Personal Injury Referral Fees – Are You Protected?

A. Vince Colella

‍Moss & Colella P.C.

In the world of personal injury litigation, many smaller boutique firms are dependent upon referrals from other attorneys. For the referring attorney, it is a tried and true way to earn significant fees. However, all too often, referrals are loosely made by a quick phone call, email or word of mouth, absent an agreement in writing and acknowledgment by the client (a practice that has proven treacherous for the referring attorney and should only need to be learned once).

This was precisely the scenario addressed by the Court of Appeals in Law Offices of Jeffrey Sherbow, PC v. Fieger & Fieger, PC, 326 Mich. App. 684 (2019). The case involved a fee dispute arising out of the referral of a multi-person motor vehicle death and serious injury accident. Shortly after the accident, the decedent’s son sought the contact information for an attorney with whom his father had a prior working relationship. Over the course of the next several days, the attorney and decedent’s son had a series of conversations via telephone and eventually met at the decedent’s home to discuss the case. In the meantime, the attorney started the process of referring the case to a high-profile personal injury law firm (“Firm”) through discussions with one of its principal attorneys considered to be an agent of the Firm. According to the testimony, the referring attorney disclosed to the decedent’s son that he was not equipped to deal with such serious cases but could facilitate a referral. The referring attorney organized a meeting with the Firm and retainer agreements between the referring attorney and the Firm to pay a one-third referral fee on any recovery were signed. However, the retainer agreements executed by the clients were silent as to attorney referral fees. Moreover, the clients testified that they did not recall being informed of any attorney referral agreement, and had they been advised would have objected. While the retainer agreement did not include language to memorialize the payment of a referral fee, the referring attorney sent two letters to the Firm reciting that the
Firm had accepted the case on a one-third referral fee basis. To complicate matters further, the accident giving rise to the case occurred in Ohio. Therefore, an Ohio law firm had to be retained as local counsel. Accordingly, the referring attorney agreed to lower his referral fee to 20% to allow for the Ohio law firm to share in the proceeds in consideration for the work that it would invest in the case.

Eventually, the Firm obtained an award of $10,225,000.00, resulting in a one-third contingent fee of $3,408,333.34 payable to the Firm. However, the Firm refused to pay the referring attorney the 20% referral fee in the amount of $681,666.67 citing MRPC 1.5(e) — among other things — as a defense. The rule states, “a division of a fee between lawyers who are not in the same firm may be made only if: (1) the client is advised and does not object to the participation of all the lawyers involved, and (2) the total fee is reasonable. In the trial court, the jury found an attorney client relationship between the referring lawyer and family of the decedent. The court did not find a relationship had been established for the other three injured parties. After the trial court denied a motion for judgment notwithstanding the verdict in favor of the Firm, an appeal ensued.

Ancillary issues of agency and breach of contract were addressed by the court. However, the crux of the appeal centered upon the interpretation of MRCP 1.5(e). Having determined that the language of the rule as being plain and unambiguous, the court held that a client must be advised of the referral fee agreement (and not object) for it to be valid and binding. Moreover, upon granting leave, the Michigan Supreme Court ordered the parties to address the question of whether the Michigan Rules of Professional Conduct require an attorney-client relationship with all of the participating attorneys in the case for the agreement to be enforceable. Id. at 937 N.W. 2d 685 (Mich 2020)

While the parties await a final ruling from the Supreme Court, this should serve as a cautionary tale for referring lawyers. One cannot overstate the importance of reducing a referral fee agreement to writing and having it signed by all the participating attorneys and clients. This will protect attorneys with respect to the referral fee and provide the client with unmistakable notice as required under MRPC 1.5(e). Finally, it is worth noting that the reasonableness of a contingent fee has been interpreted to mean no more than one-third may be charged to the client. Thus, from the client’s perspective, there should be no incentive to object to a referral fee as it would have no effect on the net amount of the recovery to the client.

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This article was first published in the Detroit Legal News on November 5, 2020