Wednesday, August 13, 2014

OPINION LETTER ON REFERRAL FEES


OPINION LETTER ON REFERRAL FEES

Attorney at Law
August 2014

          The recurring question regarding referral fees in Social Security cases inquires whether the splitting of fees meets the legal requirements of the Social Security Administration and the ethical requirements of state law.  This opinion letter addresses those concerns.

I.             Abstract

          A representative receiving fees under 42 U.S.C. § 406(a) by direct payment from the Social Security Administration, from the claimant, or from an third party may share fees with unaffiliated other representative only to the extent that both representatives have an authorization to charge and receive a fee from the Social Security Administration. 

          A representative receiving fees under 42 U.S.C. § 406(a) by direct payment from the Social Security Administration, from the claimant, or from an third party may share fees with unaffiliated other non-representative only so long as the claimant consents and the existence of the referral arrangement is disclosed to the Social Security Administration.  

II.           Legal Review:

A.   Social Security Administration

1.   The Act

a.    42 U.S.C. § 406(a) Recognition of representatives; fees for representation before the Commissioner

          (1) The Commissioner of Social Security may prescribe rules and regulations governing the recognition of agents or other persons, other than attorneys as hereinafter provided, representing claimants before the Commissioner of Social Security, and may require of such agents or other persons, before being recognized as representatives of claimants that they shall show that they are of good character and in good repute, possessed of the necessary qualifications to enable them to render such claimants valuable service, and otherwise competent to advise and assist such claimants in the presentation of their cases. An attorney in good standing who is admitted to practice before the highest court of the State, Territory, District, or insular possession of his residence or before the Supreme Court of the United States or the inferior Federal courts, shall be entitled to represent claimants before the Commissioner of Social Security. Notwithstanding the preceding sentences, the Commissioner, after due notice and opportunity for hearing,
                   (A) may refuse to recognize as a representative, and may disqualify a representative already recognized, any attorney who has been disbarred or suspended from any court or bar to which he or she was previously admitted to practice or who has been disqualified from participating in or appearing before any Federal program or agency, and
                   (B) may refuse to recognize, and may disqualify, as a non-attorney representative any attorney who has been disbarred or suspended from any court or bar to which he or she was previously admitted to practice. A representative who has been disqualified or suspended pursuant to this section from appearing before the Social Security Administration as a result of collecting or receiving a fee in excess of the amount authorized shall be barred from appearing before the Social Security Administration as a representative until full restitution is made to the claimant and, thereafter, may be considered for reinstatement only under such rules as the Commissioner may prescribe. The Commissioner of Social Security may, after due notice and opportunity for hearing, suspend or prohibit from further practice before the Commissioner any such person, agent, or attorney who refuses to comply with the Commissioner’s rules and regulations or who violates any provision of this section for which a penalty is prescribed. The Commissioner of Social Security may, by rule and regulation, prescribe the maximum fees which may be charged for services performed in connection with any claim before the Commissioner of Social Security under this subchapter, and any agreement in violation of such rules and regulations shall be void. Except as provided in paragraph (2)(A), whenever the Commissioner of Social Security, in any claim before the Commissioner for benefits under this subchapter, makes a determination favorable to the claimant, the Commissioner shall, if the claimant was represented by an attorney in connection with such claim, fix (in accordance with the regulations prescribed pursuant to the preceding sentence) a reasonable fee to compensate such attorney for the services performed by him in connection with such claim.

          (2)

                   (A) In the case of a claim of entitlement to past-due benefits under this subchapter, if—

                             (i) an agreement between the claimant and another person regarding any fee to be recovered by such person to compensate such person for services with respect to the claim is presented in writing to the Commissioner of Social Security prior to the time of the Commissioner’s determination regarding the claim,
                             (ii) the fee specified in the agreement does not exceed the lesser of—
                                      (I) 25 percent of the total amount of such past-due benefits (as determined before any applicable reduction under section 1320a–6 (a) of this title), or
                                      (II) $4,000, and
                             (iii) the determination is favorable to the claimant,

then the Commissioner of Social Security shall approve that agreement at the time of the favorable determination, and (subject to paragraph (3)) the fee specified in the agreement shall be the maximum fee. The Commissioner of Social Security may from time to time increase the dollar amount under clause (ii)(II) to the extent that the rate of increase in such amount, as determined over the period since January 1, 1991, does not at any time exceed the rate of increase in primary insurance amounts under section 415 (i) of this title since such date. The Commissioner of Social Security shall publish any such increased amount in the Federal Register.

