Referral Fees
by Marc J. Katzman in collaboration with Matthew B.F. Biren
(August 2000, Vol. 20, No. 7)


Referral Fees

  • Mining Your Practice for Gold: Making a Profit in the New Age
  • Financial Arrangements Among Lawyers

By Marc J. Katzman in collaboration with Matthew B.F. Biren. Katzman is a member of the Law Practice Management Section Executive Committee and practices in Los Angeles with Biren at the firm of Biren & Katzman in the areas covered by this column. The views expressed are their own.

On a weekly basis, we (column authors Marc J. Katzman and Matthew B.F. Biren) receive numerous calls from attorneys and legal administrators throughout California asking about our policies regarding client referrals and referral fees. Lawyers are often confronted with a quandary -- what to do when a client, relative or friend calls with a legal problem that is outside their field of practice. The attorney wants to help the client but is concerned that he/she may not have the expertise or the resources to do a proper job. In some instances, the lawyer may wish to be involved with the case, recognizing its financial potential for the firm, but is not willing to embark into new areas of practice at the potential expense of the client.

The Source of the Gold

Lawyers and law firms have a golden asset. That asset is their client and contact base -- their personal network. The problem is that most lawyers only capitalize on this asset when it results in cases that they are comfortable handling. The key to mining your practice for gold is to capitalize on the total asset. The key is converting the cases you do not want to handle into a golden income stream.

Referral Fees: Ethically Permissable

Rule 2-200 of the Professional Rules of Conduct of the State Bar of California permits the division of legal fees with a lawyer who is not a partner of, associate of, or shareholder with the member provided that:

1) The client has consented in writing thereto after full disclosure has been made in writing that a division of fees will be made and the terms of such division; and

2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.

Benefits of Attorney Referrals

All parties involved in a referral relationship -- the client, the referring lawyer and the handling lawyer -- stand to benefit.

Perhaps most significant is the benefit to the client. Rather than a lawyer with inadequate experience and/or resources trying to work over his or her head, or the client being abandoned to try and find competent counsel on his or her own, the client is referred to a specialist and is positioned to receive the best possible representation.

The referring lawyer/law firm avoids handling a case outside of their specialization and all the potential pitfalls -- including malpractice -- that come with such folly. Additionally, the referring lawyer stands to realize additional income -- fees without a concomitant expenditure of time or resources. In many instances, a cross-referral relationship can be established, which can also result in new business opportunities coming to the referring lawyer as well.

Mining Your Practice for Gold

The first step to mining your practice for gold is to establish a network of lawyers to whom you are comfortable referring cases outside of your specialization.

The second step is to retrain yourself and your firm members to actually make referrals when you receive inquiries about cases that you do not want to handle.

Finally, the real gold comes from encouraging your clients and contacts to contact you whenever they have a legal problem and letting them know that you have a network of qualified lawyers to whom you can refer matters that are outside of your area of expertise.

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