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Lawyer Loses Referral Fee Claim Because He Failed To Comply With Rule 1.5(e)

The case is captioned Donald W. Forhman, and Associates, Ltd., v. Marc D. Alberts, P.C., 2013 IL App (1st) 123351, decided March 14, 2014 by the Illinois Appellate Court, Sixth Division.

This is a dispute between two law firms over referral fees. A referral fee is a fee paid by the lawyer who obtains a referral. The lawyer making the referral collects the referral fee. This is the third referral fee dispute I have seen in the Illinois reports this year. The increase in referral fee disputes may be due to the tough economic times in the legal profession. That may, in turn, cause lawyers to fight with each other over fees.

The Facts:

Fohrman claimed that there was an oral agreement under which he made referrals to Alberts and under which the legal fees earned would be split on a 50/50 basis. Although Alberts had made payments to Fohrman for other cases, Alberts alleged that the oral agreement was unenforceable because the written agreements did not comply with Rule 1.5(e) of the Illinois Rules of Professional Conduct because “it did not inform the client: (1) the primary service performed by Fohrman was the referral of the matter to Alberts; (2) whether Fohrman and Alberts were assuming joint financial responsibility for the representation; and (3) how fees were to be split.” ¬†Fohrman did not allege any specific work done on any of the cases. The trial court dismissed the amended complaint with prejudice.

The Appellate Court affirmed.

The decision follows well-established law and Rule 1.5 that the client must agree to the referral fee and the division of responsibilities. Lawyers often forget that it is the client who is paying for the services and it is the client who must understand and accept all fee agreements. When I have entered into referral fee agreements I set forth the work that each firm will do and the division of fees. The client has a right to know what each lawyer is being paid and how much responsibility that lawyer has.

In this case, had one of the clients filed a legal malpractice suit, no written document would have led the client to Fohrman. Instead the client would have sued Alberts for legal malpractice. Alberts could not have successfully filed a third-party contribution claim against Fohrman in the absence of some written documentation. Alberts would have had to face any client claim alone. In those circumstances, it is unfair to expect Alberts to share half the fee with Fohrman.

Edward X. Clinton, Jr.