Opinion No. 94-16

As Modified Upon Reconsideration, January 31, 1995

TOPIC: Judge receiving a referral fee with respect to a referral made before going on the Bench.

DIGEST: Judge may receive fee for referral made before becoming a judge where the fee is based entirely on the judge's making of the referral and sharing of "legal responsibility" for the performance of the legal services. Ethical and financial considerations may make it desirable, but not mandatory, for judge to seek client's consent to eliminate judge's ongoing legal responsibility by rescinding or modifying fee-sharing agreement.

REFERENCES: Illinois Supreme Court Rules 65C and 65F of the Code of Judicial Conduct, Canon 5 (145 Ill.2d R.65); Illinois Rules of Professional Conduct 1.5 and 5.1; former Illinois Code of Professional Responsibility Rule 2-107; Illinois Judicial Ethics Committee Opinion No. 94-12; Chicago Bar Association Professional Responsibility Opinion Nos. 82-5 and 87-2; Michigan Informal Opinion CI-923; Felbinger & Co. v. Traiforos, 76 Ill.App.3d 725 (1979); Leonard v. Autocar Sales & Service Co., 392 Ill. 182 (1945), cert. denied, 327 U.S. 804 (1946); Rhoades v. Norfolk & Western Ry. Co., 78 Ill.2d 217, 230 (1979); 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on The Model Rules of Professional Conduct, Sec. 1.5:601 at 124.4 (1993 Supp. to 2d ed.).

FACTS

A lawyer was contacted by a prospective client who had suffered a personal injury. After evaluating the case the lawyer referred the client to a personal injury lawyer. The referring lawyer subsequently became a judge. Two or three years later the personal injury case resulted in a favorable verdict for the plaintiff which led to a substantial settlement in the case.

The judge had done no work on the case after the referral or while on the Bench.

QUESTIONS

1. Can a judge accept a fee for a referral made before becoming a judge if the fee-sharing is based on the making of the referral and the referring lawyer's acceptance of the same legal responsibility for the performance of the services as a partner of the receiving lawyer?

2. Can a judge seek a former client's consent to eliminate the judge's ongoing legal responsibility with respect to a fee-sharing agreement by rescinding or modifying that agreement?

OPINIONS

Question 1

Supreme Court Rule 65F prohibits judges from practicing law. Consequently, the judge's ability to accept the referral fee depends upon whether the fee represents compensation for legal services rendered by the judge after assuming the Bench. See Illinois Judicial Ethics Committee Opinion No. 94-12 (lawyer's responsibility, upon becoming a judge, regarding earned and unearned legal fees).

The terms of the fee-sharing agreement between the lawyers and the client determine whether a referral fee represents compensation for legal services. Illinois Rule of Professional Conduct 1.5(g) recognizes two different kinds of fee-sharing arrangements. In the first kind of arrangement, the referring lawyer and the recipient of the referral both actively engage in representing the client. Rule 1.5(g) requires that the division of fees in those circumstances "shall be made in proportion to the services performed and responsibility assumed by each lawyer. . . ." In the second kind of fee-sharing arrangement, the primary service performed by the referring lawyer is the referral of the client to the other lawyer. To be entitled to a referral fee, the referring lawyer must agree "to assume the same legal responsibility for the performance of the services in question as would a partner of the receiving lawyer." Id. Under Rule of Professional Conduct 1.5(f), all fee-sharing arrangements require the client's consent to the division of fees in a writing which discloses the basis upon which the division will be made, the economic benefit that has been or will be received by the lawyers, and the respective responsibilities of the lawyers for the services to be rendered.

This inquiry involves the second kind of fee-sharing arrangement. The referring lawyer, who is now a judge, was not required to (and did not) provide legal services to the client. 1 Assuming that the arrangement was documented in

accordance with Rule 1.5(f), the judge would be entitled to receive a referral fee in accordance with the fee-sharing agreement so long as the judge's assumption of "the same legal responsibility for the performance of the services as . . . a partner of the receiving lawyer" does not involve the practice of law.

The Committee believes that the acceptance of such legal responsibility does not involve the practice of law within the meaning of Supreme Court Rule 65F and, consequently, the judge can receive the referral fee. Illinois Rule of Professional Conduct 1.5(f) & (g) is substantively identical to former Illinois Code of Professional Responsibility Rule 2-107(a)(1) & (2). The official commentary to the Illinois Code of Professional Responsibility stressed that Rule 2-107 was intended to permit the payment of a fee to a referring lawyer who did not provide any legal services:

"The rule expands and attempts to clarify the ABA [Code of Professional Responsibility] provisions respecting division of fees among lawyers. In particular, it expressly sanctions payment of a fee to the referring lawyer where that lawyer takes no part in the actual handling of the case -- a practice which is apparently prohibited by the ABA rule -- so long as the referring lawyer assumes responsibility for the work of the other as though he were the other's partner. . . ."

