How to protect your referral fee when you refer cases to other attorneys

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I heard from a PI lawyer who had referred a case to another lawyer and was supposed to get one-third of the fee. When the case settled, the referring lawyer heard about it not from the lawyer who settled the case but from a friend of the plaintiff.

Not good.

Even worse, the plaintiff had another accident 4 months later. The same firm handled that case, which settled for $200,000, and they never told the referring attorney about it.

When he finally spoke with someone at the firm about the second case, the referring attorney was told that they don’t pay referral fees on “second generation cases/referrals”.

He asked if I think he’s entitled to a referral fee on the second case.

My take? In equity, maybe. In law, probably not. In the world of commerce, where screwing your referral sources is a great way to kill referrals (and your reputation), I think they should take care of you.

But they’re PI attorneys so I won’t hold my breath.

The bigger question is what to do to protect your referral fee in the future.

Two things. First, you need to have a written agreement that specifies what you get, not only on the original referral but on subsequent cases with the same client. Get this signed before you make the referral.

To be enforceable, it probably has to have reasonable limits (like a non-compete agreement), something like subsequent claims within two years of the original injury. (I’d also ask for a fee on any referrals from that client during the same period.) Ask around, find out the standard in your community. And be prepared to negotiate.

Second, your agreement should specify that you have a lien interest in these cases, and you should so notify the insurance carrier and/or opposing counsel on the first case. That way, when the case settles, your name will be on the check and they have to come to you to get your endorsement.

Your agreement can also specify a lien interest (and attorneys fees if not paid) on subsequent cases, but if you don’t know about those, it’s not as easy to protect your referral fee because you have nobody to notify of that interest until after the fact. Still, better than nothing.

And without an agreement, nothing is what you’ve got.

Hey, I’ve been there. I’ve referred cases to other lawyers and was screwed out of a fee when they settled. You live and learn.

My last piece of advice? Stay in touch with the client. Because you want him to tell you when he has another case, or he has a referral.

Be his “personal attorney” for life. His advisor. The conduit of all of his legal matters.

Think “clients, not cases”. And think about the referral as, “bringing in another lawyer,” not “referring out” to another lawyer.

I’d love to hear how other lawyers handle this subject. Please post in the comments.

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Comments

  1. Your first piece of advice should have been to read the state ethics rules where the lawyer who wants to take your other advice practices. Some of what you have written could subject lawyers in Missouri, and perhaps other places, to discipline.

    Bald referral fees are ethically prohibited here. Fee splitting among lawyers who are not in the same firm is permitted only when the lawyers who split the fee remain involved in the case–and then only in proportion to the amount of work done on the case, unless both (or all) lawyers assume joint responsibility for the representation. Thus, a referring lawyer may not be involved in name only in order to justify part of the fee. Then, too, such an arrangement is permitted only if the client consents to it in writing. A prudent lawyer who seeks consent makes sure that the client gives informed consent. Thus, the lawyer should at least inform the client that the client has the right to seek other counsel before signing the approval for the fee arrangement. Finally, such an arrangement is permitted only if the total fee is reasonable in any event. Mo. R. 4-1.5(e).

    I thus do not see how a lawyer could ever bind the lawyers to whom the referred client sends additional business to split fees with the lawyer who sent them the client in the first place. It goes almost without saying that a lawyer could not bind a client to refer cases to him or her in the first place.

    Thus, this post is frightening, at least for Missouri lawyers and probably for those in many states that have adopted some form of the model Rules of Professional Conduct.

    • You’re right, some jurisdictions only allow fee splitting under the conditions you specified. In fact, there are a wide range of rules in different jurisdictions.

      Most of my readers know I’m not writing about the law or ethics. Although I usually do “warn” them to check their rules, I figured they’re smart enough to know they should only use the advice in this post only if their rules permit it.

      Like you did.

      Thanks, Richard!

  2. http://Michele%20Cecil says

    I agree with Richard; it is the same in Kentucky.

    In addition your referral to PI attorneys as a group coupled with a negative inference only adds fuel to the fire of the entire profession.

    As a Plaintiff PI attorney I work hard for my fees and am a diligent advocate for my clients.

  3. First, in CA, you can pay naked referral fees as long as the client signs off on it.

    Second, this line:

    “But they’re PI attorneys so I won’t hold my breath.”

    Many of the same bad things are said about legal marketers. I’m not sure why you include this pejorative in there. Perhaps you don’t care to have another PI attorney client ever again, which is fine. Not a single word about the attorneys who do the billion dollar insurance companies’ bidding.