Clear Rules and Good Communication are the Keys to Maximizing LRIS Income
As long as percentage fees have been in existence, LRIS directors have wrestled with the issue of panel members who fail to pay the money they owe on referred matters.
There will always be a few dishonest panel attorneys who intentionally deceive LRIS to increase their own income. This article does not focus on the punishment or removal of dishonest panel members.
Rather, we begin with the basic premise that the vast majority of panel attorneys are men and women with a high degree of integrity who want to do the right thing. That said, LRIS directors have a responsibility to establish and communicate a clear set of rules for the application and enforcement of percentage fees. Think of these rules as a roadmap that will enable your good panel attorneys to meet the Service's expectations in terms of reporting and payment of fees owed.
The amounts of the consultation and percentage fees owed should be easy to understand, and it is essential to use clear language to guide panel attorneys.
First, LRIS rules should inform the panel attorney whether she is expected to charge a consultation fee, and if so, how much to charge, if it is for a specific time period, whether she keeps the consultation fee or remits it to LRIS and if there are any exceptions to the collection of such a fee from the client.
The New York City Bar Association Legal Referral Service Rules for Panel Membership address all of the above concerns regarding the consultation fee in concise language as follows:
Collection of Consult Fee
Each client referred by the Service and interviewed by a Panel Member shall be charged an initial consultation fee of $35, unless such fee is prohibited by law or waived by the Service. The initial referral fee shall be charged by the Panel Member unless the Service requires the client to pay the initial referral fee directly to the Service and informs the Panel Member that this has been done.
Waiver of Consult Fee
The consult fee is waived for the following areas:
- tort matters typically handled on a straight contingency fee basis;
- all social security referrals (SSD and/or SSI cases);
- all workers compensation referrals;
- other matters where the consult fee waiver is approved by the Executive Director, in his/her discretion, upon request of the client or a panel member.
Limitations on Consult Fees Charged
Each Panel Member agrees not to charge any fee to compensate for the first half hour consultation with the referred client other than the $35 consult fee that is forwarded to the Service.
Similarly, LRIS rules for percentage fees should inform the panel attorney how much is due the Service and when to remit payment. Many LRIS programs have a one sentence percentage fee rule along these lines: "On any referral made by the Service, the panel member agrees to remit 15% of his or her fee to LRIS." While short, it is not very informative. Does the 15% apply to the gross fee collected or the net after costs? When should payment be made?
The State Bar of Nevada addresses the first question in its rule as follows: "Each panel members agrees to pay to the Service twenty percent (20%) of all net fees received by the panel member … Net fees are defined as the total fees remaining after deduction of out–of–pocket costs."
Regarding the time when payment is due, the approach varies among LRIS programs. The Illinois State Bar, for example, requires the panel attorney to report on a referral with a remittance of 10% of the fee "within ten (10) days of the receipt of the fee." The Philadelphia Bar Association, under new rules soon to take effect, clarifies that payment of the percentage fee must be made "when the fee is earned," reflecting that in Pennsylvania, from an ethical standpoint, a fee is not earned until the service is provided.
Under what circumstances is LRIS owed a percentage fee? This is where panel members often stumble, often because they make assumptions when LRIS rules provide little or no guidance when work performed for a client is within the purview of LRIS.
LRIS programs vary philosophically on this issue. Some limit responsibility for payment to LRIS to the client and initial matter referred. Others include matters arising out of the initial matter, and may or may not include additional family members or others involved in the same incident or transaction. A few programs introduce a time frame — any matters the client may bring to the attorney within a specific time frame.
Whichever philosophy an LRIS program adopts, it is essential that the policy is set forth clearly in the program's rules of operation.
For example, suppose that a client is referred for a divorce matter. The panel selected was "Divorce" and that information is transmitted to the panel member. During the pendency of the divorce, the other spouse becomes violent, and the referred client asks the panel member to represent her in a protection from abuse proceeding. Does the panel member owe LRIS a percentage fee for representing the client in the abuse matter? Your instincts may say yes, but do your rules account for this situation? A common rule adopted by many programs states that a percentage fee is owed on "any matter arising out of the initial matter referred."
Let's take it one step further. A client is referred for a child support matter. During the course of the initial consultation, the client informs the panel member that she has her house on the market and would like the attorney to represent her in that transaction. Does the panel member owe LRIS a percentage fee for representing the client in the real estate matter? That question can be answered easily with a rule that states, "Any legal matters discussed during the initial consultation are subject to the percentage fee."
Of course, the above two rules are not mutually exclusive and may be combined to further clarify the obligations of the panel member.