                   (B) For purposes of this subsection, the term “past-due benefits” excludes any benefits with respect to which payment has been continued pursuant to subsection (g) or (h) of section 423 of this title.

                   (C) In any case involving—
                             (i) an agreement described in subparagraph (A) with any person relating to both a claim of entitlement to past-due benefits under this subchapter and a claim of entitlement to past-due benefits under subchapter XVI of this chapter, and
                             (ii) a favorable determination made by the Commissioner of Social Security with respect to both such claims,

the Commissioner of Social Security may approve such agreement only if the total fee or fees specified in such agreement does not exceed, in the aggregate, the dollar amount in effect under subparagraph (A)(ii)(II).

                   (D) In the case of a claim with respect to which the Commissioner of Social Security has approved an agreement pursuant to subparagraph (A), the Commissioner of Social Security shall provide the claimant and the person representing the claimant a written notice of—
                             (i) the dollar amount of the past-due benefits (as determined before any applicable reduction under section 1320a–6 (a) of this title) and the dollar amount of the past-due benefits payable to the claimant,
                             (ii) the dollar amount of the maximum fee which may be charged or recovered as determined under this paragraph, and
                             (iii) a description of the procedures for review under paragraph (3).



          (3)

                   (A) The Commissioner of Social Security shall provide by regulation for review of the amount which would otherwise be the maximum fee as determined under paragraph (2) if, within 15 days after receipt of the notice provided pursuant to paragraph (2)(D)—
                             (i) the claimant, or the administrative law judge or other adjudicator who made the favorable determination, submits a written request to the Commissioner of Social Security to reduce the maximum fee, or
                             (ii) the person representing the claimant submits a written request to the Commissioner of Social Security to increase the maximum fee.

Any such review shall be conducted after providing the claimant, the person representing the claimant, and the adjudicator with reasonable notice of such request and an opportunity to submit written information in favor of or in opposition to such request. The adjudicator may request the Commissioner of Social Security to reduce the maximum fee only on the basis of evidence of the failure of the person representing the claimant to represent adequately the claimant’s interest or on the basis of evidence that the fee is clearly excessive for services rendered.

                   (B)
                             (i) In the case of a request for review under subparagraph (A) by the claimant or by the person representing the claimant, such review shall be conducted by the administrative law judge who made the favorable determination or, if the Commissioner of Social Security determines that such administrative law judge is unavailable or if the determination was not made by an administrative law judge, such review shall be conducted by another person designated by the Commissioner of Social Security for such purpose.
                             (ii) In the case of a request by the adjudicator for review under subparagraph (A), the review shall be conducted by the Commissioner of Social Security or by an administrative law judge or other person (other than such adjudicator) who is designated by the Commissioner of Social Security.

                   (C) Upon completion of the review, the administrative law judge or other person conducting the review shall affirm or modify the amount which would otherwise be the maximum fee. Any such amount so affirmed or modified shall be considered the amount of the maximum fee which may be recovered under paragraph (2). The decision of the administrative law judge or other person conducting the review shall not be subject to further review.

          (4) Subject to subsection (d) of this section, if the claimant is determined to be entitled to past-due benefits under this subchapter and the person representing the claimant is an attorney, the Commissioner of Social Security shall, notwithstanding section 405 (i) of this title, certify for payment out of such past-due benefits (as determined before any applicable reduction under section 1320a–6 (a) of this title) to such attorney an amount equal to so much of the maximum fee as does not exceed 25 percent of such past-due benefits (as determined before any applicable reduction under section 1320a–6 (a) of this title).

          (5) Any person who shall, with intent to defraud, in any manner willfully and knowingly deceive, mislead, or threaten any claimant or prospective claimant or beneficiary under this subchapter by word, circular, letter or advertisement, or who shall knowingly charge or collect directly or indirectly any fee in excess of the maximum fee, or make any agreement directly or indirectly to charge or collect any fee in excess of the maximum fee, prescribed by the Commissioner of Social Security shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall for each offense be punished by a fine not exceeding $500 or by imprisonment not exceeding one year, or both. The Commissioner of Social Security shall maintain in the electronic information retrieval system used by the Social Security Administration a current record, with respect to any claimant before the Commissioner of Social Security, of the identity of any person representing such claimant in accordance with this subsection.

