Out Of State Referral Fees Blessed In New Jersey

The New Jersey Supreme Court has permitted payment of referral fees to out-of-state attorneys

RABNER, C.J., writing for a unanimous Court.

The Court considers the holding of the Advisory Committee on Professional Ethics (ACPE) in Opinion 745 that “certified lawyers generally may not pay referral fees to out-of-state lawyers” who are not licensed to practice law in New Jersey.

Rule 1:39-6(d) creates an exception to the general rule that New Jersey lawyers may not pay referral fees: (1) certified attorneys can pay referral fees (2) without regard to any legal work performed, and (3) the referral fee can be paid out of, but cannot exceed, the certified attorney’s reasonable fee for legal services rendered. Rule of Professional Conduct (RPC) 1.5(e) states in part that legal fees can be divided between lawyers who do not practice in the same firm if (1) the division is proportionate to the services each lawyer performs or (2) the lawyers assume joint responsibility for the representation in a written agreement with the client. RPC 1.5(e) does not relate to the attorney certification program.

Opinion 745 rests on the principle that “[r]eferral fees are a division of the legal fee, paid for legal services rendered.” The ACPE looked to RPC 1.5(e) and concluded that “the lawyer to whom the fee is payable must be . . . licensed and eligible to practice law in New Jersey.” Opinion 745 also concluded that certified attorneys could not pay referral fees to lawyers who had to withdraw from a case because of a conflict of interest, although the referring “lawyer is entitled to payment for legal services rendered prior to withdrawing.” In addition, Opinion 745 states that “[c]ertified lawyers may pay referral fees to lawyers who were in good standing and eligible to practice law” when the referral was made but were later suspended or disbarred. Several organizations petitioned the Court for review of Opinion 745, which the Court granted. 258 N.J. 166-70 (2024).

HELD: The Court Rules allow certified attorneys to pay referral fees to lawyers in other states even if they are not licensed here, and the payment of referral fees does not raise concerns about the unauthorized practice of law. The Court vacates Opinion 745, which reached the opposite conclusion. 

1. Rule 1:39-6(d) directly authorizes certified attorneys to pay referral fees. Those fees are not for legal services; they are for recommendations to retain a particular lawyer. The plain language of the Rule makes that clear. It states that referral fees can be paid “without regard to services performed or responsibility assumed by the referring attorney.” R. 1:39-6(d). The Rule also identifies a source for the payment: a certified attorney handling a case “may divide a fee for legal services with the referring attorney.” Ibid. That means that referral fees can be paid out of a reasonable fee for legal services charged to a client, and can be paid even when the referring attorney offered no legal services and assumed no responsibility for them. RPC 1.5(e) addresses a different subject than Rule 1:39-6(d) — how to divide fees among lawyers for legal services they actually rendered. The text of the two rules does not present a conflict. Although both relate to a similar subject — the division of fees — Rule 1:39-6(d) governs referral fees, while RPC 1.5(e) addresses the division of fees for legal services. And even if there were a conflict, RPC 1.5(e) begins by saying “Except as otherwise provided by the Court Rules,” so Rule 1:396(d) would qualify as an express exception and allow the payment of referral fees by certified attorneys. Rule 1:39-6(d) does not state that referring attorneys must be eligible to practice law in New Jersey. And because referral fees are not paid for legal services, they do not invoke concerns about the unauthorized practice of law. (pp. 10-14)
2.  The Court reviews the creation of New Jersey’s attorney certification program. Rule 1:39-6(d) was designed, in part, to enhance access to experienced attorneys who had been vetted with care and to increase referrals to those lawyers. Allowing certified attorneys to pay referral fees facilitates those aims. Removing that incentive for out-of-state lawyers would have the reverse effect. (pp. 14-17)
3. In holding that certified attorneys may pay referral fees to out-of-state attorneys without regard to any legal work performed, the Court does not address either (1) Opinion 745’s proscription of the payment of referral fees to New Jersey lawyers who cannot accept a case, or must withdraw from a case, due to a conflict of interest or (2) Opinion 745’s observation that “[c]ertified lawyers may pay referral fees to lawyers who were in good standing and eligible to practice law at the time of the referral but who later were suspended or disbarred at the time the case was concluded and the referral fee was payable.” The guidance contained in the sources on which the ACPE based those two holdings — ACPE Opinion 613, 121 N.J.L.J. 1037 (May 19, 1988), and Eichen, Levinson & Crutchlow, LLP v. Weiner, 397 N.J. Super. 588 (App. Div. 2008), respectively — thus remains unchanged. (pp. 17-18)

(Mike Frisch)