Is the Model Rule Outdated? Texas Carries Referral Fee Responsibility into the Limited Liability Era*

Article excerpt

The American Bar Association (ABA) has interpreted Model Rule of Professional Conduct 1.5(e) (Model Rule) to confer vicarious liability on attorneys who receive referral fees. Although this interpretation has remained relatively untouched for twenty years, Texas recently amended its Disciplinary Rule of Professional Conduct 1.04(f) (Texas Rule) to further regulate attorney referral fees in Texas, deliberately stopping short of conferring joint financial liability on referring attorneys. Texas's stance against conferring vicarious liability on referring attorneys reveals a defect in the Model Rule's interpretation and necessitates juxtaposing the policies supporting vicarious liability against those supporting referral fee restrictions. Consider the following scenario:

Ralph, a corporate attorney, receives an urgent telephone call from his long-time client Claire. Ralph has been Claire's attorney for many years and has advised her on contractual and other legal matters relating to Claire's nationally recognized gourmet catering company. Earlier in the week, Claire was frying her famous calamari when her stove malfunctioned, sending a ball of fire toward her that destroyed her secret recipes, damaged her kitchen, and singed her eyebrows. She calls Ralph wanting to sue the stove manufacturer.

Ralph listens sympathetically to the details of Claire's accident. He is the only attorney she knows, and she desperately begs him to handle her case. Ralph explains that he is not equipped to handle her case but promises that he will find another attorney who is experienced in tort law. After considering potential attorneys and conducting significant research, he decides to call Harriet, a law school classmate and friend, whose expertise is tort litigation and who has previously prevailed on products liability and emotional distress claims. Ralph agrees to refer Claire's case to Harriet in exchange for a referral fee equal to twenty percent of collected gross attorneys' fees. Claire agrees to Harriet's representation and to the fee-splitting agreement between the lawyers.

A few years later, Ralph receives another telephone call regarding the case. Harriet has failed to file suit on Claire's behalf within the applicable limitations period, leaving Claire without a remedy. Claire has sued both Harriet and Ralph to recover for legal malpractice. Ralph has not received a fee nor spoken to Harriet or Claire in years. Can Claire prevail on her malpractice claim against Ralph merely because of his referral fee agreement with Harriet?

Unfortunately, if these hypothetical events were to occur in a state that has adopted the Model Rule, Ralph could be held jointly and severally liable for Harriet's malpractice, even though he was not involved in the case and had not negligently referred the case to an unqualified attorney.1 Under the Model Rule, if an attorney receives a referral fee for forwarding a case to another attorney, either the fee must be split according to the proportion of services performed or the referring attorney must accept joint responsibility for the representation.2 The ABA defines "joint responsibility" to include both financial and ethical obligations, as if the attorneys were partners in the same law firm.3 Therefore, under the Model Rule, Ralph necessarily assumed joint responsibility since the fee was not divided according to the proportion of services performed; as a referring attorney, he may be held vicariously liable for Harriet's legal malpractice.4

Fortunately for Ralph and other referring attorneys caught in the Model Rule's snare, the new Texas Rule offers an alternative that recognizes the limitations inherent in the relationship between a referring attorney and a handling attorney. While it contains a joint responsibility provision comparable to the Model Rule's, the official comments to the Texas Rule refuse to follow the Model Rule's lead in imposing vicarious liability on referring attorneys and instead define a standard of care that may lead only to direct liability or to disciplinary sanctions. …

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