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The Magazine of Illinois Lawyers

January 2018Volume 106Number 1Page 22

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Practice Management

Referring with Style

Referring a case can be good for all concerned - referring lawyer, recipient, and client. But make sure you understand referral ethics and follow best practices to keep clients happy.

As lawyers increasingly focus their practices, a given attorney often isn't the best choice to handle a given case. Yet clients typically don't know where to turn, which means lawyers and their firms end up deciding which cases to accept and which to refer, and - when they send cases out - how to handle that referral.

Once done on the down-low, referrals have become a more above-board part of legal practice, says veteran lawyer Warren Lupel. "There's nothing wrong with it, and it's even desirable in most instances," says Lupel, who appeared with Daniel Breen of Chicago's Breen Goril Law during a CLE presentation at the ISBA's Solo and Small Firm Practice Institute in October (see sidebar). "If you are not that specialist, and you know a specialist, the client is going to get a better deal if you refer."

Whether and when to refer is a case-by-case judgment based on one's confidence level in handling a particular matter, Lupel says. "You don't have to be the best lawyer in the country or the county to keep the file," he says. "But if you're a real estate lawyer, and you get a medical malpractice case, that decision should be easy."

Other judgments are trickier, he says. "You may handle small personal injury cases, and this is a big one. Maybe you don't refer it."

Daniel BreenBreen Goril Law, a personal injury firm, has built a network of partners from whom it receives referrals and to whom it sends cases as doing so makes sense, Breen says. "We hope our clients and referral sources consider us as a resource," he says. "We're pretty transparent - if it's something we can't handle, everybody is made aware of it. It's very much a case-by-case situation."

The best way for firms to cultivate such business is not at the client level but among trusted resources, Breen says. "It's hard to pin down the [client] demographic because bad things can happen to anybody," he says. Clients who don't know a personal injury attorney will contact "the person who handled their divorce or their will or their intellectual property. [Those lawyers are] the ones we rely on and ultimately pay referral fees to in successful situations where they send us business."

Referring attorneys sometimes hesitate to contact referral recipients because they're not sure the case would be worth their while, but Breen encourages them to let the potential receiving attorney do triage in that regard. "A divorce attorney comes back from court, and a former client calls and says they were in a fender bender over the weekend, their back hurts, and the other party doesn't have an insurance policy," he says. They might think, "Do I want to bother somebody with this?"

Breen says, "I'd happily turn down nine clients out of 10. They might have a small back injury, and they see a specialist - and you know what, there's a blown disc, and you need surgery. The at-fault person doesn't have insurance, but the client has insurance they can collect from."

Sometimes, the referral recipient needs to do some upfront investigation to determine whether a case is a good fit, and that's fine, Breen says. "The client doesn't necessarily know what they're dealing with," he says. "We've got to get medical reports, or talk to police witnesses. Often the first step is saying, 'Let us do what we need to do to collect information, and we'll give advice from there.'"

The importance of finding competent counsel

Once an attorney does decide to refer, the Illinois Rules of Professional Conduct require that the case is transferred to a third party competent to handle it, Lupel says. (See this month's ethics column on page 48 for more.) "If it's a medical malpractice case, and I refer it to a patent lawyer, then I'm not being competent in the referral," he says. "You either have to be confident in knowing a receiving lawyer [is] competent or be able to find such a person through your contacts. There has to be some prior knowledge or investigation. Just because you play tennis with a guy who does personal injury work doesn't mean you refer that person a pharmaceutical overdose case."

Sometimes, the initial investigation determines that the client doesn't have a case at all, Breen says, while in other cases, they need to find counsel that practices in a completely different area of law. If it's an area that has some overlap with your practice, "Sometimes it's necessary to stay involved, hold the client's hand, and act as a conduit, if need be." But if Breen Goril makes a referral on a civil rights matter, for example, "We would refer out, make an introduction, and let somebody else take the lead with it," he says.

