Money for Nothing? Best Practices for Referral and Fee Splitting Agreements

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Money for Nothing? Best Practices for Referral and Fee Splitting Agreements

Posted on: April 10th, 2023 by David Lipson


It is an everyday occurrence. Attorneys refer cases to one another and then collect the fees for those same referrals. Client referrals and the income generated from fee splitting agreements are not only an important revenue stream, but also serve to assist those clients in need of quality legal representation when the attorneys are unable to take on all prospects themselves as a result of availability, retirement, or differing practice areas. However, these fees are not simply easy and risk-free money; there are strict requirements that the referring attorney must satisfy in order to collect the referral fee, and proactive risk management pertaining to fee splitting agreements is critical. The failure to meet these requirements may result in an ethical violation, may cause the loss of the fee, and may result in vicarious liability being placed upon the referring attorney for the misdeeds or negligence of the working attorney ultimately involving the referring attorney in a legal malpractice matter or disciplinary proceeding.

Why Refer?

Referral fees and fee sharing agreements play an important role. They incentivize lawyers to seek out or partner with other lawyers to ensure that clients obtain competent representation. They make good business sense in that an attorney cannot and should not try to handle every case that walks through the door. The attorney may have more work than she can handle at this time, the matter may be beyond the attorney’s current skill level or expertise, or perhaps the matter requires upfront costs that the attorney may not be in the financial position to bear on behalf of the client. Declining business is never easy, and the temptation to take on that representation can be difficult to resist. However, doing so may precipitate both disciplinary and legal malpractice problems. In order to derive income from the client matter, referral of the matter to another counsel and entering into a fee splitting agreement generally represents an acceptable approach. Here are some examples of situations when a fee splitting between attorneys may appear.




The Devil is in the Details

Posted on: January 14th, 2023 by David Lipson

The Devil is in the Details: Navigating Policy Limit Demands to Avoid Malpractice Exposure

It’s late Friday afternoon before a holiday, and you decide to leave early to get a head start on the long weekend. The office mail delivery is behind schedule and arrives after you leave. In your mail is a lengthy settlement demand letter in a personal injury case for which you have recently been retained by an insurance company to represent its insured. The letter arrived by certified mail. It demands payment of the full $500,000 limit of liability of your client’s insurance policy, in exchange for a release. The letter specifies that the demand will remain open for ten days. Buried on page fifteen of the letter is a requirement that all communications regarding the demand be in writing.

You take a much-needed extra day off and return to the office on Tuesday. The demand letter is waiting for you on your desk. You have only done a preliminary analysis of the claim but, based on your initial review, you believe the case likely warrants an early policy limits settlement. The plaintiff’s injuries are clearly significant (as reflected in the partial medical records enclosed with the demand.) It is likely that your client will be found at least partially responsible for the accident, and the $500,000 limit will be reduced by what are likely to be significant defense costs. Nevertheless, you think it prudent to complete your analysis and obtain additional documentation before making any recommendation to the client and the client’s insurer.