The inquirer asks if an attorney may pay a referral fee to an attorney who is serving as the executor of a Pennsylvania estate. The other attorney and the inquirer are both admitted in Pennsylvania. Specifically, the attorney who is executor of an estate requested that the inquirer perform legal services for the estate and in return share a portion of the inquirer’s legal fees with him. The inquirer asks if this is allowed — do the beneficiaries have to be notified of this arrangement?
Pennsylvania Rule of Professional Conduct (the "Rules") 1.5 Fees (a) and (e) provide in relevant part that:
(a) A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee…
(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.
Rule 8.4 Misconduct provides in part that:
It is professional misconduct for a lawyer to:
(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; (emphasis added)
(d) engage in conduct that is prejudicial to the administration of justice.
Comment  to that Rule provides in part that:
"…a lawyer should be professionally answerable only for offenses that indicate lack of those characteristics relevant to law practice. Offenses involving violence, dishonesty, breach of trust, or serious interference with the administration of justice are in that category." (emphasis added)
For the purposes of this response, the Committee assumes that the referral fee, itself, is not deemed to be excessive, pursuant to Rule 1.5(a). Because the executor is another lawyer, and would also be deemed the client who must be advised of the referral fee arrangement, the notice and consent requirement set forth in Rule 1.5(e) will be satisfied. Thus, it is clear to the Committee that the proposed arrangement would not violate Rule 1.5.
However, because this involves an estate, the Committee's analysis must go further. The limitations on the conduct of an individual, including an attorney, who is functioning as a fiduciary often exceed the ethical limitations on the conduct of an attorney as provided for in the Rules. The inquirer’s most significant question is whether the lawyer in his capacity as the executor, and, therefore, as a fiduciary, may properly request a referral fee. The issue of the executor’s actions are not strictly governed by the Rules of Professional Conduct but also by the duties of a fiduciary and, particularly, his or her duty of loyalty to the beneficiaries of the estate. Unless the executor applies the entire referral fee for the benefit of the estate, either as a reduction of his own compensation as executor or adds it to the estate for distribution to the beneficiaries, the executor can be deemed to have placed himself in an unavoidable conflict of interest having engaged in prohibited self-dealing.
The Committee strongly urges both the inquirer and the executor to read Estate of Harrison, 745 A.2d 676 (Pa. Super. Ct. 2000) and the lower court case, Harrison Estate, 19 Fiduc. Rep. 2d. 89 (Montg. 1999). In that case the executor, who was an attorney, accepted a referral fee in a case in which the estate was involved. The Superior Court held that to be an act of self-dealing and a breach of fiduciary duty and that the disgorgement of the referral fee was an appropriate remedy imposed by the lower court.
While the lower court noted in its opinion that if the beneficiaries of the estate had been notified of payment of the fee and consented thereto, "…the issue would not be before us" the Committee notes that the unambiguous holding of the Superior Court was that the conduct constituted prohibited self dealing. The issue of consent by the beneficiaries is not addressed by the Superior Court.
However, the Committee believes that either augmenting the estate by adding the fees to it, or by lowering the fees of the executor by the amount of the referral fee (providing there is the consent of the beneficiaries) would not pose a breach of fiduciary duty because such actions would be for the benefit of the estate. Such conduct would also be consistent with allowing the acceptance of referral fees from non-attorney professionals by an executor of an estate where those referral fees go to the benefit of the estate and not to the benefit of the executor.
In the situation posed by the inquirer, should a Court, based on the Harrison case, order sanctions and/or disgorgement by the executor of the referral fee, the inquirer's payment of such fee could be considered to be conduct prejudicial to the administration of justice and a violation of Rule 8.4a. That is so because the inquirer would be "knowingly assisting" the executor in violation of Rule 8.4c.
CAVEAT: The forgoing opinion is advisory only and is not binding on the Disciplinary Board of the Supreme Court of Pennsylvania or any court. It carries only such weight as an appropriate reviewing authority may choose to give it.