While that person shouldn't simply be your tennis buddy, it's always helpful if they are someone you know well, Breen says. "Having an ongoing, trusted relationship is paramount," he says. "That will take care of 90 percent of problems that will otherwise crop up between referring attorneys and other attorneys.… The more you work with a person, the more comfortable you are."

Once the appropriate person is identified, before the referral is made, the referring attorney needs to have a very frank, clear conversation with the client, Lupel says. That discussion should include details of any fees the referring attorney will be paid for the referral.

Not every referral involves a fee, Breen notes. "The first question and the big question is, are you expecting a referral fee on the case?" he says. "If you're not, there's not a lot you need to put in place. Then it's just a matter of making an introduction and making sure things are followed up on to the point where the two parties have enough information to go forward on. If you are expecting a referral fee, it's a very different dynamic."

Fee arrangements - put it in writing

Typically, in a personal injury, medical malpractice, or other contingency-based case, that fee amounts to about one-third of the one-third the attorney who takes the case will collect from the client if they are victorious.

That means the referring attorney will need to explain to the client that "it's customary that since I will be financially responsible for your case [i.e., exposed to malpractice liability], I receive a portion of your fee," Lupel says. "If the client fully understands and agrees with that, the rules don't require it, but I recommend that there be a letter agreement between the referring lawyer and the client that this has been explained to them and that they consent."

Some cases are not a good fit for referral fees, Breen says. "We do contingent fee work," he says. "For lawyers who bill by the hour, my impression is it's a lot more difficult to make a referral fee fit neatly. You have to justify it to the client a little bit more."

"It's much more difficult to enter into such an agreement" for hourly cases, Lupel agrees. "If you want one-third, and the lawyer charges $300 per hour, now you're telling her she has to work for $200 per hour. That may cause the client to be upset. The contract is going to have to say, 'The referring lawyer, even though she is not going to do anything, is going to get $100 per hour.' You have to be sure the client understands."

Clients typically don't care much about the fee arrangement, as long as it's not costing them anything, Lupel says. "Depending upon how sophisticated the client is, it's easy to explain," he says. "If the client is prepared to enter into a contingency fee agreement, that should be signed not only by the receiving lawyer but the referring lawyer, as well."

Once the client agrees, whether in writing or verbally, at that point the referring attorney should call the receiving lawyer to explain the case and suggest that they enter into an agreement about it, Lupel says. "I also would strongly urge the referring lawyer to be present at the first meeting of the client and the receiving lawyer, so the client isn't getting different information and has a clear understanding about the nature of the fee agreement," he says.

Lupel doesn't see any risk in the receiving attorney asking for a fee and sticking to the amount he or she believes they deserve, given that the receiving lawyer won't know the client's name until they agree to take the case. "If the potential receiver of the case is not willing to pay a referral fee, or you're not able to agree to the amount of the referral fee, you say, 'Nice talking to you Mr. Smith, I will call Mr. Jones.'"

Illinois Rule of Professional Conduct 1.5(e) clarifies that referral fee agreements need to be in writing and with client disclosure, Breen says. "The Rule says something along the lines of, considering the service is simply referral of the client, each lawyer assumes joint financial responsibility, the client agrees, and the agreement is confirmed in writing," he says. "Everybody's name is on the retainer agreement, the nature of the fee split is spelled out, and ultimately, at the conclusion, everybody's name is on the settlement."

To be or not to be involved during the case

In between, the referring attorney's level of involvement can vary based on their level of expertise in the case and their relationship with the receiving attorney, Breen says. "Some people would prefer to be hands-off. I don't blame them," he says. "Who needs another e-mail? They send the client over…and get a check down the road, when the case resolves favorably."

Some referring attorneys want to be more involved, especially if they have a close pre-existing relationship with the client, Breen says. "I'm still involved, even though I'm not the point person on the case," he says. "I'm understanding that [the receiving attorney is] going to be in the driver's seat." In terms of the ethics rule, he adds, "Either way is fine."

Lupel suggests that referring attorneys err on the side of being more involved, having represented several referring attorneys who have had disagreements with the receiving attorney. "It behooves you to not only know the attorney but be aware of filing deadlines, know whether an expert is needed and has been named in proper time, and check the docket about the file," he says. "So many referring attorneys sit back and wait for the check. That's really not wise."

