Split Decision

With discussions of the possibility of attorneys splitting fees with non-attorney referral services on the rise, I am reminded of a case I handled years ago that pertained to a medical professional splitting fees with a non-medical professional. In that case, the doctor contracted with a company that used its business acumen and resources to help the doctor develop and run his practice, and, in exchange, was paid a percentage of all of the fees that the doctor collected. The doctor sought to terminate the agreement by arguing that the fee-splitting was unlawful, which made the entire agreement illegal and unenforceable, and the court agreed with the doctor’s argument and voided the contract. Upon reviewing the pleadings and motions filed in that case, I was reminded of why fee-splitting between professionals and non-professionals has been prohibited for decades.

One of the reasons for prohibiting such agreements is that they fly in the face of public policy. An agreement violates public policy in Illinois if it is injurious to the interest of the public, contravenes some established interest of society, violates some public statute, is against good morals, tends to interfere with the public welfare or safety, or it at war with the interests of society or is in conflict with the morals of the time. E & B Marketing Enterprises v. Ryan, 209 Ill. App. 3d 626, 630 (1st Dist. 1991).

Several Illinois courts have reviewed the policy on the proscription on the splitting of fees for professional services. In Vine Street Clinic v. Healthlink, 222 Ill.2d 276 (2006), the Illinois Supreme Court discussed the policy behind the prohibition on the splitting of professional fees when it stated:

The policy reasons behind the prohibition are the danger that such an arrangement might motivate a nonprofessional to recommend a particular professional out of self-interest, rather than the professional’s competence. In addition, the judgment of the professional might be compromised, because the awareness that he would have to split fees might make him reluctant to provide proper (but unprofitable) services to a patient, or, conversely, to provide unneeded (but profitable) treatment. Vine Street Clinic, at 288-89.

While Vine Street Clinic pertained to medical professionals, this policy goes beyond just doctors. “Not only does fee splitting violate the Medical Practice Act of 1987, but it also violates public policy.” Practice Management v. Schwartz, 256 Ill. App. 3d 949, 953 (1st Dist. 1993). The Schwartz court continued by stating:

One danger of fee splitting arrangements is that they may motivate non-professionals to recommend the services of a particular professional out of self-interest, and not because of the competence of the professional. Such arrangements are against public policy because the public is best served by recommendations uninfluenced by financial considerations. Schwartz, at 953.

The question is not whether a particular statute proscribes such fee-splitting, the question is whether Illinois allows professionals, regardless of the type, to split fees. In Ryan, which also pertained to medical professionals, the court cited to another case of fee-splitting that involved attorneys, Leoris v. Dicks. The Ryan court summarized Leoris by stating:

In that case [Leoris], the court found that a contract to split fees was void because the best interests of the client were harmed. The same reasoning applies to the instant case. The contract here required Ryan to pay a percentage of his fees for surgery, physical therapy, and other services rendered. There is a danger that a doctor, knowing that he had to split his fees with one who did not render medical services, might be hesitant to provide proper services to a patient. Conversely, unneeded treatment might be rendered just because of the need to split fees. In either case, the interests of the patient would be compromised. Ryan, at 360.

The Illinois public policy against the splitting of fees equally applies to all licensed professionals. While doctors and dentists are prohibited from splitting their fees by statute, even if the statutes did not exist, public policy proscribes the same conduct. While the discussions are on-going regarding the possibility of allowing, and regulating, for-profit referral services for attorneys, the fact is that fee-splitting between professionals and non-professionals violates public policy in Illinois. Any modification of existing rules of conduct or practice must first take into account the public policy against such agreements.

Some may argue that attorneys constantly refer clients to one another and divide the fees for such referrals, so the argument against for-profit referral services is nothing more than veiled protectionism. A major difference, however, is that the public has safeguards in place for lawyers that off-set the concerns about recommendations that are influenced by financial considerations. For example, attorneys must comply with Rule 1.5 of the Rules of Professional Conduct. Under Rule 1.5, both the referring and the referred attorneys must be jointly financially responsible for the representation. As stated in the comments to Rule 1.5, this entails financial responsibility for the representation as if the lawyers were associated in a general partnership. In addition, referring attorneys are also bound to only refer clients to attorneys that the referring counsel reasonably believes is competent for the matter. Can a for-profit referral service personally know the work and reputation of attorneys to whom they refer legal matters, or would they simply compile lists of the practice areas of each attorney to whom they charge to refer business?

If the public is “best served by recommendations uninfluenced by financial considerations,” is it possible to have fee-splitting with non-lawyers and still insure that the public is not harmed? Even if it is possible to promulgate regulations that ameliorate these concerns, is this path really worth exploring in the first place?

Before we answer the question of whether we can modify the rules and regulations to allow for the splitting of professional fees with non-professionals, we need to answer the more basic question of whether we should even try.