August 2022 Ethically Speaking - Avoiding Pitfalls When Making a Referral to Another Lawyer

by Kristi L. Thomas and Michael D. Stewart

Many of us have made a referral to another lawyer or will do so at some point. Perhaps you had a conflict of interest preventing you from taking on the client or matter. Cal. Rules of Pro. Conduct r. 1.7-1.9 (Cal. Bar Ass’n 2018). Or maybe you referred a potential client to another lawyer because you lacked the requisite expertise and did not want to spend the time and effort to become proficient in a new area of law. Cal. Rules of Pro. Conduct r. 1.1(c). Or maybe you referred the matter to a litigator because you worked on the underlying transaction and determined you might be a witness, or it was otherwise prudent not to “litigate your own work.”

No matter the reason, there are various ethical issues and risks to consider: Can you as the referring lawyer be liable for making a negligent referral? And, if so, what are the best practices to help guard against such a lawsuit? Do you form an attorney-client relationship with a prospective client when you merely gather information to make an informed referral? Similarly, what information can you safely obtain without forming that relationship? What if the referral is necessitated by a conflict and there is a chance your current client might learn its adversary’s lawyer was referred by you or someone in your law firm—did you as the referring lawyer breach a duty of loyalty to the current client? Now imagine the adversary is a former client and you as the referring lawyer worked on a matter that was substantially related to the referred matter—is there a breach of loyalty there? And, finally, we will offer a quick word about referral fees.

Negligent Referrals and How to Prevent Them
Let’s assume you confine your practice to employment law but a prospective client asks you to create a family trust. You refer them to an estate planning lawyer who drafted your family trust fifteen years ago. Unfortunately, unbeknownst to you, that lawyer has suffered certain hurdles, their competence has declined, and they negligently prepare the referred client’s trust.

Can you be held legally responsible for making a negligent referral? The short answer is yes, but of course the analysis is fact-specific. Cal. Prac. Guide: Professional Responsibility, Section 5:502 (Rutter Group 2021) (“Although there is no known California authority on the point, it seems clear that the referring attorney must use ordinary skill and care in evaluating qualifications of the attorney to whom the client is referred and may be liable for a negligent referral”); Barry R. Temkin, Can Negligent Referral to Another Attorney Constitute Legal Malpractice?, Touro L. Rev 639, 640 (Spring 2001).

The CRPC expressly allows a lawyer to “refer[] the matter to another lawyer whom the lawyer reasonably believes to be competent.” Cal. Rules of Pro. Conduct r. 1.1(c). While a violation of the CRPC “does not itself give rise to a cause of action,” the touchstone of reasonableness will surely be the guiding principle in determining the referring attorney’s potential liability. Cal. Rules of Pro. Conduct r. 1.0(b)(3).

How can you guard against this risk when making a referral? Suggestions include providing the names of more than one lawyer; explaining that you cannot “vouch” for the lawyer(s); suggesting the referred person conduct their own research, including conducting interviews; and, whenever possible, putting it in writing so that the referred person is not able to engage in revisionist history.

Apart from how you communicate the referral, consider whom you recommend. A lawyer’s reputation may not tell the whole story. Someone with a long history of well-publicized victories may not promptly return client phone calls, or may be abrupt or even rude when doing so. They may be a lion in the courtroom but a dud in the library. Or they may, as in the above hypothetical, simply be past their prime.

You may, of course, choose not to provide a referral, especially when you are on shaky footing or the person to be referred seems like they could engage in risky or opportunistic behavior. You may also want to talk with your insurance broker and review your malpractice insurance coverage. Although many policies cover “any act, error or omission,” others might restrict coverage to the practice of law or rendering of professional services, which may not encompass making a referral.

Should You Conduct Due Diligence Before Referring Lawyer(s)?
We assume you have some faith in the lawyer(s) to whom you have referred the prospective client; otherwise, you would not have made the referral to them in the first place. Maybe you worked with them in the past, or perhaps you learned through others that they are prominent in their field. But should you conduct due diligence on those attorneys for the prospective client, or just give the prospective client the names of the attorneys and a disclaimer that you have not conducted due diligence and your referral is not an endorsement? You are not obligated to conduct due diligence, but it would be wise to include some type of disclaimer noting that you have not undertaken this process.

Now consider the following scenario: You receive a call from your current (and well-paying) client, as opposed to a prospective client, asking you to draft a family trust. Again, you do not prepare trusts, so you provide your current client with the names of several lawyers. However, unlike the situation above involving a prospective client, your current client may fully expect you to conduct due diligence on the lawyers you refer. Your client may even assume you will bill them for your time in researching and making the referral. It would seem the standard of care would be heightened in this situation. As with any task, you should “consult with the client about the means by which to accomplish the client’s objectives in the representation.” Cal. Rules of Pro. Conduct r. 1.4(a)(2). After doing so, you should then explain what due diligence you did, or did not do, when conveying the referral to your client.

Avoiding the Formation of an Attorney-Client Relationship During the Referral Process
When prospective clients reach out to discuss a legal issue, they generally want to tell their story. You of course want to obtain sufficient information to determine whether you can adequately represent them, ascertain if you have a conflict of interest, or—germane here—make a referral. At the same time, you should tell prospective clients not to tell you confidential information. However, in practice, especially when you are speaking to a potential client for the first time, it is often difficult to know where to draw the line. It is also unlikely the prospective client will truly know whether they are divulging confidential information.

