This subject is rarely discussed because it seems to be common sense and just plain good business. But as my husband is fond of saying, 'common sense is not that common.'
The rules clearly vary from jurisdiction to jurisdiction. It is incumbent upon you to learn what your jurisdiction allows when it comes to paying referral fees to other attorneys. If you are fortunate enough (and I do mean fortunate) to practice in a jurisdiction which allows the payment of referral fees to a colleague for either referring a client or referring and requiring you to participate in the case in order to participate in the fees, you should absolutely be taking full advantage of this benefit.
However, this post falls into the category of 'you've been honored with a referral of a great case in a jurisdiction which allows you to pay the referring attorney a referral fee'.
By way of introduction, when I was practicing full time I was permitted to refer cases and receive a negotiated percentage of the attorney fees if the practice area permitted. Generally, this was a personal injury case. The common practice was a third of a third or a quarter of a quarter, etc. Other practice areas provide for referral fees but may have a different protocol.
One day an amazing whistle-blower case was thrown into our lap. We knew it was beyond our skill set and resources. We had to refer it out. This case was huge and it turned on just one individual. If he proceeded and provided critical documents, I'm conservatively guessing it would have been a multi-million dollar award. I knew a lawyer in California who was a partner with a large reputable firm. They firm only handled class actions. He was very interested in the case but (red flag) refused to put our relationship of referrer/referee in writing. His claim was their firm was so prestigious and so large it wasn't necessary. Really? So, we went local. When we told the local firm what we were told by the 'We're All That and a Ham Sandwich' Law Firm they were appalled saying any reputable firm not only puts it in writing, they are obligated to tell the client. Long story short, the whistle-blower got cold-feet and changed his mind. Yet we learned a valuable lesson.
Any responsible ethical lawyer who accepts a referral will commit their financial obligation to you in writing and disclose to their client.
Subsequently, when I made a referral to a personal injury attorney I knew and trusted, I sat with the clients and the lawyer I was giving the case to (I did this with all referrals). This is what the lawyer said to his new clients before they signed the retainer agreement:
'In our profession I am permitted to thank a colleague financially for referring you to me. I will gladly pay a portion of any statutory fee awarded to her as a professional thank you. Whether it's $1,000, $10,000 or $100,000 I will happily pay it because if she didn't bring you to my attention I would never have met you and had the honor of representing you in this case. It doesn't impact what you are statutorily guaranteed to receive should we prevail. However, I want you to know this understanding will be made part of our agreement when you retain me."
This is the RIGHT way to do it.
When the matter was concluded I immediately received my referral fee as a matter of due course. His attitude was this percentage of the award was never his and he never treated it as such. It was a normal part of the required disbursements upon settlement of the case.
On the flip side, I also had an occasion where after the referral agreement was made and understood by all parties, the lawyer won the case and then said to me, 'you know, the award wasn't really that big and we worked pretty hard on the case. I'm thinking you should pass on your referral fee.' I was too green at the time to challenge him.
All things being equal in the quality and ethics of each attorney when representing their client, can you tell which lawyer I continued to send valued clients to?
You must understand when a lawyer refers a case to you it is a gift you would not have gotten otherwise. When another lawyers refers to you, it is based upon your reputation, your honor, and your integrity in all matters.
Do not inappropriately take ownership of fees which are not yours.
You can get so much work you would never have otherwise from new attorneys who choose not to handle these cases because 1) the attorney can't handle the litigation costs, 2) it's not their practice area, 3) there are conflicts or 4) the attorney simply recognizes they are too inexperienced. Do not take advantage of these lawyers. They may one day be your opposing counsel, too.
If your jurisdiction permits and you are referred a case, even if the new or less experienced attorney says to you 'we don't need to put it in writing' or 'you don't have to pay me just send some business my way in my practice area' it is incumbent upon you to do the right thing. You should put it in writing and show the proper appreciation for the gift you've been given. Train the new attorney on the right way to do things. Train the new attorney to think of you first as not only an excellent lawyer but as someone who values referrals and will compensate accordingly within the bounds of professional ethics.
To not pay referral fees when agreed upon, to not offer to do so if the referring attorney is too naive (or in awe) to ask, is to wrongly take advantage of a colleague and it will ultimately cost you more business and reputation as word spreads not to feed you clients.
Many new lawyers know a lot of people they are not equipped to service. However, they are your colleagues and trusted by their circle. These people with great cases will go to their trusted lawyer friend for the name of a good lawyer. Be that good lawyer to your fellow referring lawyers.
Always. Always. Always pay your referral fees.