Before launching into the substance of this post, I wanted to briefly acknowledge that tomorrow is the 10th anniversary of the existence of this blog. In the 10 years that have gone by since I put my first post into the tubes, I have written 583 more posts likely spanning at least 750,000 and perhaps as many as one million words on the topic of legal ethics. I am fortunate to have been able to keep this blog going for a decade and hope to continue to do so for many more years to come.
With that out of the way, I want to write a bit about the kind of thing that doesn’t happen every day but recently happened in New Jersey – the overturning of a published ethics opinion.
I also want to highlight a question that the ultimate outcome still (at least to an outsider like me) appears to leave up in the air.
New Jersey, like a few jurisdictions in the United States, is a state that has really gotten itself balled up into overregulating the ability of lawyers to pay other lawyers in connection with the referral of work. Under the ABA Model Rules approach, there is a pretty straightforward rule that addresses the issue – Rule 1.5(e).
Under that ABA Model Rule approach, any division of attorney fees between lawyers not in the same firm can only be made if it either is in proportion to the work that each lawyer or firm performed or if both sets of lawyers agree to joint responsibility with respect to the matter. The Model Rule approach also requires that the client agree to the arrangement, including how much each lawyer receives.
In practice, this means that a lawyer in a jurisdiction that follows the ABA approach can pay another lawyer outside their firm in any amount they so choose as long as the client is okay with the arrangement and the referring lawyer agrees to assume joint responsibility for the handling of the matter. Such arrangements often look different from what many lawyers think of as a “referral fee” but only with respect to that assumption of joint responsibility. A lawyer who is referring a matter to someone else because they have the experience to handle it often is more than happy to receive 10% of the fee without doing a bit of work even if it means joint responsibility.
Now, New Jersey has adopted a version of Rule 1.5(e) that is largely equivalent to the Model Rule but it also has a separate rule addressing the payment of referral fees. The reason for the existence of that separate rule is a bit convoluted and not entirely relevant to the point today, but it provides that only certain “certified” lawyers are allowed to pay referral fees to other lawyers and limits the amount to an amount that does not exceed the fees they get paid on the matter referred to them.
Not quite a full year ago, the NJ body that issues Advisory Ethics Opinions issued Opinion No. 475. That opinion concluded, among other things, that certified New Jersey lawyers are not allowed to pay such referral fees to lawyers licensed only in places other than New Jersey. The rationale for this conclusion was that the payment of such a referral fee is a division of a fee and payment for legal services and that a lawyer not licensed in New Jersey cannot receive fees for legal services rendered. The opinion also went on to address whether New Jersey lawyers can refer cases to lawyers in other states and accept payment of a referral fee from such out-of-state lawyers.
If the law of the other state allows payment for legal services in the form of a referral fee to an out-of-state lawyer, then the New Jersey lawyer may accept the referral fee. The New Jersey lawyer should, however, ensure that the other state’s law permits such payment for legal services or risk violating Rule of Professional Conduct 5.5(a)(1).
This advisory opinion struck me as bananas from the first time I read it. So, I was happy to see a headline last month that the New Jersey Supreme Court had vacated that opinion. But now, having read the Supreme Court opinion vacating 475, I am still left with a question or two.
That opinion, in its second paragraph, nicely summarizes the conclusion:
We find that the Court Rules allow certified attorneys to pay referral
fees to lawyers in other states even if they are not licensed here. We also note that the payment of referral fees does not raise concerns about the
unauthorized practice of law. We therefore vacate Opinion 745.
The opinion clarifies again that a “referral fee” is a creature in New Jersey that is different from a division of a fee governed by Rule 1.5(e). The New Jersey Supreme Court explains that there is no conflict between Rule 1.5(e) and the separate rule allowing certified New Jersey lawyers to pay referral fees on its way to concluding that a referral fee is neither governed by Rule 1.5(e) nor the payment of a fee for legal services. For those reasons, the court held that the ability of a certified lawyer to pay a referral fee does not rest on whether or not the person being paid the fee is licensed to practice law in New Jersey or only in some other state.
That certainly puts things in a better place in New Jersey than they were at the time 475 was issued. But it seems like one very big question remains unresolved for a New Jersey outsider like me: Is it possible that the New Jersey ethics rules don’t allow a lawyer to divide a fee under RPC 1.5(e) with a lawyer not licensed in New Jersey?
If the answer to that question is yes, then that is also absolutely bananas.
And, if the answer to that question is yes, then I also am left wondering whether the piece of 475 that talked about the ability of a New Jersey lawyer to accept a “referral” fee from a lawyer licensed elsewhere as something that turns on whether or not the other state’s ethics rules permit such an arrangement is (despite being vacated) an indication that New Jersey just does not understand how Model Rule 1.5(e) is intended to work? Would New Jersey not recognize, for example, that if a New Jersey lawyer sent a client matter to a Tennessee lawyer that the Tennessee lawyer could agree to pay 10% of the fees received to the New Jersey lawyer as long as the New Jersey lawyer agrees to have joint responsibility for the matter and the other aspects of client awareness and consent are satisfied?