Although your duties to a prospective client are limited (Cal. Rules of Pro. Conduct r. 1.18), the purported client’s view of whether an attorney-client relationship has been formed is paramount. See Responsible Citizens v. Superior Court (Askins), 16 Cal. App. 4th 1717, 1773 (1993) (“[O]ne of the most important facts involved in finding an attorney-client relationship is the expectation of the client based on how the situation appears to a reasonable person in the client’s position.”). If you think the potential client may believe you and they have formed an attorney-client relationship, you may have a duty to advise them to the contrary. Butler v. State Bar, 42 Cal. 3d 323, 329 (1986).

With respect to making a referral, if you avoid forming an attorney-client relationship with the prospective client, it will be difficult for them to successfully sue you for legal malpractice. See Stine v. Dell’Osso, 230 Cal. App. 4th 834, 840-41 (2014) (existence of attorney-client relationship is a prerequisite to a claim for legal malpractice, except where non-client was an intended beneficiary of the attorney’s services). The prospective client may be able to sue you for garden-variety negligence, but if they did not become a client, you should not be deemed to have owed them a fiduciary or other heightened duty.

Making a Referral When You Have a Current Client Conflict of Interest
Let’s assume you have a conflict of interest involving the prospective client and one of your current clients that cannot or will not be waived. Cal. Rules of Pro. Conduct r. 1.7; Flatt v. Superior Court, 9 Cal. 4th 275, 282 (1994) (“[A]bsent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated.”). Although you must decline the representation, can you refer the prospective client to another attorney to be adverse to your firm’s current client, or would that breach your duty of loyalty to your current client?

There’s no disagreement that “[l]oyalty and independent judgment are essential elements in the lawyer’s relationship to a client.” Cal. Rules of Pro. Conduct r. 1.7, cmt. 1. However, Rule 1.7 does not address referrals and we are unaware of any California authority that tackles this issue. There are, however, two jurisdictions that have addressed this issue, New York and the District of Columbia, and both indicate that such a referral does not violate a lawyer’s duty of loyalty. See N.Y. Bar Assoc. Committee on Professional Ethics Opinion No. 1018 (Aug. 2014); D.C. Bar Ethics Opinion No. 326 (Dec. 2004).

Regardless of legal authority, you still face the conundrum of whether to actually make the referral from a client-relation standpoint. If the client were to find out, it could damage your (or your law firm’s) relationship, perhaps irreparably.

Making a Referral When You Have a Former Client Conflict of Interest
A similar situation can arise in the context of a former client where you or someone in your law firm previously represented the client on a matter that is substantially related to the prospective matter. In that case, you would have a conflict under California Rules of Professional Conduct rule 1.9 (“A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed written consent.”).

Let’s suppose you represented the former client in purchasing a shopping center, and years later a prospective client asks you to represent them in leasing space in the shopping center. You determine you have a conflict but wonder whether you can refer the prospective client to another lawyer. Here, there is even less legal authority than the issue above dealing with referrals involving a current client.

However, Comment 1 to Rule 1.9 sheds light on your duties to a former client, stating: “After termination of a lawyer-client relationship, the lawyer owes two duties to a former client. The lawyer may not (i) do anything that will injuriously affect the former client in any matter in which the lawyer represented the former client, or (ii) at any time use against the former client knowledge or information acquired by virtue of the previous relationship.” Would referring the prospective client to another lawyer to assist them in leasing space in the former client’s shopping center “injuriously affect the former client”? Some contend that making an informed referral to a competent (and reasonable) lawyer actually benefits your former client. Others argue that view is paternalistic, presumes too much, and that in light of what you know about your former client and its shopping center, you might make too “perfect” a referral—to the detriment of your former client.

There is no universally agreed-upon answer to this ethical issue. Regardless, if the lawyer you referred calls to pick your brain, remember you cannot divulge “knowledge or information acquired by virtue of the previous relationship.” Cal. Rules of Pro. Conduct r. 9, cmt. 1; Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011).

A Quick Word on Referral Fees
Some lawyers seek referral fees and some law firms are quick to offer them. If you make a referral against the backdrop of a current or former client conflict of interest, consider that accepting a referral fee might tip the scales in determining whether you could be found to have breached a duty. Indeed, a trier of fact might find it unsavory if you obtained payment from your client’s opposing counsel.

Regardless, be mindful of California Rules of Professional Conduct rule 1.5.1, which requires that a referral fee—or, for that matter, any fee division among lawyers—be memorialized in writing, reflect the client’s informed written consent, set forth the parties and terms of the fee division, and not act to increase the total fee charged to the client.

Although there are ethical issues to consider when making a referral, doing so is often the right thing to do. When done properly, it promotes access to justice and helps those in need of legal services find qualified representation.

Kristi L. Thomas is an associate in the Labor and Employment Practice Group in the Orange County office of Sheppard, Mullin, Richter & Hampton LLP. She can be reached at kthomas@sheppardmullin.com. Michael D. Stewart is a partner and General Counsel of Sheppard, Mullin, Richter & Hampton LLP. He is also a member of the OCBA’s Professionalism & Ethics Committee. He can be reached at mstewart@sheppardmullin.com. The views expressed herein are their own.