Opinion 2003-14

(September 2003)

The inquirer has requested guidance regarding referral fees, costs and other obligations where the referring attorney was subsequently disbarred.  The facts as presented to the Committee involve an attorney who referred 23 personal injury and medical malpractice cases to the inquirer.  The referring attorney made the referrals while under criminal scrutiny, but before losing his license; he has subsequently been disbarred. 

The first series of questions concerns whether the inquirer may pay a one-third referral fee and, if not, whether and how quantum meruit may be paid.  Because the referral was made prior to disbarment, the inquirer may pay a one-third referral fee.  The Committee encloses a copy of Philadelphia Bar Association Professional Guidance Committee Opinion No. 89-26, which summarizes the position of this Committee and other jurisdictions that have approved the payment of such referral fees.  In short, it is ethically permissible in Pennsylvania for the inquirer to pay a percentage referral fee to a disbarred or suspended attorney, provided that 1) the referral was made prior to disbarment or suspension 2) that the fee did not arise from a matter related to the disciplinary action against the attorney and 3) that there is compliance with Pennsylvania Rule of Professional Conduct (The "Rules") Conduct 1.5(e). See Philadelphia Bar Association Professional Guidance Opinion 89-26.

The second series of questions concerns repayment of certain costs to the referring attorney and the inquirer's obligation to report the referring attorney for "improper cost practices."  The facts presented are that the referring attorney made mortgage and car payments on behalf of clients.  In some cases he altered the payee to "legitimize" the costs (the example provided was altering the name of a landlord to appear to be a doctor in a medical malpractice case).  The referring attorney has asked inquirer to reimburse those payments as costs on the settlement sheets.  Inquirer asks whether these costs can be reimbursed to the referring attorney.  If not, can such costs be reimbursed if the client authorizes such repayment?  Is inquirer under an ethical obligation to report these cost practices?  Rule 1.8(e) prohibits a lawyer from providing such non-litigation financial assistance to a client.  Rule 8.4(a) prohibits an attorney from assisting another in violating the Rules of Professional Conduct.  Thus, inquirer can not reimburse the referring attorney for non-litigation costs.  Client authorization does not change this prohibition, as under Rule 1.2(e), an attorney's obligation to the client does not include conduct prohibited by the Rules of Professional Conduct.  Under the foregoing rules, the inquirer may not reimburse the referring attorney for non-litigation costs, nor may the inquirer seek client authorization to do so.  Having said that, in some circumstances, Rule 1.15 requires an attorney to protect funds in which a third party has an interest.  The Committee encloses a copy of Philadelphia Bar Association Professional Guidance Opinion No. 2003-4, in which this Committee concluded that the third party must have a matured legal or equitable lien in order to trigger a lawyer's duty under Rule 1.15.  Whether the circumstances of the referring attorney's advancement of non-litigation costs created a legal or equitable interest is a legal determination that is outside the scope of this Committee's charge, and the inquirer must either make that determination under the applicable Pennsylvania laws or seek judicial determination by interpleader.

Reporting the referring attorney for violating the Rules of Professional Conduct is governed by Rule 8.3(a).  Disbarred attorneys may apply for reinstatement after five (5) years and thus their conduct is of ongoing relevance to the Disciplinary Board of the Supreme Court of Pennsylvania. In the facts presented by the inquirer, the referring attorney was disbarred for misappropriation of client funds and for writing bad checks to clients and to referring attorneys. The inquirer is now aware of the referring attorney's additional financial improprieties involving clients.  Moreover, the referring attorney has asked the inquirer to create settlement sheets in which reimbursement of the payments to the referring attorney would be listed as costs when, in fact, they do not constitute legitimate costs under the Rules of Professional Conduct.  In addition, the referring attorney would have the client authorize the repayment of these improper costs.  The Committee believes that the totality of circumstances raises a substantial question as to the referring attorney's honesty, trustworthiness and fitness as a lawyer.  Thus, the standard as delineated in Rule 8.3a has been met under these circumstances, and the inquirer is obligated to report this to the Disciplinary Board.   Since the reporting involves disclosure of confidential client information protected by Rule 1.6, Rule 8.3c requires that inquirer obtain informed consent from the clients to reveal that confidential information so that inquirer may make the report.

The third series of questions concerns inquirer's obligation with respect to those referred cases in which the inquirer's firm wants to decline representation.  Inquirer wants to know whether to hold the files until the referring attorney makes contact, or whether to send the files to the client.  According to inquirer, the referring attorney has been unreachable by telephone and unresponsive to letters with respect to these cases.  Rule 1.16 governs an attorney's obligation in declining or terminating representation.  Although inquirer's firm has decided not to represent some of the clients referred to him, the inquirer has an obligation to these clients under the circumstances.  Inquirer took physical possession of 23 file under a referral arrangement, and inquirer knows that the referring attorney has now been disbarred and is not returning phone calls or answering letters about these clients.  Under Rule 1.16(d), inquirer must protect the interests of these clients, notify them that their attorney has been disbarred and that they need to find new counsel, advise them of the applicable statute of limitations or other laws governing preservation or their rights, and return the files to the clients so that they may obtain new counsel.  Inquirer should not hold the files until contacted by the referring attorney.




The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.