MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2004-11
Confidentiality: Propriety of a Maryland attorney accepting payment of estate planning fees from a referral source
You inquire whether an attorney practicing law in Maryland may enter into an arrangement with non-lawyer professionals, who provide their client with insurance and financial planning services that include estate planning. You advise that all legal decisions and appropriate documents are made or prepared by the attorney. You further advise that the referral source would pay the client's fee for legal services directly to the attorney. You add that the fee would be taken from the referral sources standard commission and would not be an additional cost to the client.
In a subsequent telephone conversation, you explain that a national company has proposed the above-referenced arrangement as a means to generate new business and to assist new employees.
The propriety of lawyers engaging in business with or receiving referrals from non-lawyers has been addressed in several Opinions of the Committee. See1994-22, 1996-17, 1999-18, 2000-34, 2000-35, 2000-40 and 2002-05. In these opinions, the Committee discussed the impermissibility of certain referral arrangements under Rules 1.7, 1.8 and 5.4. The Committee believes that the arrangement you describe here is not permissible when viewed in light of those three rules.
First, Rule 5.4(c) prohibits a lawyer from accepting fees from a third person who directs or regulates that lawyer's professional judgment in rendering legal services for another. While you have not explained exactly how your fee is determined, if any portion of that fee goes to the recommending sources, in this case the non-lawyer professionals, it amounts to illegal fee sharing. Your independent professional judgment on behalf of your client would have to be affected if the economics of your particular client's needs far exceeded the portion of the fees that you are to receive from the referral source. There is also the likelihood that the best interest of your clients will often not coincide with the best interests of the referral source, whose interests are in providing insurance and financial planning to those same clients.
Rules 1.7 and 1.8 sometimes provide a safe harbor in a situation where the attorney's fees are being paid by a third party where appropriate disclosures have been made to the client. However, as noted in 2000-35, even with disclosure Rule 1.7 can easily be violated.
We have expressed concern that Rules 1.7 and 1.8 might be implicated if the nature of the relationship between you and the referring party are not disclosed. Your inquiry fails to disclose whether disclosures would be made to potential clients. We believe the nature of the relationship and the arrangement involving receipt of payment derived from commission funds must be disclosed to the clients.
The Comments under Rule 1.7 set out the standards:
"…A possible conflict does not itself preclude the representation. The critical questions are the likelihood that a conflict will eventuate and if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclosure courses of action that reasonably should be pursued on behalf of the client.
Consideration should be given to whether the client wishes to accommodate the other interest involved. A client may consent to representation notwithstanding a conflict. However, as indicated in paragraph (a)(1) with respect to representation directly adverse to a client, and paragraph (b)(1) with respect to material limitations on representation of a client, when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent." (Emphasis added)
As set forth in Rule 1.7 and the Comments that follow, you would need to explain to your clients the material limitations, if any, on the representation and ensure that the client understands those in full before undertaking the representation. While the Committee is of the view that this is not a situation in which a disinterested lawyer would conclude that there is no possibility of obtaining your clients' consent after consultation in all circumstances, because of the Committee's concerns about the fee-sharing aspects we believe you should not engage in that exercise.
For reasons set forth above related to your independent professional judgment the Committee believes the actions you propose would violate the Maryland Rules of Professional Conduct. Certainly, the combination of Rules 1.7, 1.8 and 5.4 make it clear that such arrangements are not permissible in Maryland.1
1 In addition to your inquiry, you advise that this business arrangement is permissible in the District of Columbia and several other jurisdictions. In a subsequent telephone conversation, you advise that you are a member of the District of Columbia Bar and question why you must conform to Maryland's more stringent Rules. We refer you to Rule 8.5(a), which provides:
"A lawyer admitted by the Court of Appeals to practice in this State is subject to the disciplinary authority of this State for a violation of these rules in this or any other jurisdiction (emphasis supplied). See also Attorney Grievance Commission of Maryland v Hopp, 330 Md. 177, 185 (1993) and Ethics opinion 04-04. A copy of that opinion may be obtained from the website of the Committee, www.msba.org.
REFERENCES:
Ethics Opinions: Ethics Docket 1994-22, 1996-17, 1999-18, 2000-34, 2000-35, 2000-40 and 2002-05