Ethics Opinions

Opinion No. 76-3

Summary: An attorney representing a judgment creditor, who recommends an individual for an appointment as receiver, may neither request nor receive a "referral fee" of any sort from the nominee.

Facts: An attorney representing a judgment creditor files a petition for the appointment of a receiver. Upon the attorney's recommendation, the court appoints X. May the attorney ethically request a referral fee from the receiver?

Discussion: A court-appointed receiver is in effect an officer of the court acting on its behalf to preserve the debtor's assets for the benefit of creditors. Although courts frequently appoint attorneys as receivers, membership in the bar is not a prerequisite for such appointment. In return for his services, a receiver is entitled to a reasonable fee, subject, ultimately, to the court's approval, and payable, ordinarily, from the assets of the debtor. See 11 U.S.C S102; Rule 219 of the Rules of Bankruptcy Procedure.
In the usual parlance of the bar, a "referral fee" describes an arrangement between two attorneys, A and B, in the situation resulting from A's having referred to B a client's matter on which B is to perform the work. B then remits to A a portion of the fee which B received from the client to recompense A for having referred the matter to B. As originally promulgated, DR 2-107(A) ("Division of Fees Among Lawyers") provided:
A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of his law firm or law office, unless: (1) The client consents to the employment of the other lawyer after a full disclosure that a division of fees will be made; (2) The division is made in proportion to the services performed and responsibility assumed by each; and (3) The total fee of the lawyers does not clearly exceed reasonable compensation for all legal services they rendered the client.
When the Supreme Judicial Court, in its Rule 3:22, adopted the Canons generally, it omitted DR 2-107 (A)(2). Thus, in the common "referral fee" situation, a referral need not measure the services or responsibility of the referring attorney. Full disclosure to the client, as well as the overall reasonableness of the fee, are nonetheless still mandatory.
Although the referral fee question in the context of the appointment of a receiver does not fall squarely within the scope of DR 2-107(A), we have no difficulty disapproving of the request and/or payment of a referral fee in the situation presented. Candor to the court requires an attorney representing a judgment creditor, in nominating a potential receiver, to be guided in his suggestions entirely by his understanding of what would be best for the creditors and (to the extent that the preservation of the debtor's assets likewise aids the debtor) the debtor as well. Even though the final selection rests with the court, it would be contrary to the spirit, if not the letter, of the canons to have an attorney, in contemplating the suitability of an individual for nomination as a receiver, consider not merely the individual's abilities, but his amenability to a suggestion of payment. A receiver who agreed to pay a fee would in effect concede that he owed his appointment not to the court, but to the attorney. Were that the case, the receiver would be so placed in a position of obligation as to compromise his independence impermissibly.
Accordingly, it is our opinion that requesting and receiving a referral fee in these circumstances constitute on the part of the attorney conduct prejudicial to the administration of justice, in violation of DR 1-102(A)(5). Finally, while it is not our function to interpret the substantive law involved in any situation presented to us, we note that in proceedings conducted pursuant to the Bankruptcy Act, the payment of a fee in the circumstances presented appears to violate Section 62 of the act (11 U.S.C S102) and Rule 219 of the Rules of Bankruptcy Procedure.


Permission to publish granted by the Board of Delegates, 1976. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.
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