2.   Other Federal Statutes

a.    18 U.S.C. § 371

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.

3.   Regulations

a.    20 C.F.R. §§ 404.1705; 416.1505 Who may be your representative

(a) You may appoint as your representative in dealings with us, any attorney in good standing who—
(1) Has the right to practice law before a court of a State, Territory, District, or island possession of the United States, or before the Supreme Court or a lower Federal court of the United States;
(2) Is not disqualified or suspended from acting as a representative in dealings with us; and
(3) Is not prohibited by any law from acting as a representative.
(b) You may appoint any person who is not an attorney to be your representative in dealings with us if the person—
(1) Is generally known to have a good character and reputation;
(2) Is capable of giving valuable help to you in connection with your claim;
(3) Is not disqualified or suspended from acting as a representative in dealings with us; and
(4) Is not prohibited by any law from acting as a representative.
(c) We may refuse to recognize the person you choose to represent you if the person does not meet the requirements in this section. We will notify you and the person you attempted to appoint as your representative if we do not recognize the person as a representative.


 b.   20 C.F.R. §§ 404.1707; 416.1507

We will recognize a person as your representative if the following things are done:
(a) You sign a written notice stating that you want the person to be your representative in dealings with us.
(b) That person signs the notice, agreeing to be your representative, if the person is not an attorney. An attorney does not have to sign a notice of appointment.
(c) The notice is filed at one of our offices if you have initially filed a claim or have requested reconsideration; with an administrative law judge if you requested a hearing; or with the Appeals Council if you have requested a review of the administrative law judge's decision.

c.    20 C.F.R. §§ 404.1720; 416.1520 Fee for a representative's services.

(a)   General.  A representative may charge and receive a fee for his or her services as a representative only as provided in paragraph (b) of this section.

          (b) Charging and receiving a fee.
                   (1) The representative must file a written request with us before he or she may charge or receive a fee for his or her services.
                   (2) We decide the amount of the fee, if any, a representative may charge or receive.
                   (3) Subject to paragraph (e) of this section, a representative must not charge or receive any fee unless we have authorized it, and a representative must not charge or receive any fee that is more than the amount we authorize.
                   (4) If your representative is an attorney or an eligible non-attorney, and you are entitled to past-due benefits, we will pay the authorized fee, or a part of the authorized fee, directly to the attorney or eligible non-attorney out of the past-due benefits, subject to the limitations described in > § 416.1530(b)(1) > § 404.1730(b)(1).  If the representative is a non-attorney who is ineligible to receive direct fee payment, we assume no responsibility for the payment of any fee that we have authorized.

          (c) Notice of fee determination.  We shall mail to both you and your representative at your last known address a written notice of what we decide about the fee.  We shall state in the notice--
                   (1) The amount of the fee that is authorized;
                   (2) How we made that decision;
                   (3) Whether we are responsible for paying the fee from past-due benefits;  and
                   (4) That within 30 days of the date of the notice, either you or your representative may request us to review the fee determination.
          (d) Review of fee determination--
                   (1) Request filed on time.  We will review the decision we made about a fee if either you or your representative files a written request for the review at one of our offices within 30 days after the date of the notice of the fee determination.  Either you or your representative, whoever requests the review, shall mail a copy of the request to the other person.  An authorized official of the Social Security Administration who did not take part in the fee determination being questioned will review the determination.  This determination is not subject to further review.  The official shall mail a written notice of the decision made on review both to you and to your representative at your last known address.
                   (2) Request not filed on time.
                             (i) If you or your representative requests a review of the decision we made about a fee, but does so more than 30 days after the date of the notice of the fee determination, whoever makes the request shall state in writing why it was not filed within the 30-day period.  We will review the determination if we decide that there was good cause for not filing the request on time.
                             (ii) Some examples of good cause follow:
                                      (A) Either you or your representative was seriously ill and the illness prevented you or your representative from contacting us in person or in writing.
                                      (B) There was a death or serious illness in your family or in the family of your representative.
                                      (C) Material records were destroyed by fire or other accidental cause.
                                      (D) We gave you or your representative incorrect or incomplete information about the right to request review.
                                      (E) You or your representative did not timely receive notice of the fee determination.
                                      (F) You or your representative sent the request to another government agency in good faith within the 30-day period, and the request did not reach us until after the period had ended.
                   (3) Payment of fees.  We assume no responsibility for the payment of a fee based on a revised determination if the request for administrative review was not filed on time.
          (e) When we do not need to authorize a fee.  We do not need to authorize a fee when:
                   (1) An entity or a Federal, State, county, or city government agency pays from its funds the representative fees and expenses and both of the following conditions apply:
                             (i) You are not liable to pay a fee or any expenses, or any part thereof, directly or indirectly, to the representative or someone else;  and
                             (ii) The representative submits to us a writing in the form and manner we prescribe waiving the right to charge and collect a fee and any expenses from you directly or indirectly, in whole or in part;  or
                   (2) A court authorizes a fee for your representative based on the representative's actions as your legal guardian or a court-appointed representative.

