Outline of State Bar of Texas Referral Fee Task Force Final Report and Recommendations

The Texas State Bar Referral Fee Task Force Report was issued on May 24, 2004. To date, no rulings or adoption of this report/recommendations has been made by the Texas Supreme Court. On July 1, 2004 the Texas Supreme Court announced that it was seeking public comment on the State Bar of Texas proposal to change lawyer disciplinary rules on referral fees. The public comments should be submitted by September 15, 2004 to the Court’s rules attorney, Lisa Hobbs:

Lisa Hobbs
Rules Attorney, Texas Supreme Court
P.O. Box 12248
Austin, Texas 78711
or by email at lisa.hobbs@courts.state.tx.us

The Texas Supreme Court has proposed a fall referendum by Texas State Bar members on amendments to referral-fee and advertising rules in accordance with the Texas Government Code Section 81.024.

REFERRAL FEE TASK FORCE:
The referral fee task force:

• Made up of 18 members
• 6 public hearings were held
• The task force reviewed written comments received
• Concluded that with proper safeguards, referral fees do further the goals of our profession.

Definitions:

‘Pure’ referral/forwarding fee: Is allowed under Texas Disciplinary Rule 1.04 and provides that an attorney may receive a referral/forwarding fee even though the lawyer has no further obligation or responsibility in the case after it has been referred.

Proposed changes:

1. The Task Force has proposed changing the ‘pure’ forwarding fee system we currently have and to conform Texas referral fee rules more closely to the ABA Model Rules of Professional Conduct so that a referring attorney maintains joint responsibility and ethical responsibility for the case.
2. The Task Force has proposed several disclosure provisions so that the client is advised in writing of the division of fees, including how the fees are to be divided and the client must consent in writing to the fee sharing arrangement prior to the referral.
   1. The Task Force hopes to provide a disincentive to the ‘shopping’ of referral fees and the ‘brokering’ of cases.
3. Unlike the Court’s Proposed Rule 8a, the Task Force has concluded that referral fees should not be capped.
4. The Task Force has a proposed amendment to Texas Disciplinary Rule 1.04(f)(1) which will allow a fee to be divided if the lawyer assumes joint responsibility for representation and certain ethical obligations are met in proposed Comment 12.
5. The Task Force does not recommend public disclosure of referral fees, which is contrary to the Court’s Proposed Rule 8a.
6. The Task Force believes that the new referral rule should be in the Texas Disciplinary Rules and not in the Texas Rules of Civil Procedure, as proposed in Rule 8a.
7. The Task Force proposes that the division of fees do not apply to the nineteen Lawyer Referral services that are certified by the State Bar of Texas.

Interesting Information Obtained in Testimony re: Referral Fees:

1. No evidence that referral fees harm clients uncovered.
2. When compensation for a referral was involved the amount of the referral fee varied from 5% to 50%.
3. Testimony was received that the amount of the referral fee has been decreasing in recent years.
4. Except for Florida, no state caps referral fees.
5. No state requires public disclosure of referral fees.

The Task Force’s Proposed Changes to Lawyer Advertising Rules:

1. Disallows the use of actors or models to portray a client or law firm by amending Texas Disciplinary Rule 7.02(a)(7)
2. No reference can be made to past successes or results unless the following is provided in the advertising:
   1. the communicating lawyer/law firm served as lead counsel
   2. lists the amount the client actually received
   3. the amounts of the attorney’s fees and expenses withheld
   4. the nature of the damages or injuries sustained by the client and
   5. adequate information regarding the nature of the case/matter.
      [amends Texas Disciplinary Rule 7.02(a)(2)].
3. The Referral Fee Task Force recommends that Texas Disciplinary Rule 7.04(q) be added to state “if these rules require that specific qualifications, disclaimers or disclosures of information accompany communications concerning a lawyer’s services, the required qualifications, disclaimers or disclosures must be presented in the same manner as the communication and with equal prominence.”
4. The Task Force recommends that the Advertising Review Committee revise its rules to require an affidavit with specific information provided, be signed by the client if an advertisement references any client testimonial.

[1] On June 22, 2004, Hugh Rice Kelly (a member of the Referral Fee Task Force) filed a Dissent to Part I of the Referral Fee Task Force Report, urging the Texas Supreme Court to adopt Rule 8a concerning a 15% limit on referral fees and public disclosure of all fee splitting in contingent fee litigation. Mr. Kelly is General Counsel of Texans for Lawsuit Reform and Retired Executive Vice President and General Counsel, Reliant Energy.

– Steven C. Laird, Law Offices of Laird & McCloskey,
1824 8th Avenue, Fort Worth, Texas 76110, 817-531-3000, www.texlawyers.com