Attorney Referral Fees in Texas - A Complete Guide
How to Ethically Share Fees With Other Texas Attorneys
Until March 1, 2005, Texas had been a “pure” referral state (meaning referring attorneys did not need to assume responsibility for a matter to share in attorney fees with the attorney handling the matter). Under the current rules, Texas permits attorneys to divide fees when they base the division on the assumption of joint responsibility for the matter, or based solely on the services rendered by each attorney. While the Texas Rules are based largely on the ABA Model Rules, the Texas Rules contain many additional requirements on a referring lawyer not found in many other jurisdictions.
Texas Law
Texas Disciplinary Rules of Professional Conduct Rule 1.04(f) lists the requirements for any division of fees. It states:
A division or arrangement for division of a fee between lawyers who are not in the same firm may be made only if:
- the division is:
- (i) in proportion to the professional services performed by each lawyer; or
- (ii) made between lawyers who assume joint responsibility for the representation; and
- the client consents in writing to the terms of the arrangement prior to the time of the association or referral proposed, including:
- (i) the identity of all lawyers or law firms who will participate in the fee-sharing agreement, and
- (ii) whether fees will be divided based on the proportion of services performed or by lawyers agreeing to assume joint responsibility for the representation, and
- (iii) the share of the fee that each lawyer or law firm will receive or, if the division is based on the proportion of services performed, the basis on which the division will be made; and
- the aggregate fee does not violate paragraph (a).
While similar in parts to the ABA Model Rules, Texas has many more requirements. In Texas, attorneys must inform the client of all attorneys or firms involved, the type of division, and the specifics of the proposed division.
Rule 1.04(g) reaffirms that client consent is mandatory for any division. It states:
Every agreement that allows a lawyer or law firm to associate other counsel in the representation of a person, or to refer the person to other counsel for such representation, and that results in such an association with or referral to a different law firm or a lawyer in such a different firm, shall be confirmed by an arrangement conforming to paragraph (f). Consent by a client or a prospective client without knowledge of the information specified in subparagraph (f)(2) does not constitute a confirmation within the meaning of this rule. No attorney shall collect or seek to collect fees or expenses in connection with any such agreement that is not confirmed in that way, except for:
- the reasonable value of legal services provided to that person; and
- the reasonable and necessary expenses actually incurred on behalf of that person.
Failure to abide by these disclosure requirements or suggesting a division without discussing the necessary terms means a division will not meet the requirements of Rule 1.04. Rule 1.04(g) adds that, absent an agreement under Rule 1.04(f), attorneys may collect fees on a quantum meruit basis for actual work provided or other expenses incurred.
Reasonableness of Fees
As stated in Rule 1.04(f)(3), all fees must follow Rule 1.04(a). This rule provides:
A lawyer shall not enter into an arrangement for, charge, or collect an illegal fee or unconscionable fee. A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable.
The comment to Rule 1.04(a) explains that while an attorney should charge reasonable fees, the definition of reasonableness is too arbitrary to be the basis for disciplinary action. Therefore, attorneys should charge reasonable fees but will face disciplinary action only for illegal or unconscionable fees.
To provide additional context on this subject, Rule 1.04(b) lists factors for determining a reasonable fee. It states:
Factors that may be considered in determining the reasonableness of a fee include, but not to the exclusion of other relevant factors, 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 on results obtained or uncertainty of collection before the legal services have been rendered.
These factors are not exclusive. As the ABA Comment suggests, reasonableness depends on the circumstances of any case.
Joint Representation
The Rule 1.04 Comment goes beyond the ABA definition of what joint representation entails for a division of fees. The ABA defines joint responsibility as “representation [that] entails ethical and perhaps financial responsibility for the representation.”
Texas suggests that ethical responsibility includes:
- Checking for “adequacy of representation” before any referral, such as knowing and/or researching the client’s legal matter and believing the other attorney is competent to handle representation
- Ensuring adequate communication, such as monitoring the matter throughout representation and confirming the client is aware of the necessary issues
The comment goes on to state that joint representation does not require an attorney to be present at all meetings, hearings, or depositions. Nor does an attorney need copies of all pleadings and correspondence. What this comment suggests is a monitoring requirement, in which “the referring lawyer be reasonably informed of the matter, respond to client questions, and assist the handling lawyer when necessary. Any referral or association of other counsel should be made based solely on the client’s best interest.”
Minimum Activities
The Rule 1.04 Comment also puts forward the concept of “minimum activities.” What this means is that a referring attorney must be involved in activities that are “substantially greater” than if they simply forwarded the matter to another attorney as was allowed under Texas’s previous division of fees rule. One subject the comment refrains from addressing is at what point an attorney involved in a division of fees may be responsible for the other attorney’s misconduct.
Competency
As suggested in the expanded definition of joint representation, attorneys should only refer a client to an attorney whom they believe to be competent to handle the representation. The standard for competency can be found in Rule 1.1. It provides:
- (a) A lawyer shall not accept or continue employment in a legal matter which the lawyer knows or should know is beyond the lawyer’s competence, unless:
- (1) another lawyer who is competent to handle the matter is, with the prior informed consent of the client, associated in the matter; or
- (2) the advice or assistance of the lawyer is reasonably required in an emergency and the lawyer limits the advice and assistance to that which is reasonably necessary in the circumstances.
