Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 2001-10
Topics: Referral Fee Arrangement with Termite Inspection and Extermination Service; Association with Termite Inspection and Extermination Service Internet Web Site; Web Based Advertising.
Digest: An attorney may ethically accept a referral fee from a company engaged in termite inspection and extermination provided: (i) The client consents to the arrangement after full disclosure; (ii) A disinterested lawyer would believe that the representation of the client will not be adversely affected by the arrangement; and (iii) the attorney tenders the fee to the client if the client requests the attorney to do so.

An attorney who accepts referral fees from a termite inspection and extermination company may not link the attorney's law office Internet web site with the web site of the termite service company. Such an arrangement would result in a lawyer referral system that does not comply with DR 2-103(D) and would not enable the lawyer to assure that the web link complies with the prohibitions of DR 2-101 (A) against false, deceptive or misleading advertising.
Code Provisions: DR 2-101 (A)
EC 2-10
DR 2-103(D)
EC 2-15
DR 5-101 (A)
EC 2-21
DR 5-107(A)(2)
EC 5-1
EC 5-22
Facts Presented: Inquiring counsel received a form solicitation letter from Termi-Shield, a termite inspection and extermination company. The letter was purportedly mailed to attorneys "specializing in real estate". The letter lauded the company's experience and expertise in the termite business. It touted the quality of its inspection reports and the authority with which they are received by local banks, mortgage companies and engineering firms. The attorney was invited to refer his legal clients to the company for such services as termite inspections, extermination treatments, and repairs of termite damage. In return for each referral, the attorney would receive a savings bond from the company ranging from $50 to $100, depending on the type of termite service performed. The attorney was given the option of taking the bond directly or assigning it to another party. The offer also provided that the attorney would receive an additional $50 savings bond each year that the client renewed its termite service contract with the company - presumably even after the attorney's legal representation of the client ended. Lastly, the attorney was requested to inspect the company's "not-for-profit" Internet web-site, and to allow the company to link it's site with the attorney's law office web-site.
Inquiry: 1. May an attorney ethically accept a referral free for directing clients to a termite inspection and extermination company?
2. May an attorney link his or her law office Internet web-site with the web-site of a termite service company in anticipation of receiving legal clients from among the termite company's clientele?
Determination: 1. An attorney may accept a referral fee in the form of a savings bond from a termite service company provided that the attorney's client consents to the arrangement after full disclosure as required by DR 5-107(A)(2). However, the attorney must remit the referral fee to the client if the client requests that the attorney do so. In addition, the attorney must assure that the exercise of his or her independent professional judgment on behalf of the client will not be compromised by the attorney's interest in the transaction or his ongoing business relationship with the termite service company. Even if full disclosure is made to the client, DR 5-101(A) requires that a lawyer shall not continue employment if a disinterested lawyer would conclude that the attorney's professional judgment on behalf of the client will or reasonably may be affected by the attorney's own financial interest.

2. An attorney who receives referral fees from a termite service company may not link the attorney's law office Internet web-site with the termite service company's web-site. By linking the attorney's web-site to its own, the termite company promotes the use of the attorney's services for the purposes of initiating referrals to the attorney. DR 2-103(D)(3) prohibits an attorney from participating in a lawyer referral service that is not operated or approved by a bar association or is otherwise authorized by law or court rule. DR 2-101(A) also forbids a lawyer from engaging in public advertising in any form that may contain false, deceptive, or misleading statements. Because the lawyer has no control over the manner in which the termite company may fashion or characterize its web link, the attorney cannot assure that the public will not be directed to the attorney or other participating attorneys by means of false or deceptive representations made by the termite company.
Analysis: This inquiry involving a referral fee and Internet web-site arrangement between a lawyer and a termite service company invokes ethical considerations and disciplinary rules that relate to two Canons of Professional Responsibility: The attorneys exercise of independent judgment on behalf of the client mandated by Canon 5; and the restrictions imposed against legal advertising by Canon 2.

I

An attorney who directs a client to a third party to perform an ancillary service related to the legal representation should do so on the basis of good professional judgment exercised exclusively for the benefit of the client. EC 5-1 provides:
The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of the client and free of compromising influences and loyalties. Neither the lawyer's personal interest, the interests of other clients, nor the desires of third persons should be permitted to dilute the lawyer's loyalty to the client.
An attorney who accepts a fee for referring a client to a third-party pursuant to a prior business agreement injects the attorney's own pecuniary interest into the matter and necessarily compromises the independence of judgment to which the client is entitled. Therefore, the client must be made fully aware of the business arrangement, and any implications it may have to the legal representation. The client must also consent to the arrangement before the lawyer may accept the referral fee. DR 5-107(A)(2) addresses the matter directly:
A. Except with the consent of the client after full disclosure a lawyer shall not:
2. Accept from one other than the client, anything of value related to his or her representation of or employment by the client.
Legal matters often require the use of ancillary services from other professionals or trades. Investigators, brokers, expert witnesses, court reporters, and printers are routinely needed for litigation and commercial transactions. Attorneys often develop long-standing relationships with service providers without the necessity of any financial remuneration through repeated use and satisfaction with the quality of work provided. On occasion, the attorney is called upon by the client for a recommendation or, just as often, the attorney may retain the services directly. The client benefits from the attorney's personal experience with the outside service provider. If the attorney receives a fee for the referral, the client may still benefit form the relationship, but the lawyer's pecuniary interest raises questions about the independence of his assessment of the quality of the services. If the referral arrangement causes the lawyer to knowingly compromise the quality of the services, the attorney's independent judgment is compromised to the detriment of the client. In this circumstance, the referral is not ethically permitted.

