MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2012-02
Proposal for Referral Fees
The inquirer seeks guidance concerning a proposal to form a for-profit corporation that would use the Internet to refer potential clients to attorneys and charge a fee for doing so. Before addressing the specifics of the proposal, it should be noted that the committee has already opined in response to the question “as to whether a for profit, private lawyer referral service would be permissible,” concluding that “such a service would not be permissible.”1 The proposal under consideration presents unique issues, which justify a more detailed response. The proposal may be summarized as follows:
- Prospective clients access the corporation’s Internet site and describe the facts they consider relevant to their legal problems. There would be no charge at this stage.
- The corporation would refer the matter to an appropriate attorney. The attorney is not employed by the corporation. If the client elects to work with the attorney recommended by the corporation, the corporation enters into a contract with that attorney for the representation of that specific client only. This contract would “last only as long as the attorney’s representation of the client.” The corporation exercises no control over the attorney, nor does it accept any responsibility for the services rendered by the attorney.
- The client pays the corporation “a reasonable fee for the legal services.” It is not described how this reasonable fee is negotiated, and it is not known whether the attorney who will be performing the services is involved in negotiating the fee with the client. It is also not mentioned in the inquiry whether the client must enter into a contract with the corporation. If the client does not do so, the client has no contract with anyone. Also, it seems likely that the corporation must bill the client for the attorney’s services.
- The corporation pays the attorney to whom it referred the matter “a reasonable hourly or flat fee.” The first specific question asked is “Does this corporate structure violate the Maryland Rules of Professional Conduct in terms of lawyer referral fees?”
Rule 7.2(c) of the Maryland Lawyers’ Rules of Professional Conduct provides as follows:
A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may … (2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service. …
The above proposal does not involve any direct payment to the corporation by a lawyer in exchange for the referral of clients, and thus may appear to avoid the prohibition set forth in Rule 7.2 (c). The only difference between the specifically prohibited behavior and the proposal is the identity of the person who provides payment to the referral source. Under the proposal, the referral source is paid directly by the client, and the referral source takes its referral fee before transmitting the balance to the attorney who has performed the services. The result is the same, namely that a referral source is compensated for making a referral to an attorney who is subject to Rule 7.2(c). It appears to the Committee that although the proposed manner of paying the referral fee is not precisely contemplated by Rule 7.2(c), the proposal would violate the spirit of the rule.
This analysis is reinforced by the following facts. If the client were to pay the attorney for legal services rendered, and the attorney were then to pay the corporation for the referral, it would be clear that the corporation was being compensated as the source of the referral rather than as the provider of legal services. Such a transaction is explicitly prohibited by Rule 7.2(c). Under the proposal being considered, the client does not pay the attorney directly for the legal services rendered. Instead, it must be assumed that invoices are submitted by the corporation to the client, so that the client pays the corporation. The corporation is then able to pay the attorney for the legal services rendered by the attorney to the client. It is this path of payment from client to corporation to lawyer which enables the proposal technically to avoid violation of Rule 7.2(c). The result is that the corporation is billing and receiving payment for services it did not perform, and it is apparent that this arrangement has nothing to recommend it except as a means for avoiding the violation of Rule 7.2(c).
It should be noted that the payment path of the proposal does not withstand scrutiny, because the corporation, is billing and receiving payment for something it is not legally permitted to sell, namely legal services.2
Rule 7.2(c) prohibits, among other things, profiting from the existence of the practice of law by controlling the allocation of legal cases. This explains the exception permitted in Rule 7.2(c) for “not-for-profit lawyer referral service[s].”3 The proposal under consideration would create a forprofit corporation whose income would be solely based upon the difference between the total amount the client paid the referral source for legal representation and the amount the attorney actually received for the work performed. The committee concludes that an attorney may not participate in such an arrangement.
The inquirer poses two additional questions concerning the permissibility of ownership of the proposed corporation by a non-lawyer and a lawyer, or by two non-lawyers. Due to the committee’s conclusion that the proposal violates Rule 7.2(c), these subsequent questions are moot.
1 Ethics Docket 95-11, which references 1987-17, 1987-41, 1988-65, and 1990-46..
2 See, Md. Business Occupations and Professions Code, § 10-601 and Md. Corporations and Associations Code, Title 5, Subtitle 1, Professional Service Corporations.
3 See, Ethics Docket 95-11.