4.   HALLEX

a.    HALLEX I-1-2-3

          A. Who May Charge a Fee

Only the claimant's duly appointed representative(s) may charge or collect a fee for services he/she provided in a matter before the Social Security Administration (SSA). A claimant must make all appointments in writing, using either a Form SSA-1696-U4 (Appointment of Representative) (refer to POMS GN 03910.090, Exhibit 2, or Social Security Online, Representing Clients, http://www.socialsecurity.gov/online/ssa-1696.html) or an equivalent statement. If a law firm or other entity is involved, only the duly appointed individual(s) in that firm or entity may file a fee agreement or petition and receive fee authorization and payment for services performed.

          B. Multiple Representatives

If a claimant appoints more than one representative and the representatives are:

    associated in a firm, partnership or legal corporation:

        Fee agreement cases: those representatives must sign a single fee agreement unless the representative who did not sign the fee agreement waived charging and collecting a fee.

        Fee petition cases: each duly appointed individual must file a separate fee petition for the services he/she performed.

    not members of a single firm, partnership or legal corporation:

        Fee agreement cases: the agreement is excepted from the fee agreement process, unless the claimant and the appointed representative(s) from a single firm, partnership or legal corporation signed the fee agreement and any other appointed representative(s) waived charging and collecting a fee.

        Fee petition cases: each duly appointed individual must file a separate fee petition for the services he/she performed.

b.   HALLEX I-1-2-4 Representative's Fees Subject to SSA's Authorization

A representative, attorney or non-attorney, must obtain the Social Security Administration's (SSA's) authorization to charge and collect a fee for services provided in proceedings before SSA regardless of whether among other things.

c.    HALLEX I-1-2-5 Representative's Fees Not Subject to SSA's Authorization

A. Payment by Non-Profit Organization or Government Agency
B. Out-of-Pocket Expenses
C. Court Proceedings
D. Legal Guardian or Other State Court Appointed Representatives

5.   POMS

a.    POMS GN 03970.010 Rules of Conduct and Standards of Responsibility for Representatives


C. Policy on prohibited actions for representatives

          2. Knowingly charge, collect, or retain, or make any arrangement to charge, collect, or retain, from any source, directly or indirectly, any fee for representational services in violation of applicable law or regulation.

D. Definitions of violations and non-violations

          1. Fee violations

                   a. Total unauthorized fee collection

A total unauthorized fee collection is when the representative collects his or her fee directly from the claimant, any auxiliary beneficiary, another individual (whether related or unrelated to the claimant or auxiliary beneficiaries), or through an erroneous SSA fee payment, without prior SSA authorization. (Payments to representatives by third-party entities are an exception to the SSA general authorization requirement. See information on representative’s fees not subject to Social Security Administrations authorization in GN 03920.010 and 20 CFR 404.1720(e) for other exceptions). For processing instructions, see information on referrals of suspected fee violations, possible fee violations, and non-fee violations in GN 03970.017.

                   b. Partial unauthorized fee collection

A partial unauthorized fee collection occurs when SSA authorizes a fee based on a fee agreement or fee petition, but the representative collects an amount in excess of the fee SSA authorized. The amount over the authorized fee is a partial unauthorized fee collection. For processing instructions, see information on referrals of suspected fee violations, possible fee violations, and non-fee violations in GN 03970.017.

NOTE: Occasionally, SSA pays a representative in error. Such a direct payment error may result in an unauthorized fee collection if the representative does not return the erroneous fee on receipt or following an SSA request (see GN 03970.010D.3. in this section). This unauthorized fee collection could be partial or total as described in GN 03970.010D.1.a. and GN 0970.010D.1.b. in this section. For example, the Processing Center (PC) or Field Office (FO) directly pays the representative more than the fee amount that SSA authorized (and the representative does not return the excess payment). This often is in the form of a duplicate payment and it can be any amount in excess of the authorized fee. For processing instructions, see information on referrals of suspected fee violations, possible fee violations, and non-fee violations in GN 03970.017.


