Ethics Opinion 245

Payment of Referral Fee to a Lawyer for Recommendation of Registered Agent

A lawyer may not retain a referral fee or commission for referring corporate clients to a firm that provides services as a statutory registered agent. Any payment offered to the lawyer for a referral of client’s business must be disclosed to the client. The client must consent to the payment. The payment must be turned over to the client.

Applicable Rule

• Rule 1.7(b)(4) (Lawyer’s professional judgment on behalf of the client shall not be affected by the lawyer’s personal interest).

Inquiry

The inquirer is president of a company that offers services as a statutory registered agent for corporations in the District of Columbia. The inquirer wishes to solicit D.C. Bar members and offer a commission for listing his company as registered agent in articles of incorporation or in applications for certificates of authority for foreign corporations to transact business in the District. The inquirer asks if it is unethical for a D.C. bar member to accept such commissions.

Discussion

D.C. Rule 1.7(b)(4) forbids a lawyer from representing a client when the

lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own financial, business, property, or personal interests.

Prior to adoption of the Rules, DR 5-101(A) stated the same rule.

In representing a client, a lawyer often may have reason to retain a third party to provide necessary services that will be paid by the client or recommend a third party to the client for the client to engage directly. Examples include title insurance companies, bonding companies, printers, court reporters, and expert witnesses.

In engaging or recommending such services, the lawyer must have paramount concern for the client’s interests--a good product for the client at a fair price. The lawyer’s judgment cannot be influenced by a promised payment to the lawyer from the third party.

This Committee has not considered previously an inquiry involving a commission or referral fee from a third party to a lawyer for referral or placement of a client’s business. In Opinion 138, however, the Committee considered whether a lawyer could refer a client to a particular bank for a loan to cover legal services. The lawyer was to receive no payment from the bank. Rather the lawyer would pay the bank $25 for each client referred. The lawyer, however, benefited from the arrangement because the $25 fee provided speedy processing of the client’s loan request and the bank’s agreement to notify the lawyer if the agreement was rejected. The Committee permitted the arrangement but said that the lawyer could have no interest in the bank, and the lawyer “must be satisfied that the credit arrangements are fair and in the client’s interest.”

In Informal Opinion 1020 (Feb. 9, 1968), the American Bar Association forbade a lawyer from accepting remuneration for referrals of inventor clients to an investment company. The Committee rejected permitting the remuneration even with full disclosure to the client and consent. The Committee cited with approval unpublished Informal Opinion 278 which provided:

A lawyer may not accept a gratuity from anyone without his client’s knowledge and consent, and if he does so the gratuity really belongs to the client, who, of course, may make the attorney’s fee more generous by reason of it, but is not bound to do so.

Philadelphia Bar Association Ethics Opinion 91-28 (1991) forbade a lawyer’s acceptance of a referral fee from an expert witness because it might divert the lawyer from making the selection solely on who would do the best job for the client (as well as the possible impact on witness’ credibility if the arrangement were revealed). Florida Ethics Opinion 70-13 (1970) holds the client, rather than the lawyer, must receive the benefit of a finder’s fee for placing a client’s investments. New Jersey Ethics Opinion 416 (1979) holds that a commission from a referral fee from a real estate company for listings obtained must be disclosed to the client. The client must consent, and the referral fee must be credited to the client.

We find that a lawyer may not retain a referral fee or commission from a third party for referring legal clients. Any payment offered to the lawyer for referral of a client’s business must be disclosed to the client. The client must consent to the payment, and the payment must be turned over to the client directly or as a credit to the bill for legal services. A lawyer’s judgment in referring a client for services from third parties must be based on assessment of the quality of the third party’s services and fairness of the price, not on a potential financial benefit to the lawyer.

Inquiry No. 93-4-9
Adopted: November 23, 1993