Starting Your Own For Profit Referral Service

Have you ever thought about starting your own for-profit lawyer referral service? Using staff to screen incoming calls and match potential clients to lawyers?

OSB Formal Ethics Op No 2005-168, revised June 2018, contemplates exactly this scenario. While permitted, there are restrictions. Read on.

Can I own a for-profit lawyer referral service?

Yes! However: lawyers are not permitted to use other businesses (such as a lawyer referral service) for in-person solicitation of legal work. Nor may lawyers misrepresent the nature of services provided. OSB Formal Ethics Op No 2005-10; OSB Formal Ethics Op No 2005-106 (rev 2016); OSB Formal Ethics Op No 2005-108 (rev 2015).

Can I manage a for-profit lawyer referral service?

Yes! General management and administration of a lawyer referral service is ethical. This includes duties such as hiring staff or supervising operations.

May I operate my for-profit lawyer referral service at the same premises as my law practice?

Yes! Since lawyers are allowed to office share with non-lawyers, there is no ethical barrier to operating a referral service at the same physical location as your law practice.

What ethical issues might arise in operating a for-profit lawyer referral service?

Lawyer-owners should avoid participating in the actual screening of incoming inquiries (potential clients). This eliminates two risks.

  • Receiving confidential information which could create a conflict of interest
  • Creating a lawyer-client relationship

Lawyer-owned and operated referral services must be separate independent incorporated entities – not merely DBAs (assumed business names) registered to the lawyer. See In re Fellows, 9 DB Rptr 197, 199-200 (1995).

Do not give legal advice through your lawyer referral service! As OSB Formal Ethics Op No 2005-168 explains, “a referral service is not licensed to practice law and a lawyer may not assist a nonlawyer in the unlawful practice of law.”

In my opinion

If you decide to operate a lawyer referral service, consider taking these extra steps to minimize your liability.

  • Create your referral service with the same formality as you would an independent business for one of your clients. This isn’t the time for shortcuts. Have a business plan, mission statement, marketing plan, budget, financial projections, etc. If this is a co-venture among you and your lawyer friends, have a written “partnership” agreement or equivalent!
  • Keep independent records and books.
  • Set up the service in a separate physical location. Is it ethically necessary? No, but it’s smart. Keeping the businesses physically separate minimizes confusion and increases the appearance of neutrality. (The service isn’t there to feed clients to you – it exists to refer clients to others.)
  • Consider hiring separate staff for the referral service. This will offer further protection against potential conflict of interest arguments. If neither you nor your legal staff are involved in screening, you can’t possibly receive confidential information. Besides, your staff may not have the time to handle the additional workload. Referral services are busy. Do you want your paralegal or legal secretary to answer referral calls or get your work done? They may not be able to do both.
  • Train referral staff on unlawful practice of law issues and other concerns related to the service. For example, what should they do if a client comes to your referral business in person and wants to talk to a lawyer now!
  • Use disclaimers in your advertising, on your website, in online forms, or as part of a recorded greeting heard by all callers. See this language posted on the Oregon State Bar Lawyer Referral Service (OSB LRS) web page.
  • While the assertion of negligent referral is a rare thing, the right client in the right circumstance may make a claim. Be prepared and inquire into proper business insurance coverage. Don’t assume your professional liability extends to your independently owned and operated lawyer referral service.

All Rights Reserved 2018 Beverly Michaelis

 

 

Changing Times for Lawyer Referral

In less than twelve months, the Oregon State Bar Lawyer Referral Service (LRS) will implement a new fee system for bar members.  Starting July 1, 2012, lawyers who accept a fee-generating case will begin returning a portion of the fees collected to the referral service.

Understandably, the switch from a flat registration fee to a percentage system has raised many questions, including:

  • What exactly is a percentage fees revenue model?
  • Why now? And, why is this happening so suddenly?  Shouldn’t the Board of Governors take more time to study this change?
  • Wouldn’t it be easier and just as effective to raise the panel registration
    fees? Why can’t the LRS just increase registration fees to break even?
  • Can’t the LRS collect and keep the $35 consultation fee currently collected and kept by LRS lawyers?
  • Why would you even consider taking a percentage of low-fee cases and $35 consultations?
  • Won’t the ethics rules require clarification? Isn’t this in violation of ethics rules on fee sharing?
  • Wouldn’t implementation of a percentage fees revenue model greatly increase the amount of administrative work each lawyer has to do?
  • What happens if the lawyer bills the client, but only gets paid some or none of the outstanding balance? Does the lawyer still have to pay the LRS?
  • Is the entire amount earned and collected subject to the percentage remittance?
  • How are confidential settlement amounts handled?  Does the LRS have to know how much the settlement was for and, if so, how is that not in breach of the settlement agreement?
  • What’s to stop a lawyer from increasing his/her hourly rate to compensate for the “new” amount owed under a percentage fees revenue model?

Thankfully, the bar has now addressed these and other issues.  You can read a full explanation of how the new percentage fee system will work here.  The short
answer(s) are:

  • The LRS has been subsidized by bar dues since its inception in the ’70s.  The annual budget shortfall for the LRS is approximately $275,000.
  • Raising registration costs or restructuring referrals to allow the bar to keep initial consultation fees sounds simple and appealing, but there are significant drawbacks to both approaches.
  • Approximately 80% of other states have adopted the percentage fee model.
  • Other jurisdictions using the percentage fee model have successfully addressed potential fee-sharing and confidentiality issues by amending the Rules of Professional Conduct or adopting operating rules.  The bar is currently examining whether Oregon RPC 7.2(a) should be amended to clarify that it does not prohibit percentage fees to non-profit referral programs.
  • The bar has no plans to apply percentage fees to initial consults, small matters, or the Modest Means program.
  • The fee paid by the lawyer to the bar will be based on a percentage of the amount collected, not the amount billed.

I encourage you to read the entire FAQ document.