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Unethical Conduct, But Fee Splitting Is the Least of It

by Carolyn Elefant on June 2, 2014 · 1 comment

in Ethics & Malpractice Issues, Ethics Issues, Future of Law, Marketing & Making Money

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A recent Illinois Attorney Registration and Disciplinary Committee (ARDC), reported here misses the point.  The ARDC charged a solo estate planning attorney with ethics violations for splitting fees with a non-lawyer financial planner over a five year period between 2007 and 2012. During that time, the financial planner hosted six seminars each year, referring approximately 189 different clients to the attorney for estate planning matters. On average, the attorney paid a total of $30,000 in referral fees or an average of $1600 per case. The ARDC gave the attorney a pass, however, noting her pro bono service at church and community clinics as a mitigating factor.

So what’s the problem with the ARDC decision? After all, the attorney did indeed split fees, a fact that she admitted in her response. Quite simply, that’s an ethics violation – and yes, rules are rules. Still, it’s increasingly more difficult for me to support the prohibition on fee splitting, when today’s much-celebrated new law players are effectively doing the same thing. For example, a recent article in the Atlantic spoke approvingly of  Rocket Lawyer’s business model, where attorneys offer a 40 percent fee discount for business referred through the site. How is payment of a 40 percent discount any different from paying a $1600 finder’s fee for a $4000 estate planning case?

That’s not to say that the Illinois attorney wasn’t at fault. She was.  Only her misconduct arose from actions unrelated to fee splitting but failure to oversee and supervise a non-lawyer vendor.

As described in the ARDC’s charges, one of the clients referred to the attorney paid her $4200 for preparation of revocable trust documents and various other related matters including transfer of four properties into the newly created trusts. The attorney prepared the deeds and then provided them to the financial planner to transmit to the clients to execute. Once the deeds were executed, the financial planner was to have recorded the deeds – yet he apparently failed to do so. Over the next two and a half years, the clients called the financial planner ten times directing him to record the deeds – and when he failed to do so, the clients contacted the attorney. Each time, the attorney told the clients to contact the financial planner.  Moreover, the attorney admitted all of this in her response.

Why did the attorney delegate the transfer and recording of the deeds to an outside vendor? And worse, why did the attorney force her clients to deal with an obviously non-responsive vendor when the attorney was responsible for servicing the clients? The ARDC opinion doesn’t discuss this aspect of the case at all and yet, it’s by far, the most troubling component – and no amount of pro bono work excuses this type of conduct.

Don’t get me wrong. Fee-splitting with non-attorneys can have disastrous consequences – ranging from runners who take advantage of prospective clients at their most vulnerable to lawyers who subordinate their professional judgment to a non-lawyer who’s running the show. But is paying $1600 for a case that generates a $4000 fee any worse than cutting rates 40 percent to generate cases from a website provided that the attorney handles the work in an ethically compliant manner? Reasonable minds will surely disagree – but if we’re going to have a debate over fee-splitting, let’s make sure that it’s about the dangers that arise from sharing fees with non-lawyers and not, as was the case with this ARDC decision, about other matters entirely.

  • http://www.jmdlaw.co.uk/nigeljones Joshua Helmer

    I have to admit, when i was growing up in the UK, we always thought of the US as a place with limited regulation, low taxes and freedom from people arbitrarily breaking down your door, whereas we were stuck with EU regulations on the straightness of bananas and the metric system, high taxes and the local Plod being able to beat the life out of you if you were the wrong colour/ From the North or Ireland/ looked at them funny.

    Seems while the UK has rolled back a lot of of that rubbish, the US has gone other other way. Shame.

    Nigel Jones Solicitor

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