An article in March 15th’s Philadelphia Inquirer recently reported that Lise Rapaport, attorney and wife of now-disgraced former Supreme Court Justice Seamus McCaffery, collected $1.2 million in attorney referral fees despite admitting that she “did no work whatsoever on any referrals…at any time.” Rapaport collected these fees by referring prospective plaintiffs to other attorneys she knew, then receiving a portion of the cases’ eventual monetary damages, an arrangement generally permissible under Rule 1.5(e) governing ethics for attorneys. Evidence cited in the Inquirer indicates that some of these referrals actually came from McCaffery himself (a breach of judicial conduct) and that the fees supplemented the couple’s annual state salaries ($200,000 for McCaffery, $84,000 for Rapaport as his chosen judicial aide).
Even ignoring McCaffery’s improper alleged involvement in Rapaport’s referral fees, the fact that the ethical rules permit attorneys to collect this much money for work they never performed should naturally produce calls for change. The Inquirer’s article documents how Rapaport siphoned much of her $1.2 million in fees from damage amounts ultimately intended to redress grieving families. One family’s child suffered brain damage due to medical malpractice. Another client was the estate of a police officer killed in the line of duty. There is evidence that Rapaport never so much as spoke with the plaintiffs (the child’s parents or the officer’s family) themselves. Aside from McCaffery’s involvement, however, the referral fees generated from these cases were probably permissible according to the ethical rules. But honestly, should they be?
Rule 1.5(e) allows unassociated attorneys to split fees as long as some simple requirements are met. The rule was intended mainly to discourage attorneys from accepting cases that require work beyond their own skill, experience, and expertise by incentivizing them to refer such cases to a more qualified attorney with the promise of a share in the ultimate recovery. For example, a small criminal law practitioner may meet a client who needs representation for a complex mass tort case. These types of cases can produce enormous recoveries, and the small solo practitioner might otherwise feel financial pressure to take the case despite his lack of knowledge in mass tort law and thus the likelihood of making significant errors throughout the representation. Rule 1.5(e) discourages an attorney in this position from taking an irresponsible risk at their client’s peril. It gives this attorney a reasonable alternative to walking away from the chance at an enormous payday by making the highly ethical, and selfless, choice that not all attorneys would actually make. As the framers’ comment to Rule 1.5(e) explains, the intent is ultimately to improve the quality of representation afforded to the client.
But as the old saying goes, the road to hell is paved with good intentions. Rule 1.5(e) is not always used for its intended purposes. In fact, another ethical rule (Rule 7.2(k)) was written to combat one form of manipulation of Rule 1.5(e). Rapaport’s involvement in the cases cited can hardly be spun as benefitting the interests of the clients involved or furthering the purpose of Rule 1.5(e). In my own experiences in my young legal career, I’ve also witnessed various mischief stemming from misapplication of the rule’s purposes. In fact, for a time I was an associate at Pond Lehocky, a large-scale Workers’ Compensation/disability practice. (Pond Lehocky’s managing partner, Sam Pond, was implicated in the Inquirer’s story as having paid referral fees to Rapaport despite apparently coordinating them with McCaffery). While working there, I witnessed what I considered a borderline obsession with referral fees, which were repeatedly celebrated as a lucrative source of “passive income” or “money for nothing”.
Due to these abuses of Rule 1.5(e), the Inquirer’s Editorial Staff has advocated the wholesale prohibition of attorney referral fees. While I obviously share their concerns, I hope we take an even closer look at the issue and realize there are simple ways to preserve Rule 1.5(e)’s benevolent purposes while preventing its abuse. The key to amending Rule 1.5(e) should be to prevent two specific groups from perverting the rule’s purposes and receiving referral fees: non-practicing attorneys and large law practices. Both groups lack the proper motivation for referring out cases that underpins the policy behind Rule 1.5(e): the incentive against representing a client by oneself without the necessary skill, experience, and expertise. As a state employee and non-practicing attorney, Rapaport needed no further discouragement from trying a medical malpractice or wrongful death case on her own. Attorneys with full-time employment are already unable to do so. Nor does a large scale practice need much additional disincentive from taking on cases they are unprepared to handle beyond their obvious heightened exposure to legal malpractice claims, professional sanctions, and bad publicity; factors less likely to impact a small-scale practice with much less to lose.
A more narrowly-tailored measure than total prohibition, such a maximum cap on lifetime referral fees and the disqualification of non-practicing attorneys, would thus throw out the bathwater without including the baby. As for me personally, after witnessing the injustices that attorney referral fees can facilitate, I’d just as soon not accept them at all. My father always told me that an honest man works for the money he makes. And even the ethical rules comment in a separate section that “the practice of law is a profession, not merely a business. Clients are not commodities that can be purchased and sold at will.”