What does it mean for the referring lawyer to take no part in the actual handling of the case and yet assume responsibility for the work of the receiving lawyer as if they were partners? The Committee believes that such legal responsibility consists solely of potential financial responsibility for any malpractice action against the recipient of the referral. Cf. 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on The Model Rules of Professional Conduct, Sec. 1.5:601 at 124.4 (1993 Supp. to 2d ed.) (under Canon 34 of former ABA Canons of Professional Ethics, "merely hovering in the background as a malpractice defendant might constitute acceptance of 'responsibility'" required to share fees).

Our conclusion that the judge's continued acceptance of "legal responsibility" does not constitute the practice of law is consistent with the views expressed by the Chicago Bar Association's Professional Responsibility Committee ("PRC"). In a thoughtful and thorough opinion interpreting former Illinois Code of Professional Responsibility Rule 2-107(a)(2)(b), the PRC concluded that a lawyer who received a referral from another lawyer who subsequently became a judge could pay the judge a referral fee in accordance with a fee-sharing agreement based entirely on the referring lawyer's referral of the case and assumption of legal responsibility:

"We . . . believe that the Illinois Code of Judicial Conduct does not require a judge to repudiate an outstanding agreement to assume legal responsibility within the meaning of Rule 2-107(a)(2)(b). The retention of legal responsibility should not be deemed to constitute the practice of law (as prohibited by Rule 65F) or to violate a judge's duty to minimize the risk that extrajudicial duties will conflict with judicial duties (as required by Rule 65C)." Chicago Bar Association PRC Opinion 87-2, at 5-6 (footnote omitted).

See also Michigan Informal Opinion CI-923 (judge may collect referral fee but should disqualify himself from cases involving receiving lawyer while dispute over fee division is pending); Chicago Bar Association PRC Opinion No. 82-5 (lawyer who becomes a judge may refer pending cases to another lawyer and divide fees with the receiving lawyer).

The Committee believes that the phrase "the same legal responsibility for the performance of the services in question as would a partner of the receiving lawyer" in Rule 1.5(g) is limited to financial responsibility even though, under the current Illinois Rules of Professional Conduct, lawyers may be subject to professional discipline for the unethical behavior of their partners. Illinois Rule of Professional Conduct 5.1 provides in pertinent part:

"(a) Each partner in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the conduct of all lawyers in the firm conforms to these Rules.

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(c) A lawyer shall be responsible for another lawyer's violation of these Rules if:

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(2) the lawyer is a partner in the law firm in which the other lawyer practices . . . and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to make reasonable remedial action."

The requirement in Rule 5.1(c)(2) that a lawyer take "reasonable remedial action" with respect to a partner's unethical conduct may impel the lawyer to take actions that constitute the practice of law. For example, if a lawyer, in violation of the duty to act with reasonable diligence under Rule of Professional Conduct 1.3, permits a lawsuit to be dismissed for want of prosecution, any partners of the lawyer who promptly learn of that misconduct would be required to ensure that reasonable measures were taken to attempt to have the lawsuit reinstated. Consequently, if Rule 1.5(g) requires a referring lawyer to perform the functions required by Rule 5.1(c)(2), that lawyer may be precluded, after becoming a judge, from continuing to accept the full extent of the legal responsibility necessary for a valid fee-sharing agreement.

The Committee believes that the legal responsibility assumed by a referring lawyer under Rule 1.5(g) does not include the responsibilities of a partner under Rule 5.1. Significantly, there was no counterpart to Rule 5.1 in the Illinois Code of Professional Responsibility. Consequently, when the Supreme Court adopted Rule 2-107(a)(2)(b) of the Code of Professional Responsibility, it could not have intended to require referring lawyers to assume the responsibilities contained in Rule of Professional Conduct 5.1.

Nor do we believe that the Court's subsequent adoption of the Illinois Rules of Professional Conduct manifested its intent to broaden the nature of the legal responsibility required to effect a fee-sharing agreement. No such intent appears in the language of the Rules of Professional Conduct. Rule 1.5(g)(2) tracks nearly verbatim the language from Code of Professional Responsibility Rule 2-107(a)(2)(b); the only change made the rule gender neutral. If the drafters had so intended, it would have been a simple matter to add language to Rule 1.5(g)(2) indicating that the referring lawyer was required to assume the same legal responsibility, under Rule 5.1 or otherwise, as would a partner of the receiving lawyer. Without any such additional language, it appears doubtful that the identical phrase--"same legal responsibility for the performance of the services in question as . . . a partner of the receiving lawyer"--was intended to mean one thing in the Code of Professional Responsibility, and something quite different in the Rules of Professional Conduct.

