1995-08

QUESTION:

“The Mobile Bar Association requests an ethics opinion
regarding the implementation of percentage fees in its
Lawyer Referral and Information Service program. Our
program has been in operation since 1979.

The goal of the Mobile Bar Association Lawyer Referral and
Information Service is to increase the number of clients
served by the program, improve the assistance provided,
protect consumers from private firms promoting themselves
to the public as lawyer referral without the proper public
service component and facilitate client access to
appropriate legal services. Although the lawyer referral
services are considered to provide a benefit to its
attorney
members, the primary purpose is public service. Without
lawyer referral, thousands of people would be without an
agency to turn to for legal assistance. Lawyers, already
perceived as expensive and inaccessible, would be even
further removed from the public they are supposed to
service. The lawyer referral service reaches out to bridge
the gap between attorneys and the public. By providing a
valued service, the bar enhances its image as a public
spirited organization, concerned about the community in
which it exists.

In order to provide a high quality standard of service to
the public and the attorney LRS members, the Mobile Bar
Association wishes to refine its program from a shoebox
style program and bring it into the computer age. That,
of course, takes funding. This funding can be realized
by implementing a percentage fee program. Ethics opinions
across the United States have consistently held that a
percentage program is a legitimate way for a lawyer
referral
service to generate income when the funds are used to
defray
the cost of operating the service. Rule IX of the Model
Supreme Court Rules Governing Lawyer Referral and
Information Services (see attached) states:

‘A qualified service may, in addition to any
referral fee, charge a fee calculated as a
percentage of legal fees earned by any lawyer
panelist to whom the service has referred a
matter. The income from any such percentage
fee shall be used only to pay the reasonable
operating expenses of the service and to fund
public service activities of the service or
its sponsoring organization, including the
delivery of pro bono legal services.’

The ABA’s Survey of Lawyer Referral Services also reports
that nearly half of all bar-sponsored services and all of
the services that are self supporting have a percentage fee
program.

The percentage fee structure requires that participating
attorneys remit a portion of their fee from a LRIS referral
to the service – this could be a flat percentage fee (e.g.
charging attorneys 10% to 15% of all fees received) or a
sliding scale (e.g. charging 5% of the first $1,000
received
and 10% of all fees thereafter), depending upon the
decision
of the local LRS governing body. The ABA has issued an
ethics opinion upholding such fees as ethical under the
ABA’s Model Rules of Professional Conduct.

The Mobile Bar Association Lawyer Referral and Information
Service’s operating rules and procedures are patterned
after
the ABA’s Model Supreme Court Rules Governing Lawyer
Referral and Information Service. Mobile’s LRS program is
supported and operated by the Mobile Bar Association under
its Executive Committee, with the immediate supervision of
operation provided by the MEA’s Standing Committee on LRIS,
currently chaired by Local Lawyer. Attorney Panel members
are required to furnish proof of malpractice insurance;
certify that he or she is competent to handle the matters
listed; and submit a waiver of the confidentiality of the
grievance process, so that the LRS may check with the
grievance committee as to whether the attorney has been the
subject of any complaints or disciplinary action. The
proposed basic fee structure of the MBA program would be:
yearly registration fee (between $80 and $130) payable to
LRS; initial consultation fee (between $15 and $25) payable
to the attorney; and the percentage fee payable to LRS.
Increased revenue from the percentage fee will eventually
allow LRS to be completely self-supporting as well as
provide necessary funds to computerize, expand public
relations activities (including written brochures),
increase
advertising in the Yellow Pages and enhancing the Pro Bono
Program.”

* * *

ANSWER:

A percentage fee program is an ethically permissible way to
generate funds for a lawyer referral service, as long as
the
income generated thereby is used to defray the costs of
operating the service or to support other public service
programs.

DISCUSSION:

As cited in your opinion request, the American Bar
Association, in Informal Opinion 1076, dated October 8,
1968, addressed an inquiry as to whether members of a
lawyer
referral plan could assist in the financing of that
service,
either by a flat fee or by a sliding scale charge based on
the fees derived by the panel members from the cases
referred to them. The ABA replied that such an arrangement,
if under the control of the association setting it up,
would
be permissible under then Canon 34. This opinion referred
also to Formal Opinion 291 of the ABA dated August 1, 1956,
wherein it was determined that a bar association could
require members of a lawyer referral panel to help finance
that program either by a flat charge or a percentage of
fees
collected.

This opinion is consistent also with the ABA’s Model
Supreme
Court Rules Governing Lawyer Referral and Information
Service referenced in your opinion request. As stated in
this Model Rule, as well as ABA opinions and opinions of
other jurisdictions, supervision and control over such a
program by your local bar association is the primary
requirement and essential element of such a program. This
would appear to be the underlying foundation for the Model
Rule and the opinions which allow the operation of such a
service and its funding on a percentage of fees basis.

Based on the facts recited in your opinion request to the
effect that the Mobile Bar Association Lawyer Referral and
Information Service is supported and operated by the Mobile
Bar Association under its Executive Committee, with
immediate supervision of operation provided by the Mobile
Bar Association Standing Committee on Lawyer Referral and
Information Service, the appropriate safeguards appear to
already be in place and operational. The requirement that
participating members of the referral service furnish proof
of malpractice insurance, certify that they are competent
to handle the matters listed, and submit a waiver of
confidentiality of the grievance process so as to allow a
background check concerning any possible prior disciplinary
history of the participating members further buttresses the
reliability and accountability of such a program.

In a recent ABA PAR report dated August 1, 1995, addressing
the Alabama State Bar Lawyer Referral Service program, the
following language is found:

“Implementation of a percentage program for
all referred cases is inherently fair, since
attorneys are only required to remit fees to
the service when they have obtained a fee
generating case.

The PAR consultants further suggest that the
ASB LRS set a minimum ‘threshold’ amount, and
exempt fees below that amount from the
percentage due to the Service; for all fees
above the threshold, the percentage on the
full fee should be assessed.”

The report continues:

“Management of a percentage fee program must
include procedures that track each referral,
regularly follow up on case status, and
survey the client as well as the attorney
to determine what fees have been paid.”

The report further recommends that all members be required
to report the amount of fees received through retained
referred cases, and that sufficient staff and resources be
dedicated to a follow-up procedure which would insure that
accurate and timely reporting of relevant referral
information be maintained by the referral service, and be
required of the members participating in such a program or
plan. In order to allow such a process to effectively
function, it would be essential that all attorneys who
participate in such a program strictly comply with the
requirements of the reporting procedures implemented by
your committee to insure validity, accountability and
reliability. The PAR report even suggests that the ASB LRS
promulgate and enforce a rule requiring the suspension and
ultimate removal of any attorney who fails to timely
respond
to case status inquiries.

Copies of this report will be available to the members of
your committee upon request. You are encouraged to
disseminate this information to all who are a part of the
committee itself, as well as each attorney who would
participate in such a plan.

JAM/vf

10/11/95

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