Can a lawyer fund a bar lawyer referral service by paying a percentage of fees earned from referrals instead of forwarding a flat consultation fee?

Plain-English summary

The Louisville Bar Foundation and several attorneys asked whether a member of the Kentucky Lawyer Referral Service (KLRS) could fund the service's expenses by contributing 10% of any fee collected on a referred matter, in lieu of forwarding a $15 initial consultation fee. The Committee answered yes. It relied on ABA Formal Opinion 291 and ABA Informal Opinion 1076, which permitted financing a referral service through a reasonable percentage of fees collected, and on a collection of state and local bar opinions reaching the same result.

The opinion made several observations. A lawyer may pay a bar referral service a reasonable percentage of a net fee as a contribution to administrative expenses, which is not a division of fees and does not raise the dangers of lawyer-layman fee splitting. DR 2-107 (division of fees between lawyers) did not apply because the arrangement was a contribution to expenses, not a fee division. The objection under DR 2-106 (excessive fees) failed because a lawyer in an approved referral service may not pass the cost on to clients, and the KLRS may not approve a plan permitting it. The opinion agreed with San Diego Bar Opinion 1973-12 that the referral service should disclose the arrangement to referred clients, though the percentage itself need not be disclosed, and concluded that fee-dispute mediation or arbitration, which require both parties' consent, need not be scrapped. It cautioned that the opinion is not controlling in areas governed by federal law, citing 11 U.S.C. 504 and the Florida bankruptcy practice.

Currency note

This opinion was issued in 1984 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer pay a bar referral service a percentage of fees earned on referred cases?

A: Under this opinion, yes. The Committee treated a reasonable percentage of net fees as a contribution to the service's administrative expenses, not a prohibited fee split.

Q: Does paying a percentage violate the fee-splitting rules?

A: No. The opinion concluded that DR 2-107 (fee division between lawyers) and DR 3-102 (sharing fees with a layman) were not offended because the payment funds expenses rather than dividing a fee, distinguishing it from prohibited lawyer-layman fee splitting.

Q: Does the client have to be told about the arrangement?

A: The opinion agreed that the referral service should disclose the arrangement to referred clients, while holding that the specific percentage need not be disclosed.

Background and rules framework

The opinion applied DR 2-103(C) (requesting referrals from a bar-approved referral service), DR 2-106(A) (reasonable fees), DR 2-107 (division of fees between lawyers), and DR 3-102 (sharing fees with a nonlawyer) of the former Code. The modern analogs are Model Rule 7.2 (paying a qualified lawyer referral service) and Model Rule 5.4 (professional independence and fee sharing with nonlawyers). The analysis turned on the distinction between a contribution to a referral service's expenses and a division of fees.

Citations and references

Rules of Professional Conduct:

• DR 2-103(C); DR 2-106(A); DR 2-107; DR 3-102 (former Code)
• MR 7.2 (referral services); MR 5.4 (fee sharing with nonlawyers)

Statutes:

• 11 U.S.C. 504 (sharing of compensation in bankruptcy)

Cases:

• Emmons, Williams, Mires & Leech v. State Bar, 6 Cal. App. 3d 565, 86 Cal. Rptr. 367 (1970), upholding a referral-service funding mechanism

Other opinions cited:

• ABA Formal Opinion 291; ABA Informal Opinion 1076; California Opinion 1983-70; Maryland Opinions 82-35 and 81-11; New Jersey Opinion 393; Chicago Bar Opinion 75-38; San Diego Bar Opinion 1973-12; Illinois Opinion 506

See also

• KBA Ethics Op. E-296: Nonprofit Lawyer Referral Service Board Member
• KBA Ethics Op. E-313: For-Profit National Referral Service
• KBA Ethics Op. E-344: Cooperative Advertising and For-Profit Referral

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-288.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-288
Issued: September 1984

This opinion was decided under the Code of Professional Responsibility, which was in
effect from 1971 to 1990. Lawyers should consult the current version of the Rules of
Professional Conduct and Comments, SCR 3.130 (available at http://www.kybar.org),
especially Rules 7.01-7.50 and the Attorneys' Advertising Commission Regulations,
before relying on this opinion.

Question:

May a lawyer who is a member of the Kentucky Lawyer Referral Service ethically
participate in that organization's proposed plan for funding its expenses, to wit:
that in lieu of forwarding an initial consultation fee of $15.00, the lawyer
contributes 10% of any fee collected as a result of further compensation.

Answer:

Yes.

References:

Code of Professional Responsibility (1969); Disciplinary Rules 2-103(C),
2-106(A), 2-107, 3-102; ABA Formal Opinion 291 (1976); ABA Informal
Opinion 1076 (1968); California Opinion 1983-70 (MOPC 801:1605); Maryland
Opinion 82-35 (MOPC 801:4317); Maryland Opinion 81-11 (MOPC 801:4306);
New Jersey Opinion 393 (1978) (MARU 12116); Chicago B.A. Opinion 75-38
(1976) (MARU 11018); San Diego B.A. Opinion 1973-12 (MARU 7950); Los
Angeles Co. B.A. Informal Opinion 1965-7 (MARU 7814); Arizona Opinions
151(1964) and 154(1970) (MARU 5897, 5894); Michigan Opinion 192 (1962)
(MARU 1366). See also Emmons, Williams, Mires & Leech v. State Bar, 6 Cal.
App. 3d 565; 86 Cal. Rptr. 367 (1970).