The main risk for the referring attorney relates to the competence of the receiving attorney - if the latter is sued for malpractice the former can be, as well, which is the main justification for the referral fee in addition to the initial introduction, Lupel says. "If the receiving lawyer blows the statute [of limitations] or fails to produce an expert witness, you're going to be as responsible as the receiving lawyer when the malpractice suit hits," he says.

For that reason, the referral agreement should include at least a thumbnail explanation of the matter and the expectations of what the receiving lawyer can do, Breen says. "When you're accepting a referral fee, you're putting yourself on the hook for anything that goes wrong," he says.

Malpractice pitfalls, potential conflicts, and other considerations

And for that reason, referring attorneys need to make sure their malpractice insurance will cover any and all areas of the law for which they are referring cases, not just their own core competencies, Breen says. "If you're referring out personal injury cases - you might have checked 'no' for certain items so your premium is priced a certain way," he says. "That's something that should be addressed with your malpractice carrier."

Referring attorneys also need to ensure that taking a fee on a referred-out case will not present a conflict of interest, which is more likely with a big client or at a big firm, Breen says. "If it's a McDonald's case that is being referred out, they probably employ law firms all over the place," he says. "If you're with a big corporate firm that does civil defense work, you'd hate to jeopardize a lifetime of business [by taking that case]. Even a big fee can seem nominal in that context."

But not every conflict of interest is what it seems. Lupel once represented a judge who had referred a medical malpractice case before she became a judge. When the case settled, "The receiving lawyer says, 'I can't give you any money. I sure would like to, but I can't because you're a judge,'" he says. The case went up on appeal, and "the appellate court said the judge doesn't have to have an attorney-client relationship with the referred client. She only needs to be financially responsible."

Part of why referring attorneys need to put everything in writing, including the amount of the fee, is that sentiments can change over the course of a long case, Lupel says. "Receiving lawyers, particularly when they are agreeing to take the case, they're drooling over the case," he says. "They're going to make money. They'll make all kinds of offers. And then for three or four years, they've worked their fanny off, spent thousands of dollars, and they haven't even talked to the referring attorney. Now they're upset that they have to give 35 or 40 percent of the fee. They'll make arguments that the referring lawyer is entitled to less, or not entitled to anything."

By the end of a long case, the client's loyalty is often with the receiving attorney, Lupel says. That is part of why he recommends that the referring attorney regularly check in with the client and the receiving attorney, make sure everything is going alright and that filings have been timely. Otherwise, the client will say, "I didn't see Lupel for two years. He didn't even call me." He adds, "Staying in touch is a good idea because it's a very tenuous relationship."

Developing strong relationships is critical, Breen agrees. "A lot of problems you see in areas like this, whether it's a miscommunication about the client being sent over, or the expectations of what is being addressed, come back to cultivating your relationships," he says. "It's worth putting some thought into where the business is going to and coming from. And just as a general point, it's not the most complex thing, but in any potentially gray area, if you err on the side of full client disclosure in writing, you're probably going to be compliant with the rule."

Those who refer cases should never think of them as a simple matter, a quick telephone call, Lupel says. "It's much more comprehensive than that," he says. "Read the rule, make sure your contracts contain everything the rule requires, that you've talked to the client about it. You want to talk to the client about the fee structure. You want to tell it your way. Go through all that and give as much explanation as you can. With those kinds of precautions you're much less likely to lead to a problem."

Ed Finkel
Ed Finkel is an Evanston-based freelance writer.
edfinkel@earthlink.net

Learn more about referrals, earn CLE credit

Look for Warren Lupel's and Dan Breen's CLE presentation, "Effectively and Ethically Making Client Referrals," which is coming soon to ISBA's online CLE library at http://onlinecle.isba.org/store/provider/custompage.php?pageid=500. The presentation is based on a program from last year's ISBA Annual Meeting, which was put on by the Standing Committee on Law Office Management and Economics.