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Fee sharing with nonlawyers is not allowed under the Rules of Professional Conduct.

If I am representing a client for estate planning, can I accept a referral fee from an insurance agent or an investment company I have worked with in the past for referring the estate business?

The answer traditionally would be no. Lawyers are not allowed to share fees with a nonlawyer or receive fees from a nonlawyer, see Rule of Professional Conduct 5.4(a). Another good reason not to enter into such an arrangement is it could create a conflict of interest under Rule 1.7 of the Rules of Professional Conduct. As part of the conflict of interest rules under the concurrent conflict of interest rules, a lawyer cannot represent someone if the representation would be materially limited by the lawyer's responsibility to a third person or the personal interest of a lawyer. There can be a waiver under certain circumstances, but there has to be full disclosure.

The problem with being paid a referral fee by an investment group or insurance agent is that a lawyer's interest may be different from the client. If the lawyer has a relationship with an investment adviser or an insurance broker or real estate broker then the lawyer might well send the client to that person if the lawyer knows he is getting a referral fee. If the lawyer sent the estate or client to a person they didn't know, even though the other person might be able to provide better advice, the lawyer wouldn't necessarily get a fee because the lawyer didn't have a relationship with that person. Also, under the Specialized Conflict of Interest Rule 1.8(f), a lawyer cannot accept compensation for representing a client from someone else unless the client gives informed consent, there is no interference with the lawyer's independence or professional judgment, and the information is protected by confidentiality under Rule 1.6. It could be argued that accepting monies by way of a referral fee could affect the independence of the lawyer's professional judgment to the client since the client's interest might better be served by sending the work to someone else as opposed to the lawyer's friend.

The other consideration that could create a problem is that perhaps the client ought to get the advantage of the referral. If the insurance broker is willing to pay a referral fee to the lawyer, perhaps the money should go to the client to rebate the fee or be applied to reduce the fee. In other words, the client maybe should benefit, but not the lawyer.

Having said all this, there is some confusion in this area. There was a formal opinion by the Pennsylvania Bar Association. This is entitled 2000-100. This opinion, it appears, was joined by the Philadelphia Guidance Committee. In essence, that opinion seems to allow an insurance broker to pay a referral fee to a lawyer as long as the lawyer complies with Rule of Professional Conduct 1.7, the general conflict of interest rule, and Rule of Professional Conduct 1.8(f), the specialized conflict of interest rule.

It's hard to understand that opinion because it seems to go against the language of the Rules of Professional Conduct. But, the opinion does caution lawyers to be very careful accepting referral fees from these providers. The opinion notes the client must consent to the payment only after full disclosure and consultation and the lawyer has to make sure that the lawyer's independent judgment will not be affected. The problem with giving that kind of full disclosure is that the client is going to realize the lawyer is benefitting when perhaps the client should benefit from the arrangement. That may cause the client to want to go elsewhere. In other words, the opinion allows something, but then makes it difficult to do.

So, what is the better practice? The best practice is to rely directly on the Rules of Professional Conduct that do not seem to allow this kind of payment. But, although law is a profession, it still has a business aspect. This joint opinion does appear to allow referrals under certain circumstances. These joint opinions are not binding on the Supreme Court, but could be raised as a defense or mitigation.

When a lawyer leaves a firm, they must be well aware of their duties to their old firm.

I am a partner in a law firm and if I decide to leave the firm, when can I tell my clients that I am leaving and ask them to go with me?

Leaving a firm is always a difficult situation both from the firm's standpoint and from the lawyer who is leaving. But, in this modern world, sometimes lawyers have to move on. Sometimes they need a different firm to handle the clients' issues. Other times, the firm is just not a good fit. Sometimes an attorney working for a law firm is never going to be made an equity partner. When that reaches a boiling point, the lawyer has to move on.

A critical point to remember is that a lawyer who is a partner in a law firm or to a lesser extent, an employee of the law firm, still has a fiduciary duty to the firm until they leave the firm. It is critical then that the lawyer give notice to the firm as soon as possible. But, until the lawyer gives the firm notice, the lawyer cannot be in a position to negotiate with clients about leaving or make arrangements to clients to take their files while the firm still believes the lawyer is working in the firm's best interest. Doing so would breach the lawyer's fiduciary duty to the firm or employer.

Once the lawyer advises the law firm or the partner they are leaving, usually there is an agreement to send joint letters asking the clients who they wish to have in the future as their lawyer. There is usually two boxes to check off, one saying I want to go with the departing lawyer and the other, I want to remain with the firm.

Obviously, before the lawyer gives notice to the firm, they cannot ask their client to make a choice. Sometimes there is no need to send the letters once the firm is notified of the departure since the firm accepts the fact that these clients are the departing partner's clients and, therefore, they are going to go with the departing partner. The situation gets more dicey with an associate who has been handling cases for years and doing all the work while in a smaller firm the managing partner or owner of the firm still believes all the clients are his. That's when there is often litigation because the clients usually want to go with the associate who they had contact with and don't want to stay with the firm because they've had no contact with the other members of the firm. That's why those letters are important, but the timing is critical. If a lawyer violates their fiduciary duty, that could be the basis for an injunction as seen in cases in the past in Pennsylvania.

The Pennsylvania Bar Association has an excellent formal opinion on the duties when lawyers leave firms. It covers both duties of the departing lawyer and the duties of the law firm.

Therefore, when a lawyer leaves a firm, they must be well aware of their duties to their old firm, particularly the fiduciary duties if they are a partner and the duties an associate owes to the firm. Once the firm is fully advised the lawyer is leaving, then the lawyer can contact the clients either through some joint letter or a letter asking the clients if they want to remain with the lawyer. Once the clients make that choice, then the files have to be given over. There is a right to assert attorney liens if there are fees due by the old firm, but that cannot be asserted if there is going to be prejudice to the clients. The files have to be transferred and then the firms will work out what is owed or not owed after the fact.

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pennsylvania, 19381.