Attorney Referral Fees in Pennsylvania - A Complete Guide
How to Ethically Share Fees With Other Pennsylvania Attorneys
Under its current Rules of Professional Conduct, Pennsylvania allows attorneys to collect referral fees. These divisions of fees encourage attorneys to enlist the help of specialists and provide clients with better service than either attorney alone could supply.
Pennsylvania Rule
Pennsylvania Rules of Professional Conduct Rule 1.5(e) states:
A lawyer shall not divide a fee for legal services with another lawyer who is not in the same firm unless:
- the client is advised of and does not object to the participation of all the lawyers involved; and,
- the total fee of the lawyers is not illegal or clearly excessive for all legal services they rendered the client.
The Comment to Rule 1.5 notes that attorneys are not required to disclose to the client the percentage each attorney will receive. In addition, fees must not be illegal or excessive. Pennsylvania’s current Rule 1.5(e) differs from both the Model Rules and the state’s previous Code of Professional Responsibility, both of which require that fees not be unreasonable.
While not required, attorneys may wish to consider whether they want to obtain a client’s consent in writing. In the event of a dispute, a signed document can serve as evidence that both the attorney informed the client and that the client consented to the division of fees.
Two ethics opinions on Rule 1.5(e) provide additional guidance.
1997 Ethics Opinion
In 1997, PBA’s Committee on Legal Ethics and Professional Responsibility released Formal Opinion 96-176, which while not binding, was intended to provide guidance on Rule 1.5(e). The opinion considered various aspects of Rule 1.5(e) and what the rule would mean in practice.
Disclosure
The committee notes that Rule 1.5(e) does not require either a client’s express consent and an attorney’s full disclosure but rather that the client “does not object.” The opinion suggests that this wording places the burden on the client to voice any concerns and that a client not “affirmatively object[ing]” may meet the requirements of Rule 1.5(e)(1).
Not Illegal or Clearly Excessive Fees
The opinion states that no bright-line rule exists as to when a fee is ethical or unethical. Rule 1.5(a) sets out the eight factors to consider:
(a) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. The factors to be considered in determining the propriety of a fee include the following:
- whether the fee is fixed or contingent;
- 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; and
- the experience, reputation, and ability of the lawyer or lawyers performing the services.
These factors are not exclusive. In the opinion, the committee mentions that many elements can inform whether a fee is clearly excessive. Attorneys should also consider:
- Current custom and usage of fees in an attorney’s geographic area
- A case’s complexity and duration
- Any fact-specific details
What meets the definition of a clearly excessive fee may change on a case-by-case basis. What is allowable in one case and with one client may no longer meet the Rule 1.5(a) standards with another case or client.
Client Input
The 1997 opinion also weighs in on how much input a client has with the division of fees. The committee notes that attorneys are not required to provide full disclosure to a client under Rule 1.5(e). As mentioned above, the Rule 1.5 Comment points out that attorneys do not need to disclose each attorney’s share.
Based on the committee’s interpretation, Rule 1.5(e) does not give a client the ability to decide or weigh in on the terms of a division of fees. A client’s input extends to either agreeing or disagreeing. The opinions adds a word of caution by pointing out that even if the rules do not require full disclosure, an attorney may choose to provide it. In addition, even if a client cannot dictate the terms of a decision, they can ask for more information. Failing to answer a client’s questions could result in a client not consenting to the agreement.
This opinion, while not binding, does highlight the importance of attorneys knowing the difference between not being required to share information and failing to provide information a client requests. Just as an attorney can decline to provide additional details about the division of fees, a client can decide not to consent to the agreement without additional information.
Inactive Attorneys
Formal Opinion 2007-400 answers the question of if and when inactive, suspended, or disbarred attorneys are entitled to a referral fee. Again, these ethics opinions are not binding but can provide useful guidance for attorneys.
The opinion found that a disbarred, suspended, or inactive attorney should be paid a referral fee when:
- The attorney was in good standing at the time the agreement was made
- The client agrees to the fee and does not object; AND
- No ethical or legal reasons exist for prohibiting the referral fee
This ethics opinion builds on a Pennsylvania Supreme Court Case, Office Of Disciplinary Counsel v. Jackson, 536 Pa. 26, 637 A.2d 615 (1994). In the Jackson case, the Supreme Court found that Attorney A violated the Code of Professional Responsibility (the predecessor to the Rules of Professional Conduct) when they paid a referral fee to an Attorney B, who was suspended from practice. The key fact in the case was that Attorney B was suspended at the time they made the referral.
The Court cited PRPC Rule 5.4, which states that a suspended attorney is the equivalent of a non-lawyer. As Rule 1.5(e) does not cover non-lawyers but only referrals made between attorneys, Attorney A was in violation. As the Court said in its opinion, “[The] purpose is to protect the Bar against the unauthorized practice of law by persons the system does not recognize as presently licensed to practice.”
For the division of fees, the main question is whether the attorneys were licensed to practice at the time of the referral. Other opinions within Pennsylvania have arrived at the same conclusion that whether an attorney can collect a fee is a matter of timing.
As the Philadelphia Bar Association Professional Guidance Committee said, if an agreement was made while both attorneys were in good standing, “it is irrelevant whether or not the referring attorney is convicted, not convicted, disbarred, or sanctioned but not disbarred.”
In another opinion, the same committee noted that one exception to fee payment might be if the fee in question relates to the misconduct for which an attorney is suspended or disbarred. In this situation, an attorney may not be entitled to any payment.
Conclusion
Attorneys in Pennsylvania can use referral fees as part of their practice. They must obtain consent from their clients and not charge clearly excessive fees. Ethics Opinions, while not binding, provide additional guidance on when and how to use referral fees.
