Ethics Opinion

Opinion No. 92-1

January 1992

Summary: An attorney may not pay a referral fee to a co-executor of an estate who hired him as "the attorney for the estate."

Facts: An attorney has been hired by a lawyer who is the co-executor of an estate to act as "the attorney for the estate." The co-executor is not going to perform any legal services. The attorney has inquired whether he may pay a forwarding fee to the lawyer-co-executor who hired him.

Discussion: To state our conclusion at the outset, our advice is that although the typical referral fee is not prohibited by our Disciplinary Rules, the payment of a part of the attorney's fee to the co-executor in the circumstances of this inquiry is forbidden. We have advised in our Opinion 76-3 that, in the common referral fee situation, the decision of the Supreme Judicial Court to omit from its Disciplinary Rules the requirement in Model Code DR 2-107(A) that any division of fees be "in proportion to the services performed and responsibility assumed by each" means that a referral fee may be paid by one lawyer to another irrespective of the services performed or responsibility assumed so long as the total fee is reasonable and full disclosure is made to the client.
Neither the present inquiry nor Opinion 76-3 deals with a typical referral fee situation. In Opinion 76-3, an attorney for a judgment-creditor inquired whether he might request a "referral fee" from a receiver whose nomination he had suggested to the bankruptcy court. We noted two special features about that inquiry that laid the basis for our advice disapproving payment of a referral fee. We noted first that 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." We then pointed out that the usual understanding of the bar is that 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." (Emphasis added). The situation in Opinion 76-3 did not involve payment of a forwarding fee at all. The attorney did not forward a client's matter to the receiver to be handled by the receiver. Whatever the proposed payment by the receiver to the attorney for the judgment-creditor was, it was not a forwarding fee, as that term is generally understood.
The current inquiry presents the reverse factual situation from Opinion 76-3. Instead of paying a "referral fee" to the attorney, the fiduciary would be receiving a "referral fee" from the attorney. But that change in the direction of the payment does not produce the commonly understood forwarding fee. The co-executor who is sending the case to the attorney is the client himself and is also a court-appointed fiduciary who did not have to be an attorney to hold that position. One basis for our negative response to the inquiry is that in hiring the inquirer as his attorney, the co-executor was not acting as a lawyer referring a matter to another lawyer. He was acting in the lay capacity of a fiduciary hiring a lawyer to represent him in his fiduciary capacity. Payment of a referral fee in such a situation would violate the prohibition in DR3-102(A) that a lawyer may not share fees with a non-lawyer. The situation is no different from one in which a lawyer for a corporation proposed to pay a referral fee to its president who hired him just because the president happened also to be a lawyer.
In disapproving the payment of a referral fee in Opinion 76-3, we discussed the attorneys obligation to the court:
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 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 position of obligation as to compromise his independence impermissibly.
An executor is also appointed by the court and owes a fiduciary obligation to select his attorney on the basis of the individual's capabilities, not on the basis of amenability to payment of a forwarding fee. This is not the situation of a lawyer simply returning part of a fee to a client. The forwarding fee would go into the pocket of the fiduciary, who is already being separately compensated from funds supervised by the court for his services to the estate. Payment of a forwarding fee to a client-fiduciary in that situation would seem to us to compromise the relation between the estate and both its fiduciary and its attorney. As in Opinion 76-3, it is our view that such conduct would constitute attorney conduct prejudicial to the administration of justice in violation of DR 1-102(A)(5).
For the two reasons given above, our advice is that a forwarding fee may not be paid in this situation. Moreover, no forwarding fee may be paid in any event without full disclosure to the other co-executor and without permission of the court. Since the attorney's retention "as the attorney for the estate" means that he is representing both executors, the other co-executor has a direct stake in any fee arrangements. Moreover, the probate court has the right and duty to supervise the compensation of the fiduciaries it appoints. Thus, at a minimum, DR 1-102(A)(5) requires that no fees be paid without court approval.

Permission to publish granted by the Board of Delegates on January 24,1992. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.