The principal obligation imposed on the lawyer by Canon 5 of the Code of Professional Responsibility is to preserve independent professional judgment throughout the course of the legal representation. If a disinterested lawyer would believe that the representation of the client will be adversely affected in any way by the lawyer's personal or business interests, then the attorney must forfeit his interest or discontinue his representation of the client irrespective of the client's consent. DR 5-101(A). Given the de minimus nature of the fee at issue here relative to the legal fee, a reasonable disinterested attorney could conclude that the lawyer's professional judgment would not be adversely impacted by this particular fee. Contrast this with the Committee's holding with regard to participating in brokerage fees in Opinion #01-9.

A similar situation was addressed by the Committee on Professional Ethics of the New York State Bar Association involving referral fees received by an attorney from a mortgage broker. It was the opinion of that Committee that a lawyer could ethically accept a referral fee from a mortgage broker for referring a real estate client to the broker if four conditions were met: (i) the client consented to the referral fee after full disclosure; (ii) the attorney remitted the referral fee to the client if the client requested the attorney to do so; (iii) the aggregate fee received by the attorney from the transaction was not excessive; and (iv) the attorney was able to maintain independent professional judgment on behalf of the client. N.Y. State Bar Op., 667 (1994).

The referral arrangement described in the solicitation letter submitted with the inquiry would not appear to threaten the attorney's exercise of independent professional judgment on behalf of his client, provided that the attorney is satisfied that the quality of the services performed by the company are adequate to meet the purposes of the legal matter. The referral fees described - savings bonds ranging from $50 to $100 - do not appear excessive, either in relation to the cost of the pertinent termite services or the customary legal fees incurred in real estate matters requiring such services. Nevertheless, the client must be made completely aware of the terms of the arrangement that the attorney has with the termite service provider so that the client can fully assess the attorney's interest and give a meaningful consent. If the client requests, the attorney must remit the referral fee to the client while the legal representation continues. Since the attorney's obligation to exercise independent judgment on behalf of the client ends with the attorney-client relationship, any referral fees that the attorney may become entitled to by reason of the client's continuing use of the termite service provider need not be remitted to the client.

II
The Termi-Shield solicitation also invites attorneys to visit the companies "not-for-profit" Internet web-site and to allow the Company to link it with the attorney's law office web-site. The solicitation gives no information about how the link would be fashioned or formatted, or what descriptions or representations would be made as part of the attorney-referral link. The arrangement is obviously intended to direct the Company's web-site visitors to attorneys with whom the Company has a referral arrangement - perhaps along with the expectation that the attorney will reciprocate with a web-link to the Company's web-site. By linking the attorney's web-site and those of other participating lawyers, Termi-Shield is promoting the use of the lawyers' services. DR 2-103(D)(3) provides that it is improper for a lawyer to be recommended, employed or paid by, or cooperate with an office or organization which promotes the use of the lawyer's services unless the lawyer referral service is operated, sponsored, or approved by a Bar Association or authorized by law or Court Rule. This Committee has previously found that it is improper for a divorce resources center to operate a lawyer referral service without first obtaining the approval of the local Bar Association. Nassau County Bar Op. 84-1.

The Code of Professional Responsibility encourages the use of lawyer referral systems that are developed and operated under the supervision of the legal community. These referral systems should be primarily designed to aid individuals in making an informed selection of competent lawyers to handle legal matters. EC 2-15 advises:
The legal profession has developed lawyer referral systems designed to aid individuals who are able to pay fees but need assistance in locating lawyers competent to handle their particular problems. Use of a lawyer referral system enables an individual to avoid an uninformed selection of a lawyer because such a system makes possible the employment of competent lawyers who have indicated an interest in the subject matter involved. Lawyers should support the principal of lawyer referral systems and should encourage the evolution of other ethical plans which aid in the selection of qualified counsel.
Unapproved and unregulated lawyer referral services, such as the Termi-Shield web-link arrangement, run the greatest risk of misleading the public and preventing individuals from making informed decisions in selecting legal counsel. Small ad hoc legal referral arrangements set up by nonlegal businesses are unlikely to contain a broad and accurate survey of available legal counsel, or to offer the counseling services and peer review information offered by most accredited legal referral services. They may also be more disposed to puffery and misleading claims. Indeed, the most competent and experienced real estate lawyers in a given community may be those who are the least in need of referral arrangements and web-links with termite service companies.

DR 2-101 (A) also forbids a lawyer from engaging in public advertising in any form that may contain false, deceptive, or misleading statements. Because the lawyer has no control over the manner in which Termi-Shield may fashion or characterize its web-link, the attorney cannot assure that the public will not be directed to the attorney- or other participating attorneys- by means of false, deceptive, or misleading representations made by Termi-Shield about the quality or expertise of its panel of lawyers.

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