Schooled in Ethics

SCHOOLED IN ETHICS By: Paula Schaefer

Associate Dean for Academic Affairs & Art Stolnitz Professor of Law University of Tennessee College of Law

PAYING AN ORGANIZATION FOR A CLIENT REFERRAL

A recent graduate reached out to ask whether he can enter an agreement to share a fee with an organization that refers a client to him. He remembered from our Professional Responsibility class that under the ABA’s Model Rules of Professional Conduct, an attorney generally cannot share fees with a non-lawyer who referred a client to the lawyer.

His memory was good. ABA Model Rule 7.2(b) provides that a lawyer may not compensate a person for recommending the lawyer, but permits two exceptions that are relevant here. First, Model Rule 7.2(b)(2) allows a lawyer to “pay the usual charges of a legal service plan or a notfor-profit or qualified lawyer referral service.” Comment 6 to Model Rule 7.2 explains that qualified lawyer referral services are “consumer-oriented organizations that provide unbiased referrals to lawyers with appropriate experience in the subject matter of the representation and afford other client protections” such as malpractice insurance requirements.

Second, Model Rule 7.2(b)(4) permits reciprocal referral agreements between a lawyer and a non-lawyer (or another lawyer), so long as the agreement is not excusive, the client is informed of its existence, and the lawyer’s agreement otherwise complies with the professional conduct rules. Relatedly, Model Rule 5.4, which addresses the professional independence of a lawyer, provides that a lawyer “shall not share legal fees with a non-lawyer” except in very limited exceptions. The only exception relevant here is “a lawyer may share court-awarded legal fees with a nonprofit organization that employed, retained or recommended employment of the lawyer in the matter.”

While Professional Responsibility courses typically use the Model Rules of Professional Conduct as their governing authority, students learn that in practice they have to research the rules of their jurisdiction before resolving an ethics question. So, my former student and I discussed the fact that he had spotted the issue but now needs to look at the professional conduct rules in his jurisdiction to learn whether the proposed agreement with the proposed organization complies with the rules.

I like this real life ethics dilemma because it highlights the need for lawyers to do their research and not rely on their memory of what they learned in Professional Responsibility. The rules governing paying money to (or sharing a fee with) an entity that provides a referral is an area where there is some variation among the states. Tennessee’s rules are different from the ABA’s Model Rules, and additional changes may be on the way.

Effective in September 2021, Tennessee has newly amended attorney advertising professional conduct rules.1 We no longer have a Rule 7.2, so if you opened up your rule book or looked online to see if Tennessee RPC 7.2(b) is the same as the Model Rule, you found that it is not.2 The new Tennessee RPC 7.3 includes a part (f) that addresses the topic “Paying Others to Recommend a Lawyer.” Portions of the new RPC 7.3(f) were found in the former 7.2(c)—but there are some significant changes.3 The introductory language provides, “A lawyer shall not compensate, give, or promise anything of value to a person who is not an employee or lawyer in the same law firm for the purpose of recommending or securing the services of the lawyer or the lawyer’s law firm” unless an exception applies. One of the new exceptions allows reciprocal referral agreements as allowed in ABA Model Rule 7.2(b)(4). Another exception provides that a lawyer may “pay the usual charges of a registered intermediary organization as permitted by RPC 7.6.” This language—allowing payment of registered intermediary organizations— was previously found in Tennessee RPC 7.2(c)(2).

Tennessee RPC 5.4, the professional independence of the lawyer rule, contains a provision not found in Model Rule 5.4. The Tennessee version of the rule provides “a lawyer may pay to a registered non-profit intermediary organization a referral fee calculated by reference to a reasonable percentage of the fee paid to the lawyer by the client referred to the lawyer by the intermediary organization.4

The registered intermediary organizations (currently 17 of them) are available on the BPR website.5 The Rule governing their registration is Tennessee Supreme Court Rule 44, while RPC 7.6 addresses an attorney’s obligations related to registered intermediary organizations. But all of that—the list of registered intermediary organizations, Rule 44, and RPC 7.6—may change shortly.

Also in its September 2021 Order, the Tennessee Supreme Court declined the TBA’s invitation to amend RPC 7.6. The Court instead issued a second Order, 6 also filed September 1, 2021, that proposes a different amendment to RPC 7.6 (that is based on North Carolina’s RPC 7.4) and deletes Rule 44, such that intermediary organizations would no longer register with the Board of Professional Responsibility and the burden would be on lawyers to ensure their compliance with newly revised RPC 7.6.

The proposed Tennessee RPC 7.6 expands the definition of an intermediary organization. The following tracks the new language in the opening sentence of the proposed rule: “An intermediary organization is a lawyer-advertising cooperative, lawyer referral service, lawyer matching service, online marketing platform, prepaid legal insurance provider, or other similar organization that engages in referring consumers of legal services to lawyers or facilitating the creation of lawyer-client relationships between consumers of legal services and lawyers willing to provide assistance for which the organization does not bear ultimate responsibility.”

Additionally, the newly proposed parts (b) and (c) of RPC 7.6 put the burden on lawyers to be sure the intermediary organization does not engage in improper solicitation, does not interfere with the lawyer’s professional judgment, is not controlled by the lawyer or any associated lawyers, and otherwise complies with the professional obligations of the lawyer. On the issue of payment from lawyer to the intermediary organization, the proposed rule provides that the lawyer must ensure that: (1) the organization makes available to prospective clients criteria for a lawyer’s inclusion, “including any payment made or arranged by the lawyer(s) participating in the service and any fee charged to the client for use of the service at the outset of the client’s interaction with the intermediary organization; and (2) the intermediary organization does not require the lawyer to pay more than a reasonable sum representing a proportional share of the organization’s administrative and advertising costs.7

The Court invites comments on the proposed amendments to RPC 7.6 and Rule 44 until November 30, 2021.

1 The TBA Petition that proposed many of the amendments that were ultimately adopted by the Court is available at http://faughnanonethics.com/wp-content/ uploads/2020/10/TBA-Advertising-Rules-Petition.pdf. The Tennessee Supreme Court’s September 1, 2021 Order amending RPCs 7.1, 7.2, 7.3, 7.4, and 7.5 (along

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