          4. Examples of non-violations

                   a. Collecting an authorized fee

A representative petitions for and SSA authorizes a fee of $1,950. Withheld past-due benefits are only $1,640. Through error, SSA pays the representative directly the full fee of $1,950. The representative is not in violation of any Social Security regulations because the representative has not collected a fee in excess of what SSA authorized.

                   b. Direct payment of an authorized fee to an ineligible non-attorney, but not through fault of the representative

The representative correctly identifies herself as a non-attorney ineligible to receive direct fee payment. She submits neither an SSA-1695, nor an SSA-1699 (Request for Appointed Representatives Direct Payment Information). SSA authorizes a fee and directly pays the amount to the representative in error. Because the representative did not do anything to secure a direct fee payment and SSA’s payment was in error, the representative has not violated SSA’s rules. Refer to Office of General Council those situations where a non-attorney actually took affirmative steps to secure a direct fee payment by wrongly claiming attorney or eligible for direct payment non-attorney (EDPNA) status, per GN 03970.017.

                   c. Requesting SSA’s authorization to charge a fee

Susie B., a representative employed by a non-profit group petitions, for a fee in a title XVI (SSI) claim. The organization’s bylaws however, prohibit the representative from petitioning SSA for a fee. Since the representative did not waive her right to charge and collect a fee and since SSA has no authority to enforce a non-profit organization’s rules (SSA only governs the authorization and payment of fees), the representative may file a fee petition and receive an authorized fee without violating SSA rules.


          2. Collecting a fee without SSA’s authorization

Jane Jones, a representative of a claimant for title XVI benefits advises the claimant that she will charge the claimant 25 percent of retroactive benefits if SSA allows the claim, but nothing if we deny the claim. The representative tells the claimant that she does not want all the “red tape” involved with direct payment of her fee from SSA and persuades the claimant to bring her first installment check to the representative's office for settlement of the fee. The representative never submits a fee agreement or fee petition to SSA and further tells the claimant that, “anyway, SSA routinely authorizes representative fees of 25 percent of retroactive benefits.” SSA allows the case on reconsideration, which results in the reopening of a prior denied claim and an award of retroactive benefits. The claimant pays the representative, per their agreement, 25 percent of her retroactive benefits–$8,500. By knowingly charging, collecting, and retaining a fee without SSA's authorization, the representative has engaged in prohibited conduct as described in GN 03970.010C (in this section).

NOTE: SSA permits representatives to collect a fee from a claimant prior to receiving authorization from SSA as long as they hold the money in a trust or escrow account and do not withdraw the money until they receive SSA’s authorization. See information on representative’s fee – trust or escrow accounts in GN 03920.025.

3. Indirect collection of a fee from the claimant without SSA’s authorization — third party payment

Joe Abel, a claimant, has a private insurance policy that pays him benefits when he is unable to work. The insurance company informs Mr. Abel that the terms of the policy require him to file for title II disability insurance benefits (DIB). The claimant receives assurance that the insurance company provides, at no charge, a representative to represent him before SSA. The claimant agrees to this representation. Later, SSA awards the claimant DIB. Tom Cain, the representative informs SSA that he is waiving his fee in this representation. Following the terms of the policy, the claimant notifies the insurance company about the award of benefits. The insurance company then pays the representative $6,000 for representation of the claimant before SSA and deducts the same amount from the claimant's insurance policy benefits. By knowingly circumventing our rules, which require that when a third party pays a representative’s fee, the claimant and any auxiliary beneficiaries must be free of liability directly or indirectly, the representative engaged in prohibited conduct as described in GN 03970.010C (in this section). See 20 CFR 404.1720(e) and 20 CFR 416.1520(e).


          4. Indirect collection of a fee without SSA’s authorization — third-party payment by an individual

Pat Slick, the appointed representative, informs the claimant that she will not receive a fee unless SSA allows the case and the case results in past-due benefits. The representative also advises the claimant that SSA must authorize her fee unless an entity or government agency is paying for the fee from its funds. To avoid delay in payment and “red tape” the representative suggests that the claimant’s uncle write a check from his company’s account to pay the fee and the claimant can later reimburse the uncle. The representative waives her fee from SSA. The representative receives a check from the uncle’s company for her requested fee. When the representative collects the indirect payment, she has knowingly circumvented our rules and engages in prohibited conduct described in GN 03970.010C (in this section). See 20 CFR 404.1720(e) and 20CFR 416.1520(e).


