GPSolo Magazine - July/August 2004

Case Referrals
Handle with Care

It seems so simple, a lot simpler than trying to figure out the nuances of handling a plaintiff, personal injury case. And besides, I’ve got enough to do with my real estate practice. But this is just too good a case to send packing! It looks like a lay down, as far as liability is concerned, and talk about damages! That new lawyer who just moved into the office down the hall doesn’t seem too busy, and the ads the firm has been running indicate they do personal injury work and have gotten some very good results for their clients. If I can refer the case to that firm, I’ll bet they’ll pay a handsome referral fee. They do the work, and I get paid.

While oversimplified, the thought process exhibited in the preceding paragraph is not unusual. Lawyers routinely refer cases. Referrals are made for any number of reasons, including a lawyer’s lack of expertise in an area of practice, the time constraints of a busy practice, and incompatibility of a lawyer and a particular client. The practice of referring cases is also a well-founded risk management technique for lawyers. Not only will properly referring cases assist in avoiding legal malpractice claims, the practice will also assist lawyers in complying with their ethical responsibilities. And, if properly done, referrals can also act as a profitable source of income for the lawyers involved. Without proper safeguards, however, referring cases and accepting referrals can cause significant malpractice and ethical problems for a lawyer.

Every law firm, regardless of size, should have in place a solid risk management program. The program should be based on the Rules of Professional Conduct that guide every lawyer’s behavior. As Jay Reeves states in Lawyers Mutual Malpractice Prevention Guidebook, “The rules are more than just an abstract list of ethical dos and don’ts. They are the rigging that supports all of our relationships—with clients, colleagues, the bench and the public at large.” Compliance with the ethical rules assists lawyers in avoiding ethical problems that could limit a lawyer’s ability to practice, and it will also assist in avoiding malpractice claims, which are costly to both the lawyer and client.

Because the Rules of Professional Conduct for each state can differ, the ABA Model Rules of Professional Conduct will be referred to in this article. All lawyers should have a copy of their state’s ethical rules within easy reach. Read them. Study them.

Model Rules

Certain ethical rules deserve special attention in regard to the issue of referring cases and taking referrals, beginning with Model Rule 1.1: Competence. The rule states: “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” Lawyers often refer cases when the matter is outside their area of expertise, the right thing to do.

The Comments to Model Rule 1.1 are instructive: “A lawyer can provide adequate representation in a wholly novel field through necessary study.” The better practice, however, is to do what you know how to do. When your expertise is overwhelmed, referrals are preferable to “necessary study.” The decision to refer, however, is not the end of a lawyer’s responsibility, but, rather, a beginning. And when referring a case, do your homework. Make certain that the lawyer you are sending the client to for representation has sufficient expertise in the relevant area of law to provide the client with competent representation. This single failure has taken many lawyers into the world of malpractice claims based on an allegation of “negligent referral.”

Model Rule 1.5 has particular relevance to the issue of file referral where a division of fees is involved. Model Rule 1.5(e) states:

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer, or each lawyer assumes joint responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable.

The retainer agreement in referral cases is most often drafted by the lawyer receiving the referral. In those cases, there can be a tendency and a temptation to omit the referring lawyer’s name from the agreement. Often, the referring lawyer is a friend of the client or they share a past relationship whereby the referring lawyer does not want the client to be aware of the financial relationship that the referral has created. Similarly, the referral lawyer (whose competency has been praised by the referring lawyer to the client to encourage the relationship in the first place) may not want the client to know that a fee will follow the praise. These are innocent facts if dealt with up front; they are hard to explain if discovered later, after things have potentially not gone so well. Always be up front and complete when describing this relationship to the client. Model Rule 1.5(e) requires the agreement to be in writing. Make certain to include the name of the referring lawyer on the retainer agreement and document in the retainer agreement the basis for the fee-splitting arrangement. The client is likely to read the retainer agreement carefully, while less attention might be paid to other correspondence generated during the normal course of a case.


