C. More importantly, the original case was unrelated to C, and no conflict of interest issues arose. The opinion ended with this comment: “This committee is of the opinion that a subsequent unrelated lawsuit does not in any way affect the enforceability of a valid fee sharing agreement.”
This opinion built on Ethics Opinion RI-116, issued in 1992, which stated that attorneys cannot accept referral fees if a conflict of interest exists. This opinion stated that a referral creates a fiduciary duty between the client and both attorneys, which is inconsistent with a conflict of interest.
Ethics Opinion RI-124, issued in 1992, stated that a fee division could be based on hourly billing receipts. Fees must still be reasonable and charges to the client must not increase because of the division. This opinion also affirmed the requirements of Rule 1.5(e), including that a client does not object to the division.
Ethics Opinion RI-158, which references RI-124, states that a lawyer has a duty to refer a client to a competent attorney even if the client or attorney declines to pay a referral fee. The exception is if the referral would violate other ethics rules.
Conclusion
Michigan operates as a pure referral state. While the state has few requirements for referrals, both court cases and ethics opinions provide guidance on when and how attorneys may use Rule 1.5(e) in their practice.