It should be noted that a contrary conclusion--i.e., that the acceptance of legal responsibility under Rule 1.5(g) does involve the practice of law--would by no means solve the ethical dilemmas surrounding judges' entitlement to referral fees. Judges' inability to continue to fulfill their contractual obligation to accept legal responsibility might be considered an occurrence of a legal impossibility that discharges the judges' remaining obligations under their fee-sharing agreements. See generally Leonard v. Autocar Sales & Service Co., 392 Ill. 182 (1945), cert. denied, 327 U.S. 804 (1946) (legal impossibility discharges contractual obligations). If so, judges probably would be entitled to compensation for the benefit they conferred on their clients by making appropriate referrals and by accepting legal responsibility until assuming the Bench. Cf. Rhoades v. Norfolk & Western Ry. Co., 78 Ill.2d 217, 230 (1979) (lawyer who enters into contingent fee agreement with client and is discharged without cause "is entitled to be paid on a quantum meruit basis a reasonable fee for services rendered before discharge"). If judges would still be entitled to some compensation in connection with referrals, whatever concerns exist about the appearance of impropriety with respect to judges receiving referral fees would not be eliminated by concluding that judges are precluded by operation of law from continuing to accept legal responsibility under Rule 1.5(g).

Likewise, any concerns about the appearance of sitting judges being sued in connection with referrals would not be eliminated by concluding that judges are precluded from continuing to accept legal responsibility. At a minimum, judges would remain liable for the wrongful conduct of recipients of referrals that took place before the referring lawyers became judges. Moreover, if a judge's voluntary decision to assume the Bench is considered to preclude reliance on the doctrine of legal impossibility, the judge could still be sued by the client for misconduct of the receiving lawyer that occurred after the referring lawyer became a judge. See Felbinger & Co. v. Traiforos, 76 Ill.App.3d 725 (1979) (legal impossibility does not excuse performance if defendant caused the impossibility). Without the benefit of an impossibility defense, judges would be exposed to full potential liability for the misconduct of the receiving lawyers without being entitled to full compensation under the fee-sharing agreement. Such one-sided burden without benefit would exacerbate the financial sacrifices of judicial service and could potentially deter qualified candidates from seeking the Bench.

Under these circumstances, the Committee believes that the inclusion of Rule 5.1 in the Rules of Professional Conduct--a rule that, at least on its face, is completely unrelated to fee-sharing agreements--should not be interpreted to expand the nature of the legal responsibility required to share fees under Rule 1.5(g) when "the primary service performed by one lawyer is the referral of the client to another lawyer." A judge's acceptance of such a referral fee in accordance with a written fee-sharing agreement is therefore ethically permissible.

Question 2

The Committee recognizes that its conclusion that a judge may receive a referral fee under Rule 1.5(g)(2) may prove controversial and, indeed, is something about which reasonable minds may differ. The Committee also recognizes that the Code of Judicial Conduct embodies minimum standards of conduct, and that individual judges should strive to conduct themselves in accordance with the highest ethical standards. Moreover, the Committee recognizes that, even if judges are permitted to receive referral fees, they may desire to relinquish any such fees to eliminate their potential liability for the malpractice of receiving lawyers.

For any or all of these reasons, referring lawyers who become judges may wish to terminate their legal responsibility under fee-sharing agreements. The Committee believes that it would be entirely proper to negotiate an agreement in which the client releases the referring lawyer from any legal responsibility under Rule 1.5(g) in return for the lawyer's relinquishment of his or her share of the fees.

A somewhat more difficult question is whether a lawyer who becomes a judge may negotiate an agreement with the client permitting the judge to receive reduced compensation in exchange for the client's agreement to release the judge from legal responsibility. The Committee believes that such agreements would be permissible if they contain two limitations. First, if the referring lawyer receives any compensation, he or she may not be released from legal responsibility with respect to the receiving lawyer's activities before the referring lawyer became a judge. This is necessary because, as noted in Section I of this opinion, Rule 1.5(g) makes acceptance of such legal responsibility a requirement for fee sharing where the referring lawyer does not provide legal services to the client.

Second, the amount of compensation paid to the judge must not exceed the fair value of the benefit to the client from the referral and from the referring lawyer's acceptance of legal responsibility up until the time he or she became a judge. This is necessary to avoid violating the prohibition in Supreme Court Rule 65C(4) against judges' acceptance of gifts. Since the client would be relinquishing the legal right to hold the judge liable for the wrongful conduct of the receiving lawyer after assuming the Bench, the compensation paid to the judge should be less than he or she would have received for continuing to assume legal responsibility under the fee-sharing agreement.