OPINION
The Committee has received requests for a formal opinion from the Louisville Bar
Foundation and from several attorneys concerning a proposal of the Kentucky Lawyers Referral
Service (KLRS). The proposal has been advanced as a way to make the referral service financially
solvent by having member attorneys share in the operating expenses of the service from which they
benefit.
ABA Formal Opinion 291 (1956) provides in pertinent part:
Registrants (of a lawyer referral plan) may 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.

Moreover, ABA Informal Opinion 1076 (1968) held that a lawyer referral service may be
financed by any of the following methods:
(1)
lawyers pay annual fees for membership on the panel;
(2)
clients pay modest registration fees, which are waived in hardship cases;
(3)
some or all of the initial consultation fee is returned to the association sponsoring
the service;
(4)
lawyers return part of their fees exclusive of the initial consultation fees to the
association sponsoring the service.
The Code of Professional Responsibility (1969), DR 2-103(C), provides in pertinent part:
A lawyer shall not request a person or organization to recommend
employment, as a private practitioner, of himself, his partner, or associate, except
that he may request referrals from a lawyer referral service operated, sponsored, or
approved by a bar association representative of the general bar of the geographical
area in which the association exists and may pay its fees incident thereto.
Suggestions continue to be made that the proposed arrangement might conflict with DRs
3-102, 2-107, and 2-106, in spite of the above mentioned authorities. The Committee has carefully
researched state and local bar opinions addressing such objections, and collected many of them in
the references to this opinion. Without discussing each separately as it may bear upon any
particular attorney's objection or objections to the proposal of the KLRS, we make the following
observations, which we believe are amply supported by these authorities.
1.
A lawyer my pay a bar association lawyer referral service a reasonable percentage
of any net fee. Such payment constitutes a contribution to administrative expenses rather
than a division of fees. See, e.g., California Opinion 1983-70 (1983) (MOPC 801:1605);
Maryland 82-35 (1982) (MOPC 01:4317); New Jersey Opinion 393 (1978). But compare
Illinois Opinion 506 (1975) (MARU 10914) (which is analyzed and refuted in Chicago
B.A. Opinion 73-38 (1976). Moreover, the proposal of the KLRS carries with it none of
the dangers associated with prohibited fee-splitting between lawyer and layman.
Emmons, Williams, Mires & Leech v. State Bar, 86 Cal. Rptr. (identifying same, and
upholding a similar funding mechanism); Chicago B.A. Opinion 7-33 (1976) reprinted at
57 Chicago Bar Record 311.
2.
DR 2-107 governing the division of a lawyer's fee with another lawyer is
inapplicable. Moreover, the proposal does not involve a division of fees but rather a
contribution to expenses.
3.
Finally, it has been suggested that a lawyer who receives a case from a lawyer
referral service might increase his or her hourly rate or the percentage in a contingent fee
agreement or in some other way pass on the costs under the proposal, resulting in an
excessive fee to KLRS referral clients in violation of DR 2-106. The short answer to this
objection is that the lawyer who participates in an approved lawyer referral service may not
engage in such conduct under the Code, and the KLRS may not approve a plan permitting

such conduct. The suggestion that a lawyer may profit from the KLRS plan while refusing
to support it, because otherwise he or she might be tempted to violate DR 2-106, contains a
germ of creative but unacceptable reasoning.
As long as funds generated by the proposal are used to defer the reasonable expenses of the
KLRS and are not used for unrelated projects or expenses of the sponsoring bar association, we see
no conflict between the proposal and the above mentioned rules.
Other objections have been raised to the proposal, and no doubt more will be raised in the
future. For example, it is contended that prospective referrals ought to be informed of the
arrangement, and that fee dispute mediation by the KLRS or the KBA Fee Dispute Panel will no
longer be possible due to bias or interest. With regard to the former objection, we agree with the
caveat contained in San Diego B.A. Opinion 1973-12 that the Lawyer Referral Service should
disclose the arrangement to referred clients, although that opinion held that the percentage of the
payment need not be disclosed. Cf. Chicago B.A. Opinion 7-38 (1976). Assuming that such a
disclosure will be made, we reject the suggestion that mediation or arbitration of fee disputes,
which require the consent of both parties, must be scrapped.
We note that a number of states have implemented similar proposals and operated
successful and financially solvent Lawyer Referral Services, which have benefited the public
without undermining confidence in the profession.
Finally, it should be noted that this opinion cannot be considered controlling authority in
certain areas. See, e.g., 11 U.S.C. 504; Florida Bar Memorandum of April 7, 1983 (Florida Lawyer
Referral Service defers to the Administrative Office of the U.S. Courts, and will not accept
remittance fees from attorneys in bankruptcy court … construction of federal law is a federal
question).

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky
Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor
rule). The Rule provides that formal opinions are advisory only.