New Rules Regarding Referral Fees

SUPREME COURT SET TO IMPLEMENT NEW RULES

By: Benny Agosto, Jr.

It has been over a years since the Texas Supreme Court issued its order regarding Rule 8a of the Texas Rules of Civil Procedure. Both the Supreme Court and the State Bar of Texas have heard from countless of Texas lawyers, as well as many groups and/or associations concerned with the effect of the proposed rule.

Last year, the Supreme Court indicated that it would delay the effective date of the proposed Rule 8a of the Texas Rules of Civil Procedure. Since then, both the Supreme Court and the State Bar of Texas have received feedback from many Texas lawyers regarding whether the proposed rule should be more appropriately part to the Texas Disciplinary Rules of Professional Conduct. Major concerns about the rule regarded its cap on the amount of referral fees, that it required public disclosure of all fee arrangements by way of court filings, and that it required a court hearing whenever a party questions the validity of a fee arrangement.

A special Task Force was appointed and six public hearing were held throughout the State in 2004. After concluding the public hearings and reviewing written comments, the Task Force submitted written proposals to the State Bar. The Board of Directors of the State Bar approved the proposals and asked the Supreme Court to order a Referendum. The deadline for voting on the Referendum was December 20, 2004.

Unofficial but reliable polling of State Bar members seems to indicate the Referendum will indeed pass. The Supreme Court has expressed, as it did in its order setting the Referendum, "that if the proposed amendments are approved, the Court's order adopting proposed Rule 8a of the Texas Rules of Civil Procedure should be withdrawn."

The proposed changes to Texas Disciplinary Rules of Professional Conduct Rule 1.04 would:

• •Eliminate referral fees for attorneys who do not work on a case but only refer it to another attorney. The proposed rule establishes a test for determining a reasonable correlation between the amount and value of services performed and the share of the fee received.
• •Define "joint responsibility" to ensure that both the referring attorney and the handling attorney maintain some responsibility throughout the representation and that compensation is divided based on the division of that responsibility.

• •Require that any arrangement for the division of fees be acknowledged in writing by the client when he or she enters into an agreement for representation. The agreement should reflect how fees and representation will be divided among the attorneys.
• •Exempt lawyer referral programs certified by the State Bar of Texas in accordance with TEX. OCC. CODE 952.001 et seq. Referendum 2004 also proposes changes to TDRPC Part VII, which generally governs lawyer advertising.

The proposed changes to Texas Disciplinary Rules of Professional Conduct Part VII:

• •Require attorneys who advertise in the public media to ensure that his or her communication is neither false nor misleading by providing additional information about past results and successes, including information that would:

- divulge the amount actually received by the client,

- explain the nature of the case and the actual damages,

- in situations where the gross settlement is stated, reveal the amount of attorney's fees and litigation expenses withheld from that amount.

• •Eliminate an advertising attorney's option to use actors or models to portray clients.
• •Require all disclaimers and disclosures to be in the same medium with equal prominence as the matter to which it refers.
• •Eliminate the requirement that lawyers who are not board certified include "Not Certified by the Texas Board of Legal Specialization" in their public media and solicitation communications.
• •Prohibit attorneys from stating they are specialists unless they are certified by the Texas Board of Legal Specialization.
• •Revise Rule 7.06, which prohibits lawyers from continued representation from any violation of the disciplinary rules, to apply to violations of Rules 7.01 - 7.05 and 8.04(a)(2) (committing a serious crime) and 8.04(a)(9) (committing barratry) as originally intended. This change allows the handling lawyer (once he or she becomes aware the employment was obtained in violation of the rules) to collect a fee so long as he or she was not culpable and does not give anything of value to the referring attorney.
• •Update the rules to comport with the ever-changing technological world including adding references to electronic communications. Internet publications, and other digital communications.
• •Include technical revisions to Rule 7.07 such as clarifying the filing requirements for advertisements.

It is expected that the State Bar Board of Directors will certify the Referendum results immediately. The State Bar will in turn file a motion with the Supreme Court requesting the Court to order the proposed Rules become part of the Texas Disciplinary Rules of Professional Conduct. Additionally, it is expected that the Order will be signed by the Supreme Court sometime in January 2005, with promulgation of the Rules expected to take place in the Spring.

Thus, in light of the new rules, Texas attorneys who practice personal injury and foresee working on cases that may be referred, should pay close attention to the details of the new Texas Disciplinary Rules of Professional Conduct rules. Remember, your fees may be at stake.