Attorney Referral Fees in New York - A Complete Guide

How to Ethically Share Fees With Other New York Attorneys

In New York, attorneys must either assume joint responsibility or divide a fee proportional to services performed to make use of referral fees. Attorneys must inform clients of the division, and clients must consent.

New York Rule

The requirements for a division of fees can be found in New York Rules of Professional Conduct Rule 1.5(g). It states:

A lawyer shall not divide a fee for legal services with another lawyer who is not associated in the same law firm unless:

1. the division is in proportion to the services performed by each lawyer or, by a writing given to the client, each lawyer assumes joint responsibility for the representation;
2. the client agrees to employment of the other lawyer after a full disclosure that a division of fees will be made, including the share each lawyer will receive, and the client’s agreement is confirmed in writing; and
3. the total fee is not excessive.

The commentary states that attorneys should use Rule 1.5(g) when the attorneys could better represent the client together than alone. Attorneys must also inform a client of the proposed division of the fee.

The comment to the preamble defines confirmed in writing as:

1. a writing from the person to the lawyer,
2. a writing from the lawyer to the person, or
3. consent by the person on the record in any proceeding before a tribunal.

The confirming writing need not recite the information that the lawyer communicated to the person in order to obtain the person’s consent.”

While Rule 1.5(g) only requires informing the client by writing when joint responsibility is the basis for a division, attorneys should consider using a written document in all divisions. A written document is one of the easiest ways to show that a client consented to the agreement and that the attorneys followed the other requirements set forth in Rule 1.5(g).

Joint Responsibility = Vicarious Liability

Although on its face, Rule 1.5 Comment defines joint responsibility as “entail[ing] financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.”

Although on its face, this description seems akin to many other states modeled after the ABA Model Rules, New York courts and ethics opinions have interpreted the definition of ‘joint responsibility’ more broadly than other ABA jurisdictions.’

For example, the court in Aiello v. Adler interpreted the precursor rule to Rule 1.5(g) and held:

Joint responsibility is synonymous with joint and several liability. When lawyers assume "joint responsibility" in order to share a fee under NY-DR § 2-107 without regard to work performed, they are ethically obligated to accept vicarious liability for any act of malpractice that occurs during the course of the representation.

Rule 5.1 governs the responsibilities of lawyers in a partnership and provides additional insights on the extent of what it means to maintain joint responsibility. NYRPC Rule 5.1(d) provides:

A lawyer shall be responsible for a violation of these Rules by another lawyer if:

1. the lawyer orders or directs the specific conduct or, with knowledge of the specific conduct, ratifies it; or
2. the lawyer is a partner in a law firm or is a lawyer who individually or together with other lawyers possesses comparable managerial responsibility in a law firm in which the other lawyer practices or is a lawyer who has supervisory authority over the other lawyer; and
   • (i) knows of such conduct at a time when it could be prevented or its consequences avoided or mitigated but fails to take reasonable remedial action; or
   • (ii) in the exercise of reasonable management or supervisory authority should have known of the conduct so that reasonable remedial action could have been taken at a time when the consequences of the conduct could have been avoided or mitigated.

The comment refers to this section as stating “a general principle of personal responsibility.” If and when a lawyer becomes aware of potential misconduct by another attorney, the appropriate remedial action depends on the seriousness of the potential misconduct and the extent of the attorney’s involvement.

Determining Fees

When determining the fees that attorneys may charge, New York uses the standard of “not excessive.” A division of fees follows the same guidelines as all other fees. NYRPC Rule 1.5(a) states:

A lawyer shall not make an agreement for, charge, or collect an excessive or illegal fee or expense. A fee is excessive when, after a review of the facts, a reasonable lawyer would be left with a definite and firm conviction that the fee is excessive. The factors to be considered in determining whether a fee is excessive may include the following:

1. the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
2. the likelihood, if apparent or made known 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 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; and
8. whether the fee is fixed or contingent.

The Rule 1.5 Comment states that these factors are not exclusive. The time and labor required, including the actions of all involved attorneys, may affect what defines an excessive fee.

Competency

The Rule 1.5 Comment includes another guideline for referring a client to another attorney: competency. Attorneys should only refer a case to another attorney when they believe that attorney is competent to handle the case.

Regarding competency, NYRPC Rule 1.1 states:

• (a) “A lawyer should provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.
• (b) A lawyer shall not handle a legal matter that the lawyer knows or should know that the lawyer is not competent to handle, without associating with a lawyer who is competent to handle it.
• (c) A lawyer shall not intentionally:
  • (1) fail to seek the objectives of the client through reasonably available means permitted by law and these Rules; or
  • (2) prejudice or damage the client during the course of the representation except as permitted or required by these Rules.”

No single rule or guideline determines an attorney’s competency to handle a specific case. In some situations, certain expertise may be required. In general, an attorney should either possess or have the ability to gain the needed skills and knowledge to represent a client. While an attorney does not need to have the experience or skills required at the start of representation, they should be able to gain and maintain those skills and knowledge throughout representation.

Regarding a referral, attorneys should consider the following factors:

• The circumstances
• The needs of the client
• The education, skills, and experience of the involved attorneys
• The nature of the services to be provided
• Any ethical rules or other considerations

In all cases, attorneys should ensure open communication between all parties throughout representation. All parties should know the extent and scope of each attorney’s responsibilities.

Ethics Opinion

The New York State Bar Association ethics opinion database includes opinions that provide guidance on Rule 1.5(g). Some of these rulings:

• Ethics Opinion 864 states that an attorney barred in New York may share fees with an attorney licensed in another state as long as the division meets the requirements of Rule 1.5(g)
• Ethics Opinion 934 reaffirms that attorneys can only share fees with nonfirm attorneys when they meet the requirements of Rule 1.5(g).
• Ethics Opinion 954 states that cultivating a client relationship alone does not equate to services performed under Rule 1.5(g)
• Ethics Opinion 1128 found, absent an already existing agreement, Rule 1.5(g) would not apply when an attorney dies and another attorney continues his active cases
• Ethics Opinion 1160 states that sharing fees with an attorney licensed in another jurisdiction would not be allowed if it would amount to an unauthorized practice of law in New York
• Ethics Opinion 1172 suggests that even if a lawyer has performed work for a client, a lawyer must assume joint responsibility upon retirement to collect a referral fee
• Ethics Opinions 1201 and 1244 both state that if an attorney bases a referral fee on joint responsibility, the attorney must maintain joint responsibility even after retirement to collect the fee.

Conclusion

In New York, attorneys may refer clients to another attorney they believe to be competent to handle the case. Attorneys must either assume joint responsibility or base the division on work completed.