Continuing with the above scenario, suppose the client comes back to the panel member a year after the referral and asks the panel member to represent her in the real estate transaction. Does LRIS still get a slice of the pie? For some Services, the attorney's obligation ends with the initial matter referred, all matters discussed in the initial consultation or all matters arising out of the matter referred, or some combination.
Other Services deal with this question by imposing a time limit. The New York City Bar LRIS requires the panel member to pay a percentage fee on "any other matter which involves the same client and is undertaken within three years of the date of the Service's referral or the initial retention, whichever is later."
What if family members or friends of the referred client wish to use the panel member? This situation frequently arises in the context of an automobile accident.
An injured passenger calls LRIS and is referred to a panel member to handle his claim. At the consultation, the client tells the panel member that his sister and her boyfriend were also passengers in the car and were seriously injured. Subsequently, the panel member meets with the other two passengers and signs them up as clients. Does the panel member owe a fee to LRIS for these cases? However your program falls philosophically on this issue, it is important to have a rule in place addressing this situation. The Lawyer Referral Service of Central Texas believes that the attorney should owe a fee. Consequently, they have adopted a rule which states, "If LRS refers a caller who puts other people in touch with the LRS attorney for the same case, LRS is entitled to 15% of fees from all related cases."
Suppose the panel member is unable, for whatever reason, to handle representation of the referred client himself. He is considering whether to ask another partner at the same firm to handle the case, whether to co–counsel with a solo practitioner down the hall or refer the matter out to another firm. As this scenario may arise in a matter involving a substantial fee, it is important for LRIS programs to have rules in place that clarify the relationship and responsibilities of the panel member and LRIS.
Let's break down the above scenario. Suppose the panel member transfers responsibility for the case to a partner. Surprisingly few LRIS programs have a rule to address the question of whether a percentage fee is owed to the Service under such circumstances. Some may argue that the answer is so obvious that no rule is required. But what if the panel member leaves the firm before the referred case is resolved? What is the firm's responsibility at that point? The Philadelphia Bar Association LRIS has addressed this issue by requiring each applicant for panel membership and the managing partner of his or her firm to sign an Acknowledgement that the firm is aware of the prospective panel member's application for membership and that the firm "will abide by the LRIS Operating Rules and will comply with all LRIS requirements regarding clients referred to the panel attorney by LRIS."
Suppose the panel member contemplates co–counseling with the attorney down the hall or referring the case to another office. Alameda County Bar Association LRS confronts this issue head on in its rules, which provide, "An attorney to whom a client is referred by LRS shall not refer the client to another attorney, unless that other attorney is a partner or associate within the attorney's law firm. If the attorney refers the client to or associates another attorney in violation of this section, the attorney shall remain liable to LRS for 15% of the total attorney's fee."
Some programs address this issue by requiring a panel member who is unable to follow through on representation of the client herself or through her firm to refer the client back to LRIS for another referral. Other programs require the panel member to contact the LRIS director to obtain permission to co–counsel or refer a matter to another firm. This policy can be particularly useful when the case involves a highly specialized practice field or an extremely complex matter.
Of course, a clear set of rules for when a percentage fee is owed is only effective if the rules are adequately communicated to the panel members. Do not expect that an applicant for panel membership will read the rules. We live in an era when we click "Accept" to the "Terms of Service" for use of software or websites without reading a single word of those documents. Trusting established software firms and web hosts, we proceed on the assumption that the terms are reasonable.
Similarly, busy lawyers trust bar associations to have reasonable rules and if we let them, they will very often enter into panel membership without reading your well–crafted rules.
Talk to them. Engage them. Require that a prospective panel member have an in person orientation with the LRIS director before activation of membership. During the orientation, make sure that the panel member leaves with a clear understanding of the rules and what is expected of her and her firm.
In addition to the orientation with the panel member, some programs, including the Maine State Bar Association LRIS, have found success in providing the panel member's office staff with a booklet setting forth the rules and procedures to be followed to remain in compliance.
For some statewide programs, a meeting with the LRIS director may not be practical. If possible, the prospective panel member may be required to meet with a nearby LRIS Committee member or to teleconference with the director.
In 2013, resolve to improve your LRIS program's operating rules. Make them clear, cover as many possibilities as you can and most importantly, make an effort to ensure that your panel members know and understand the rules from the very beginning. Your bottom line will certainly benefit.
The author would like to thank LRIS Directors Michelle Chavez of the San Diego County Bar Association LRIS and Pat Ruppert of the State Bar of Wisconsin LRIS and Philadelphia Bar Association Senior Counsel Amy Seefeld, who presented on a similar topic at the 2013 ABA LRIS Workshop and who conducted the research which forms the basis for this article.
Charles J. Klitsch is director of public and legal service of the Philadelphia Bar Association.