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RE:ADVISORY
OPINION 95-01
Arkansas Bar Association
Date: June 1, 1995
SUBJECT:
Sharing Fees with the Lawyer Referral Service
Since July 1, 1975 the
Arkansas Bar Association has operated a Lawyer Referral
Service. An attorney licensed in Arkansas, who is
a member of the Association and who is a member of
the Association and who is engaged in the full time
private practice of law, may join the service upon
payment of an annual fee of $50 and upon promise to
abide by the rules of the Service. The attorney is
required to carry a specified amount of malpractice
insurance. Upon an inquiry from a prospective client,
the Bar Association directs the client to a member
of the panel, upon a rotating basis, limited solely
by the geographical area and any self-designated restrictions
upon areas of practice. The attorney agrees to charge
the client $25 for a 30 minute initial interview.
Subsequent to that interview, any fee arrangements
are based entirely on contract negotiations between
attorney and client.
The
issue presented to this committee is whether the Arkansas
Bar Association may, as a part of its regulations
and corollary agreement with participating attorneys,
require that a portion of the legal fee earned by
the attorney be paid to the Lawyer Referral Service
of the Arkansas Bar Association.
The
governing language is found in two provisions of the
Arkansas Rules of Professional Conduct, effective
January 1, 1986. Rule 5.4(a) says that a lawyer shall
not share legal fees with a non-lawyer, with certain
narrow exceptions not applicable here. As the Comment
points out, this restriction is to protect the lawyer's
professional independence of judgment. A provision
more on point is Rule 7.2(c): "A lawyer shall
not give anything of value to a person for recommending
the lawyer's services, except that a lawyer may pay
... the usual charges of a not-for-profit lawyer referral
service or other legal service organization."
Both of these provisions were adopted by the Supreme
Court more than a decade after the Bar Association
implemented the Lawyer Referral Service. These rules
recognize that the dangers present when sharing a
legal fee with a non-lawyer are not present when a
lawyer pays the usual charges of a lawyer referral
service.
However,
these rules do not specifically address the issue
of whether the usual charge can be a percentage of
the fee earned. When the rules were adopted, the usual
charge was an annual fee to the Bar Association.
At
least one appellate decision discusses Emmons v.
State Bar of California, 6 Cal. App. 3d 565, 86
Cal. Rptr. 367 (1970) concluded it was not improper
for a local bar association to charge a panel attorney
a one-third referral fee. Noting wide differences
in motivation, technique and social impact, the court
distinguished sharing a portion of a fee with a lawyer
referral service and sharing a portion of a fee with
a non-lawyer. The California court incidentally noted
that although that particular local bar association
had charged a one-third fee, a fee of 10 percent was
more typical in the state.
As
early as 1956, the American Bar Association issued
Formal Opinion 291 indicating that the attorneys participating
in a LRS panel could be required to contribute "to
the expense of operating it by a reasonable registration
charge or by a reasonable percentage of fees collected
by them."
The
same conclusion has been reached by the Connecticut
Bar Association, Informal Opinion 87-9; District of
Columbia Bar Opinion 201; Chicago, Illinois Opinion
87-1; Kentucky Bar Association Opinion E-284; Maine
93-133; Maryland Bar Opinion 82-35; Michigan Bar Association
Opinion (1989) RI-32; Ohio Opinion 92-1; Tennessee
State Bar Opinion 88-F-115; Wisconsin State Bar Formal
Opinion E-88-8. One estimate is that approximately
40% of the referral services are funded in whole or
in part by percentage charges. See Michael Franck,
"Percentage Fee: Available and Ethical,"
Lawyer Referral Network of the American Bar Association
(Spring 1993).
Based
on the above policies and opinions, we conclude that
the Lawyer Referral Service of the Bar Association
can require that a participating attorney pay, as
a charge for the service, a percentage of the fees
produced by the clients who have been directed to
the attorney by the LRS. The increase in revenue produced
for the Bar Association will help maintain this public
service.
Even
assuming that the charge paid to the LRS can be a
percentage of the fee earned, other questions remain.
Should the percentage by in addition to the annual
fee or instead of the annual fee? What is a fair percentage
to be assessed by the LRS? Should the percentage charge
become applicable only after the fees exceed a minimum
floor? Should there be a maximum amount in dollars
that can be charged, either per client or per year?
Should
an escalating scale be used so that the percentage
to be charged changes as the fee changes? Are the
charges that are produced to be used only by the Lawyer
Referral Service, or can they be applied to the general
purposes of the Bar Association?
This
committee has not been asked to address these issues,
which are left to the good judgment and discretion
of the Lawyer Referral Service Committee. A brief
survey of plans adopted by bar associations across
the country reveals a variety of responses and approaches
to such issues.
However,
on one corollary point, the rules, or at least the
policy of the rules, do seem clear. A lawyer should
not be permitted to charge a higher fee simply because
a percentage of it will be paid to the Arkansas Bar
Association. Such an increase beyond a reasonable
fee is inconsistent with the policy embodied in the
rules on sharing fees between law firms. See Ark.
R. Prof. Cond. 1.5(e). See also State Bar of California
Formal Opinion 1983-70; New York State Bar Association
93-651.
NOTICE
"This
is an opinion only of the Arkansas Bar Association
which is a voluntary association of attorneys licensed
to practice in the State of Arkansas, and reliance
thereon is voluntary and relieves any Association
member from liability for the content hereof. This
opinion is intended to be the Association's best interpretation
of the Model Rules of Professional Conduct as promulgated
by the Supreme Court of Arkansas as that code applies
to the written facts presented to the Committee."
By____________________
Howard W. Brill
Reporter for Professional
Ethics
and Grievances Committee
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