- (b) In representing a client, a lawyer shall not:
- (1) neglect a legal matter entrusted to the lawyer; or
- (2) frequently fail to carry out completely the obligations that the lawyer owes to a client or clients.
- (c) As used in this Rule, “neglect” signifies inattentiveness involving a conscious disregard for the responsibilities owed to a client or clients.
The comment includes some factors to consider when determining if an attorney is competent to handle a matter. They include:
- An attorney’s ability to appropriately apply their legal knowledge, skills, and training to represent a client
- The complexity of the case
- If the case will require any specialized knowledge
- The attorney’s experience in the relevant areas
- What preparation and study the case will require and if the attorney has the time and ability to engage in these efforts
An attorney’s competency depends on the individual case and the accompanying circumstances. As stated in Rule 1.01(a)(1), an attorney may need to involve another attorney to reach the necessary standard of competency. An attorney must maintain competency throughout representation, including diligent and timely performance of their responsibilities.
Ethics Opinions
To provide further context to divisions of fees, Texas has issued several ethics opinions on the subject.
Opinion 688
Opinion 688, issued in May 2020, reaffirms that Texas is not a pure referral state and that any division must be based on either “substantial legal services” performed or with the assumption of joint responsibility. If attorneys agree to base the division on work performed and one attorney withdraws before performing “substantial legal services,” the agreed-upon division may no longer apply.
In the facts of this opinion, an attorney withdrew due to a conflict of interest and having performed less than 10 hours of work on a complex personal injury case. Despite withdrawing, the attorney still wanted a percentage of any fees recovered.
The Committee suggested these facts may suggest that the attorney did not perform substantial legal services. The Committee cautioned, however, that the provided details alone were not sufficient to make a determination.
Substantial legal services are a case-by-case determination, and the type of service provided may matter more than the amount of time spent on the matter. In addition, there must be a “reasonable correlation” between services performed and an attorney’s expected share. In this case, the Committee stated that the proposed division did not align with the work performed.
The Committee also did not provide any analysis on whether an attorney could enter into a division of fee agreement and base the proportional work requirement solely on work completed before the agreement. Regarding joint responsibility, an attorney cannot withdraw from a case and continue to be jointly responsible for representation.
The Committee concludes by pointing out that even if an attorney is no longer entitled to the agreed-upon division, they may still be entitled to compensation on a quantum meruit basis.
Opinion 568
In 2006, the Committee issued Opinion 568. This opinion dealt with a division of fees when one attorney has been suspended or disbarred. If the attorneys entered into an agreement while all attorneys were active members of the bar, the agreement may still stand. The disciplinary action taken against an attorney, as well as the reasons for that action, might affect an attorney’s ability to collect a fee.
For agreements entered into while an attorney was an active member of the bar, a suspended or disbarred attorney may still be entitled to divide the fee based on work performed while an active attorney. How much work the attorney performed, however, could also impact their ability to collect a fee under the division.
Opinion 592
Opinion 592, issued in 2010, reaffirmed Opinion 568 regarding payment to a suspended attorney. The 2010 opinion found that an attorney cannot enter into an agreement under Rule 1.04(f) with a suspended attorney as the latter is not considered an attorney for the purpose of a fee division. Any agreement must be entered into while all attorneys are members in good standing with a state bar.
Worth noting is that several states have issued similar ethics opinions regarding suspended or disbarred attorneys. Some have found that a suspended or disbarred attorney may not be entitled to a division of fees based on joint responsibility, given that they could not perform that task when suspended or disbarred.
Others consider the amount of work the attorney completed before their suspension or disbarment – essentially, whether it rose to a level of substantial legal services – compared to the expected amount of work. In soJoint Representation
The Rule 1.04 Comment goes beyond the ABA definition of what joint representation entails for a division of fees. The ABA defines joint responsibility as “representation [that] entails ethical and perhaps financial responsibility for the representation.”
Texas suggests that ethical responsibility includes:
- Checking for “adequacy of representation” before any referral, such as knowing and/or researching the client’s legal matter and believing the other attorney is competent to handle representation
- Ensuring adequate communication, such as monitoring the matter throughout representation and confirming the client is aware of the necessary issues
The comment goes on to state that joint representation does not require an attorney to be present at all meetings, hearings, or depositions. Nor does an attorney need copies of all pleadings and correspondence. What this comment suggests is a monitoring requirement, in which “the referring lawyer be reasonably informed of the matter, respond to client questions, and assist the handling lawyer when necessary. Any referral or association of other counsel should be made based solely on the client’s best interest.”me cases, a suspended or disbarred attorney’s work may not be considerable enough, and they will only be entitled to fees on a quantum meruit basis rather than an agreement under Rule 1.04(f). While not Texas Ethics Opinions, these opinions parallel those in Texas.
Conclusion
Although Texas uses the ABA Model Rules as its foundation, the state has significantly more requirements for any division of fees. Beyond basing a division on either services performed or joint responsibility, attorneys must meet the requirements regarding informing the client and obtaining their agreement.
