MSC Tackles Attorney Referral Fees

By Doug Chalgian on June 29, 2021

 

We (that is, the law firm of Chalgian and Tripp) pay a lot of referral fees to our colleagues – and our colleagues provide our firm with a lot of work.  Because we are so specialized, it works out for the referring attorney (they don’t have to dive deep into an area of law they aren’t expert in), for their clients (they get expert advice), and for CT (we keep our team busy with the type of work we like and are good at).  I guess you call that a “Win Win Win”.

So, when the Michigan Supreme Court took the time to address the oft confusing issue of when lawyers can pay other lawyers for sending them work, I figured it was worth a read.

The case of Sherbow v Feiger arises out of dispute between Attorney Sherbow and the Feiger law firm over money that Sherbow said Feiger owed him for having referred certain clients to them. These clients had been injured (or stood in the shoes of one that had been killed) in a car accident.  Ultimately the case netted the Feiger firm more than $3.4 million in fees.  Sherbow claimed a share of that as a referral fee, which the Feiger firm denied.

Click here to read the case.

Without getting into the details of the case itself, my takeaway is that there are four requirements that must be met for a referral fee to be ok with the law and rules of professional conduct.  They are:

  1. The person referring the case is an attorney currently licensed.
  2. The person being referred is a client of the referring attorney.
  3. The person being referred is informed about, and ok with, the fee sharing arrangement.
  4. The total fee paid by the client is reasonable.

With respect to these elements, requirement 2 is probably the one that invites the most confusion.  What if an attorney merely says to someone: “I don’t do that kind of law, go call so and so?”  Is such an interaction sufficient to support the basis for a referral fee?

As I understand this case, while the existence of an attorney-client relationship is mandatory, the circumstances that can give rise to that relationship being established are not so demanding.  The MSC seems to say that the attorney-client relationship can be established merely by someone going to a lawyer for advice about the legal matter they are seeking help with. For example, if the person needing legal representation approaches a lawyer (call him or her “Lawyer A”) for advice about their legal rights with respect to their current situation, and this person places their confidence in Lawyer A because Lawyer A is an attorney, this placing of confidence in Lawyer A by the person seeking representation gives rise to an attorney-client relationship.  If Lawyer A then decides that this client would be better served by seeking representation from Lawyer B, the foundation for a referral fee exists.

The MSC also uses this case to dispel the idea that in order for a lawyer to ‘earn’ a referral fee, the referring lawyer needs to play some role in the case after it has been referred.  As the opinion explains, although the “services and responsibility” requirement for a referral fee did exist in Michigan at one time, it has been abandoned and is no longer required.

I found the case helpful, especially in light of the extent to which our firm increasingly receives referrals from other lawyers, and increasingly sends referral fees to them in exchange.

Shameless Plug:  As I say, we get a lot of work from lawyers who don’t do what we do, or don’t do it to the degree we do it.  So, if you are a lawyer and you haven’t already become a referring partner with CT, please feel free to connect with us by sending your information and questions to: referral@mielderlaw.com .

Of course, if you’re not a lawyer, you can still refer us cases, we just can’t give you a share of the fee.  Sorry

mm By: Doug Chalgian
Doug Chalgian

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