As noted above, full and complete disclosure of the fee-splitting arrangement is necessary so that the client can fully understand the relationship of all of the lawyers involved in handling the case. Malpractice claims can easily grow out of a situation where a client is referred by a lawyer/friend or lawyer/neighbor to another lawyer. It doesn’t register with clients, even if they were advised early on in the representation, that the lawyer/friend or lawyer/neighbor was to be paid. Remember, clients seldom seek the advice and counsel of a lawyer when something good has happened. Because of their emotional state, clients might not process all of the information relayed to them at the initial meetings with the involved lawyers. Once the client understands the fee-splitting ar-rangement and determines who is getting paid from what the client views as his or her settlement, the client might view the relationship with the involved lawyers differently.

Allegations of a lack of informed consent have given rise to malpractice claims in situations as described above. Even more troubling for the lawyer, clients frequently allege a breach of fiduciary duty resulted from a failure to fully and clearly disclose the fee-splitting arrangement. If the breach of fiduciary duty claim is decided in favor of the client, it could result in damages consisting of full fee forfeiture. Fee forfeiture claims are generally excluded from coverage under lawyers’ professional liability policies.

Strict compliance with Model Rule 1.5, Fees, is the beginning but not the end of the elimination of potential problems arising out of a fee-sharing client referral. Despite compliance with Rule 1.5, the client might argue that the lawyer, nevertheless, violated Model Rule 1.4, Communication.

The relevant language is contained in Model Rule 1.4(b):

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

Put simply, the lawyer must explain the referral relationship in addition to providing the necessary written retainer agreement.


So, with all the risks associated with referring cases and taking referrals, why bother? The benefits associated with doing referral work can far outweigh the risks, especially if proper safeguards regarding all aspects of referral work are established within the firm.

Not only will referral work generate income for both the referring lawyer and the referral lawyer that each law firm might otherwise have to pass up, it serves as a type of additional resource for the referring firm’s clients. Every lawyer at one time or another is faced with having to deal with cases outside his or her area of expertise. Establishing referral networks that enable lawyers to refer clients back and forth without fear of losing all of a client’s business allows a firm to, in effect, expand the variety of legal services it can offer.

The practice of referring cases can also provide insulation from malpractice and ethical problems. The end result of representing a client in a matter outside the lawyer’s area of expertise or outside the lawyer’s comfort zone is often a malpractice claim or an ethical complaint. Participating in a referral network can reduce this risk, as the lawyer will always have a resource available to offer the client.


As mentioned above, the benefits of referral business can outweigh the risks if proper safeguards are in place at both the referring firm and the firm that accepts the referrals.

If you refer cases:

• Make full disclosure to the client, in writing, of the referral agreement, including a detailed discussion of the fees you will receive and the basis for being paid those fees.

• Make certain that your name and your firm’s name are on the retainer agreement.

• Make certain that the lawyer you are referring the case to has sufficient expertise and resources to properly handle the matter.

• Make certain that the lawyer you refer the case to has malpractice insurance.

• Make certain you communicate with the client and the handling attorney as the case progresses.

• Become familiar with the ethical rules that impact the business of referring cases.

If you take referrals:

• Make full disclosure to the client, in writing, of the referral agreement, including a detailed discussion of the fees you will receive and the basis for being paid those fees.

• Make certain that the lawyer who referred the case has malpractice insurance.

• Communicate all the developments in the case to both the client and the referring lawyer.

• Become familiar with the ethical rules that impact the business of referring cases.

• Thank the referring lawyer for the referral.

Don’t Panic

While the majority of referral arrangements work out without any problems, some give rise to malpractice claims. If you have that unfortunate experience, there are some things to do that will help you and your client.

• Contact your malpractice insurer the minute you believe there is a problem. Oftentimes, legal malpractice claims can be repaired. The success of claim repair is dependent on early reporting of claims. Late reporting of claims can eliminate coverage under claims-made policies.

• Secure and maintain a complete copy of the client file.

• Discuss the case with your malpractice insurer before speaking with the client.

There is a way to provide clients with services not offered by your firm that enables you to reap some reward, and there is a way to provide your expertise to other firms’ clients. When done with care, referral business greatly benefits both lawyer and client.

Timothy J. Gephart is Vice President of Claims at Minnesota Lawyers Mutual in Minneapolis. He can be reached at



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