NJ Ethics Board: Referral Fees Only for In-State Attorneys
March 15, 2024
A recent Law 360 story by Emily Sawicki, “NJ Ethics Board Says Referral Fees Only For In-State Attys”, reports that new guidance provided by the New Jersey Supreme Court's Advisory Committee on Professional Ethics recommends against the payment of referral fees for out-of-state lawyers, reasoning that such fees, considered payment for legal services, can only be provided to attorneys licensed to practice law in the state.
The opinion on referral fees, Opinion 745, came as a response to inquiries regarding attorneys from outside New Jersey requesting referral fees, the advisory committee said, including instances in which in-state attorneys who spend their winters in Florida "present local lawyers with legal issues that involve New Jersey law," and attorneys from neighboring states represent New Jersey clients. Opinion 745 was issued March 7 and made available.
In both of these instances, it is generally not appropriate to pay out-of-state lawyers referral fees, the opinion stated, unless the attorney is eligible and licensed to practice law in New Jersey. The opinion also detailed limitations on who should pay such fees. "Only New Jersey lawyers who are certified trial lawyers … may pay a referral fee," according to the opinion, which clarified that the state's professional conduct rules "prohibit other New Jersey lawyers from paying referral fees."
New Jersey's Rules of Professional Conduct also detail the limited scope under which referral fees should be paid, pointing out such fees are only appropriate for attorneys who are not part of the same law firm. Clients must consent to each of the lawyers involved and be notified of the fee division, and the fee must be "reasonable," the ethics rules dictate. "The division is in proportion to the services performed by each lawyer, or, by written agreement with the client, each lawyer assumes joint responsibility for the representation," according to the professional conduct rules.
The ethics committee clarified that the fee is "considered payment for legal services rendered in the case," but is not payment "in proportion to actual services rendered." Because of this distinction, only New Jersey lawyers are eligible to collect such fees. "People who are not permitted to practice law in New Jersey may not receive fees for legal services rendered," the opinion said.
The referral fee guidance also notes that it is not appropriate to pay a referral fee to a lawyer who is unable to take up a case or must bow out of a case due to a conflict of interest. However, if a certified New Jersey lawyer must exit because an "unforeseen conflict arises in the midst of litigation and was not foreseeable," it is appropriate to pay the lawyer for legal services rendered, the opinion stated.
"Certified lawyers may pay referral fees to lawyers who were in good standing and eligible to practice law at the time of the referral but who later were suspended or disbarred at the time the case was concluded and the referral fee was payable," the opinion stated, citing precedent set in 2008 in the New Jersey Appellate Division case Eichen Levinson & Crutchlow LLP v. Weiner.
In that case, the opinion said, "the court reasoned that the referring lawyer was not required to have performed any legal work on the referred cases to obtain the referral fee and, at the time of the referral, the lawyer was eligible to practice."
The payment and acceptance of referral fees are dictated by individual state ethics rules and, therefore, there may be instances in which a New Jersey lawyer may accept a referral fee when doing work in other states. It is up to the lawyer to ensure such fees are permitted, and that services fit the "specific needs of the client."