May a Lawyer Accept Compensation from a Service Provider for a Client Referral?

Probably yes, but only if the referral agreement will not affect the lawyer’s representation and the lawyer obtains the client’s informed consent, confirmed in writing. See Rule 1.7(a).

Under Louisiana Rule 1.7, a personal interest conflict exists if there is a significant risk that the lawyer’s representation of a client would be materially limited by a personal interest. However, the rule permits a lawyer to represent a client despite a personal interest conflict if the lawyer reasonably believes that his professional judgment will not be compromised and the lawyer obtains the client’s informed consent, confirmed in writing.

A personal interest exists between a lawyer’s desire to collect a referral payment and that lawyer’s duty to make an independent, impartial evaluation as to which service provider is best for the client. For example, a risk exists that a lawyer would refer a client to a particular financial advisor because the lawyer would receive compensation for the referral, rather than because that advisor is the best fit for the client.

Neither the Model Rules of Professional Conduct nor the Louisiana Rules of Professional Conduct expressly prohibit a lawyer from accepting compensation for referring a client to a professional service provider. Likewise, neither the ABA nor the Louisiana State Bar Association have formally weighed in on whether a lawyer may accept compensation for referring a client to a professional service provider.

Ethics advisory opinions are split on the issue. On the one hand, some jurisdictions have opined that even disclosure and informed consent cannot cure the risk that the lawyer’s professional judgment in making such a referral will be impaired. See, e.g., New York State Opinion 682, North Carolina Formal Opinion 99-1, Ohio Opinion 2000-1, and Texas Opinion 536.  On the other hand, some states permit a lawyer to accept a referral fee so long as (1) the lawyer obtains the client’s informed consent and (2) the fee will not interfere with the lawyer’s professional judgment. See, e.g., Joint Formal Opinion 2000-100 (2000) of the Pennsylvania Bar Association Commission on Legal Ethics Professional Responsibility and the Philadelphia Bar Association Professional Guidance Committee, Utah Eth. Op. 99-07, Mich. Eth. Op. RI-317.

In Louisiana, there exists no per se prohibition against the acceptance of referral payments from service providers. However, a lawyer seeking to recover such a payment must comply with Louisiana Rule 1.7. After all, a personal interest conflict clearly arises from the payment. Therefore, a lawyer seeking to recover a referral payment must, at the very least, disclose the payment to the client, advise the client of the risks and benefits of retaining the recommended service provider, advise the client of alternative providers, and obtain the client’s informed consent, confirmed in writing. Although there is no Louisiana authority on point, it is unlikely that such a personal interest conflict would be “nonconsentable” under Rule 1.7(b).

Please follow and like us: