Let's amend referral-fee rules for Pa.

By Dan Smith

Lise Rapaport, an attorney and the wife of former Supreme Court Justice Seamus McCaffery, collected $1.2 million in attorney referral fees despite a claim by her lawyer that she "did no work whatsoever on any referrals ... at any time," according to The Inquirer.

Rapaport collected these fees by referring prospective plaintiffs to other lawyers, 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's March 15 story indicates that one of these referrals actually may have come from McCaffery himself (a possible 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 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 fees came 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 some evidence that Rapaport never so much as spoke with the plaintiffs.

Aside from McCaffery's alleged 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 lawyers 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. The rule's ultimate intent is to improve the quality of representation.

For example, a solo 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 solo practitioner might feel financial pressure to take the case despite his lack of knowledge in mass tort law, thus increasing the likelihood of making significant errors in representation. Rule 1.5(e) discourages lawyers from taking an irresponsible risk at their clients' peril. It gives this attorney a reasonable alternative to walking away from the chance at an enormous payday in favor of the highly ethical, and selfless, choice that not all attorneys would actually make.

But Rule 1.5(e) is not always used for its intended purposes. Rapaport's involvement in the cases cited didn't clearly serve the interests of the clients involved or further the purpose of Rule 1.5(e). In my own experiences in my young legal career, I've also witnessed mischief stemming from misapplication of the rule, with referral fees repeatedly celebrated as a lucrative source of "passive income" or "money for nothing."

Due to these abuses, some advocate the wholesale abolition of attorney-referral fees. While I obviously share the concerns, I hope we take an even closer look at the issue and realize there are simple ways to preserve the rule's benevolent purposes while preventing its abuse.

The key to amending Rule 1.5(e) should be to prevent two distinct groups from receiving referral fees: nonpracticing attorneys and large law practices.

As a state employee and nonpracticing 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 do large-scale practices need much additional disincentive from taking on cases they are unprepared to handle beyond their obvious heightened exposure to legal malpractice claims and bad publicity, factors less likely to impact a small-scale practice.

A more narrowly tailored measure than total abolition, such as a maximum cap on lifetime referral fees and disqualification of nonpracticing attorneys, would thus throw out the bathwater without including the baby.