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Communications About Legal Services · 4-10% of the exam

21.2.2What a lawyer may pay for referrals (Rule 7.2)

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  • Rule 7.2 — Referral Payments

Paying for referrals distorts the process: the recommender's financial interest competes with the client's actual need. Rule 7.2 prohibits giving anything of value for a recommendation, then carves out five narrow exceptions. The bar reaches payments to lawyers and nonlawyers alike, but who receives the money decides which other rule then applies: a fee division with a lawyer outside the firm runs through Rule 1.5(e), a payment to a nonlawyer through Rule 5.4(a).

Why

A recommendation is worth something to a client only if it reflects the client's need rather than the recommender's payday. Once money moves for each name sent over, the client has no way to tell which of the two produced the referral, and the recommendation stops carrying the information it appeared to carry.

Plain English

No finder's fees, no percentage of fees, no other compensation for directing clients to you. Five narrow exceptions sit outside that anything-of-value bar:

  1. paying the reasonable costs of permitted advertising media;
  2. paying the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service;
  3. paying for a law practice under Rule 1.17;
  4. referring clients under a reciprocal referral agreement that is nonexclusive and disclosed to the client — a permission to trade referrals, not a permission to pay for them; and
  5. giving nominal gifts neither intended nor reasonably expected to be compensation.

Rule

Rule 7.2 — Referral Payments

A lawyer shall not give anything of value to a person for recommending the lawyer's services.

What makes a communication a "recommendation" (Comment [2]): it endorses or vouches for a lawyer's credentials, abilities, competence, character, or other professional qualities. Directory listings and group advertisements that list lawyers by practice area, without more, are not recommendations — which is why a paid listing sits inside exception 1 and a paid endorsement does not.

Exceptions to the anything-of-value bar:

  1. Permitted advertising costs: reasonable costs of permitted advertising media, including directories, internet listings, TV/radio/print ads, websites, publicists, business development personnel, and website designers.

  2. Legal service plan, or a not-for-profit or qualified lawyer referral service: their usual charges. Only the qualified referral service needs approval by an appropriate regulatory authority; a legal service plan and a not-for-profit service do not. Comment [6] describes a qualified service as consumer-oriented, giving unbiased referrals and affording client protections such as complaint procedures or malpractice-insurance requirements. Comment [7]: a lawyer who accepts assignments or referrals from a legal service plan, or referrals from a lawyer referral service, must act reasonably to assure that the activities of the plan or service are compatible with the lawyer's professional obligations.

  3. Acquisition of a law practice: payment under Rule 1.17.

  4. Reciprocal referral arrangements: a lawyer may refer clients to another lawyer or a nonlawyer professional (accountants, real estate agents, doctors) under an agreement for that person to refer clients or customers back; non-professionals are not eligible. What (b)(4) permits is the trade of referrals, not payment for them — Comment [8], except as Rule 1.5(e) provides, a lawyer who receives referrals from a lawyer or nonlawyer professional must not pay anything solely for the referral. The black letter states two conditions, and both must be satisfied simultaneously (Comment [8] adds that the arrangement must not interfere with the lawyer's professional judgment as to referrals or legal services, and should be reviewed periodically rather than maintained indefinitely):

    • The arrangement is not exclusive (both parties remain free to refer elsewhere); AND
    • The client is informed of the existence and nature of the arrangement.

  5. Nominal gifts as token appreciation: only if neither intended nor reasonably expected to be compensation for the referral, and no pre-arrangement (express or implied) exists.

Not on this list at all (Comment [5]): paying a nonlawyer to generate leads is permitted because a lead generator that does not recommend the lawyer is not being paid for recommending, so Rule 7.2(b)'s prohibition does not reach it. The payment must still be consistent with Rules 1.5(e) and 5.4, and the generator's communications with prospective clients with Rule 7.1. Comment [5] names three things that end the permission — to comply with Rule 7.1, a lawyer must not pay a lead generator that:

  • states, implies, or creates a reasonable impression that it is recommending the lawyer;
  • is making the referral without payment from the lawyer; or
  • has analyzed a person's legal problems in determining which lawyer should receive the referral.

Example 1

Ex. 1

Omar, an estate planner, enters an agreement with Priya, a licensed financial planner. Priya refers clients to Omar. Omar pays Priya $200 per referral plus eight percent of first-year fees generated by referred clients.

Price the two halves of Omar's deal separately; each one fails on its own. Both components violate Rule 7.2. The per-referral payment is compensation for a recommendation. The percentage-of-fees component is prohibited here because Priya is a nonlawyer: Rule 1.5(e), which lets a fee be divided with a lawyer outside the firm, has no application, and Rule 5.4(a) bars sharing legal fees with a nonlawyer outside its four narrow exceptions, none of which reaches a referral cut like this one. The reciprocal-referral exception permits the trade of referrals, not payment for them, and carries its two conditions — nonexclusivity and client disclosure — plus Comment [8]'s non-interference with professional judgment. Neither element satisfies any prong.

A gift promised in advance or contingent on the referral doesn't cure the problem. One of the two reciprocal-referral conditions is insufficient. A flat advertising fee to an internet lead generator is permitted; a percentage of legal fees paid to a nonlawyer referral source is prohibited unless one of Rule 5.4(a)'s four exceptions applies (a Rule 1.5(e) division with a lawyer who assumes joint responsibility is a fee split, not a referral payment).

Of the five permitted exceptions to Rule 7.2(b)'s anything-of-value bar, the fourth is the only one that moves no money: it is a permission to trade referrals, not a permission to pay for them.

Questions · 2

Q 01ch21-e05

Question 1 of 2 · Rule 7.2(b)

Attorney limits the practice to guardianship and elder-law matters. Owner runs a licensed home-care agency whose staff visit older adults in their houses each week. Attorney and Owner agreed that whenever the agency staff meet a family that seems to need a guardianship, Owner will describe Attorney as the most reliable guardianship lawyer in the county and will urge the family to call. Attorney pays Owner two hundred fifty dollars for each family that telephones the office, whether or not the family goes on to retain Attorney. Attorney enters the payments in the marketing ledger and treats them as an advertising expense. Every family the agency has sent over has been well served. Is Attorney subject to discipline?

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