MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2006-14
Whether Lawyer Referral Arrangement is Permissible Under the Rules
You ask whether participation in a lawyer referral arrangement violates the Maryland Rules of Professional Conduct. The organization in question is a California non-profit corporation that has applied for designation as a 501(c)(3) organization. It plans operation of a nationwide internet based referral service which will link consumers with bankruptcy counsel. The organization will refer the names of up to 3 lawyers for each referral. The consumer would not be under any obligation to retain any lawyer and likewise the lawyer would not have to accept any person referred to it. Participating lawyers will set their own fees, but those fees cannot exceed the fees that the lawyer charges to others and the lawyer cannot pass on any fees associated with obtaining the referrals.
While your inquiry has an extended discussion of the proposed organization’s structure and procedures, only a few facts are directly pertinent to the inquiry you pose. First, in order to participate, lawyers will have to place an advertisement in a legal directory specified by the organization. Presently, there is no fee for the advertisement. You note, however, that it is possible there could be an annual fee of up to $1,000 to be listed in the directory. This directory will be on the organization’s website but will not be owned or maintained by the organization. You further state that if there is any advertising revenue, it will go to a “third party” who maintains the directory. Your inquiry does not address whether there is common ownership or control between the organization and this third party.
Second, participating lawyers will also have to pay a “transmission/administration” fee of $100.00 to a third party transmission provider for the “data received, transmission services and communication services.” The rationale for this third party fee is not fully explained in your inquiry. Also, it is not clear whether the third party hosting the directory is the same third party responsible for transmission. Further, it is not clear what services the referral organization is performing if this third party is both hosting the directory and providing the referral information to the client.
As this Committee has noted in the past, an attorney may participate in a not-for-profit referral service. See, e.g., Ethics Docket Nos. 88-65, 94-11, 04-23. Maryland Rule of Professional Conduct 7.2 provides, in pertinent part:
- (c) A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may
- (1) pay the reasonable cost of advertising or written communication permitted by this Rule;
- (2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service;
- (t) A lawyer, including a participant in an advertising group or lawyer referral service or other program involving communications concerning the lawyer’s services, shall be personally responsible for compliance with the provisions of Rules 7.1, 7.2, 7.3, 7.4, 7.5 and shall be prepared to substantiate such compliance.
The plain text of the rule permits an attorney to pay the “usual charges” of a not-for-profit referral service. The text also plainly authorizes an attorney to pay the “reasonable costs” of advertising. Provided the payment of any fees to the referral organization are “usual charges,” participation in this organization should not offend this Rule. The payment of fees to the “third party” would also appear to be authorized to the extent these fees genuinely represent the cost of advertising.
The Committee cautions, however, that the “third party” provider should not be used to defeat the requirement that the referral service be not-for-profit. In other words, if the referral organization is merely a subterfuge, this arrangement may not meet the requirements of Rule 7.2. The Committee would be concerned, for example, if there was common ownership and control of the referral organization and the third party. Its concern would be heightened if the third party is a for-profit entity that is charging fees which exceed the “reasonable cost” of advertising. Similarly, it would be concerned if the referral organization is not performing any substantial services, and merely acting as a “front” for the for-profit activities of the third party provider. Any Maryland attorney wishing to participate in this organization should take care to assure herself that this is genuinely a not-for-profit referral organization.
You imply some recognition of these concerns in your inquiry when you state that “if it made a difference” the arrangement could be restructured so that the payment of the “transmission” fee would be made to the referral organization, which would, in turn, pay the third party as an expense. Without expressing an opinion as to necessity of structuring the arrangement in this manner, the Committee advises you that direct payment of this fee should comply with Rule 7.2 provided it represents the “usual charges” of the not-for-profit referral service.
You further note that Section 504 of the Bankruptcy Code may prohibit the payment of referral fees in bankruptcy matters. You propose to address this by characterizing the fee in question as a “transmission” fee. The question of whether the fee at issue, however characterized, involves a prohibited referral fee under bankruptcy law is a substantive legal question upon which this Committee expresses no opinion.1 We caution, however, that a violation of substantive bankruptcy law would potentially violate, by way of example, Maryland Rule of Professional Conduct 8.4(d), which prohibits conduct prejudicial to the administration of justice.
Finally, as noted in Rule 7.2(f), the participating Maryland attorney is responsible for assuring that her advertising complies with Rules 7.1 through 7.5.
We hope this response has addressed your inquiry and we thank you for your interest. Our opinions may be found on-line at www.msba.org.
1 Section 504(c) provides: “This section shall not apply with respect to sharing, or agreeing to share, compensation with a bona fide public service attorney referral program that
operates in accordance with non-Federal law regulating attorney referral services and with rules of professional responsibility applicable to attorney acceptance of referrals.” 11 U.S.C. § 504(c). The statute does not define a “public service attorney referral program,” and it is not clear that the organization you propose meets this description.