The inquirer represents a Corporation, C and its individual sole shareholder A, in a variety of matters. The inquirer has ethical concerns centering around his receipt of a referral fee stemming from his referral of A to another lawyer for handling A's worker's compensation claims against C. The appropriate disclosures would be made to A and A would consent to payment of the fee.
Several Pennsylvania Rules of Professional Conduct (the "Rules") are implicated in this situation. Rule 1.0 Terminology defines informed consent.
(e) "Informed consent" denotes the consent by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.
Rule 1.5 Fees provides in relevant part that
(e) A lawyer shall not divide a fee for legal services with another lawyer who is not in the same firm unless:
(1) the client is advised of and does not object to the participation of all the lawyers involved, and
(2) the total fee of the lawyers is not illegal or clearly excessive for all legal services they rendered the client.
Comment  to the Rule provides in part that:
Paragraph (e) permits the lawyers to divide a fee if the total fee is not illegal or excessive and the client is advised and does not object. It does not require disclosure to the client of the share that each lawyer is to receive.
Rule 1.7 Conflict of Interest: Current Clients provides in relevant parts as follows:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
a(1) the lawyer reasonably believes that the lawyer will be able to provide competent and
diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent.
The Committee finds that the facts as posed in the inquiry clearly posit a concurrent conflict of interest as described in Rule 17a. The conflict arises because the inquirer represents both the individual and the company, and therefore cannot represent the individual in a suit against the company. This is a "directly adverse" conflict under R.1.7(a).
The next issue is whether the conflict is waivable or nonwaivable. Given the facts of the inquiry and the decision by the inquirer not to represent A in the workers compensation case, the question becomes whether the conflict, which would have prevented the firm's representation of A against its client the corporation, will also extend to prohibit acceptance of a referral fee arising out of the successful conclusion of the workers compensation claim.
Since in Pennsylvania, no actual representation is required in order to be able to receive a referral fee (see discussion Rule 1.5e below), in the present case it does not go against the Rules for the inquirer to receive a referral fee, provided that the conflict is waived by theappropriate party based upon informed consent as defined by Rule 1.0e.
It is important to note that although the two clients in the matter are directly adverse, neither side is being represented by the inquirer. As such, the concerns expressed by Rule 1.7b (1) through (3) do not apply to this situation. Turning to the requirements of informed consent, several things must be brought to the attention of the sole shareholder in order for him to
provide an adequate affirmative waiver of the conflict. First, he needs to be made aware that his company, even though he may have an identity and unity of interest with it in many regards, will face increased workers compensation insurance premiums as a result of the claim he is bringing. Providing the company is fully insured the proceeds will be coming from a third party carrier, but premium increases as a result of paid claims always occur in
the workers compensation setting. As such, should the company be on unstable financial footing and the premium increase will cause it to fail, this is something of which the sole shareholder needs to be aware. Furthermore, there may be other contractual obligations that the company has and its ability to meet those may be impacted should there be significant negative impact on the company from the claim. Promissory notes, other insurance policy premiums, employee salaries (if applicable) all would be impacted by the insolvency of the company. Should the company choose to be self-insured in whole or in
part, or perhaps lacks workers compensation insurance at all, (in which case it is still responsible for the benefits that would normally be paid by the workers compensation carrier), it is then company money that will pay any claims and fees, and of course the financial impact on the compact will be more severe.While the fees in workers compensation cases are mandated by statute and based upon the amount of the recovery, participation in that fee arising out of an adverse proceeding against the company, who is the inquirer's client, still requires the appropriate disclosure to and informed consent by the corporation. It may very well be that as a practical matter, none of these concerns are truly viable in the present situation depending on the economic strength of the company. However, it is incumbent upon the inquirer to review these issues and any others that might be impacted by increased premiums and thus decreased working funds for the company in depth with the sole shareholder in order to receive his informed consent to the waiver of the conflict.
For purposes of this discussion, the Committee assumes that the sole shareholder is the individual who is authorized to speak for the corporation. If the shareholder is not so authorized then whoever is must be the person who is waiving the conflict posed by payment of the referral fee.
Once this has occurred, although somewhat duplicative Rule 1.5e does require notice to and lack of objection by the client about payment of the fee. In this case the client is the sole shareholder. Assuming compliance with the foregoing rules, the Committee believes that there is no ethical prohibition to receipt of a referral fee under the facts of this inquiry.
CAVEAT: The foregoing opinion is advisory only and is based on the facts as set forth above. This opinion is not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. It carriers only such weight as an appropriate reviewing authority may choose to give it.