F. Examples of criminal violations — actions subject to criminal prosecution

… For example, a fee violation or a representative’s knowing and willful action to deceive, mislead, or threaten a claimant or beneficiary could violate not only SSA’s Rules of Conduct and Standards of Responsibility for Representatives, but also could constitute a criminal violation. We may find an individual guilty of a criminal violation and also suspend or disqualify him or her from being a claimants’ representative.

B.   California Law

1.   California Rules of Professional Conduct, Rule 2-200. Financial Arrangements Among Lawyers.

          (A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless:

                   (1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division; and

                   (2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.

          (B) Except as permitted in paragraph (A) of this rule or rule 2-300, a member shall not compensate, give, or promise anything of value to any lawyer for the purpose of recommending or securing employment of the member or the member's law firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's law firm by a client. A member's offering of or giving a gift or gratuity to any lawyer who has made a recommendation resulting in the employment of the member or the member's law firm shall not of itself violate this rule, provided that the gift or gratuity was not offered in consideration of any promise, agreement, or understanding that such a gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.

2.   Chambers v. Kay, 29 Cal.4th 142, 56 P.3d 645 (2002)

          Rule 2-200 applies to referral arrangements and to co-counsel.

          Rule 2-200 does not apply to partners and associates. 

          Effect of Non-Compliance –

a.    the referring or non-retained attorney may not enforce the fee splitting agreement. 
b.   the referring or non-retained attorney may recover a quantum meruit fee based on the value of the services rendered.

3.   California Bar Journal, December 2002, Lawyer’s Fees: Harder to Split Than the Atom


4.   California Rules of Professional Conduct, Rule 1-320 Financial Arrangements With Non-Lawyers

          (A) Neither a member nor a law firm shall directly or indirectly share legal fees with a person who is not a lawyer, except that:
                  
                   (1) An agreement between a member and a law firm, partner, or associate may provide for the payment of money after the member's death to the member's estate or to one or more specified persons over a reasonable period of time; or

                   (2) A member or law firm undertaking to complete unfinished legal business of a deceased member may pay to the estate of the deceased member or other person legally entitled thereto that proportion of the total compensation which fairly represents the services rendered by the deceased member; or

                   (3) A member or law firm may include non-member employees in a compensation, profit-sharing, or retirement plan even though the plan is based in whole or in part on a profit-sharing arrangement, if such plan does not circumvent these rules or Business and professions Code section 6000 et seq.; or

                   (4) A member may pay a prescribed registration, referral, or participation fee to a lawyer referral service established, sponsored, and operated in accordance with the State Bar of California's Minimum Standards for a Lawyer Referral Service in California.

          (B) A member shall not compensate, give, or promise anything of value to any person or entity for the purpose of recommending or securing employment of the member or the member's law firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's law firm by a client. A member's offering of or giving a gift or gratuity to any person or entity having made a recommendation resulting in the employment of the member or the member's law firm shall not of itself violate this rule, provided that the gift or gratuity was not offered or given in consideration of any promise, agreement, or understanding that such a gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.

          (C) A member shall not compensate, give, or promise anything of value to any representative of the press, radio, television, or other communication medium in anticipation of or in return for publicity of the member, the law firm, or any other member as such in a news item, but the incidental provision of food or beverage shall not of itself violate this rule.

5.   California Rules of Professional Conduct, Rule 2-200 Financial Arrangements Among Lawyers

(A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless:

    (1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division; and

    (2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.

(B) Except as permitted in paragraph (A) of this rule or rule 2-300, a member shall not compensate, give, or promise anything of value to any lawyer for the purpose of recommending or securing employment of the member or the member's law firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's law firm by a client. A member's offering of or giving a gift or gratuity to any lawyer who has made a recommendation resulting in the employment of the member or the member's law firm shall not of itself violate this rule, provided that the gift or gratuity was not offered in consideration of any promise, agreement, or understanding that such a gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.

C.   ABA Model Rules

Comments to amended Rule 7.2 permitting the use of leads generation add:

  • The lead generator must not recommend the lawyer.
  • Payments to the lead generator must be consistent with Rule 1.5(e) (division of fees)
  • Payments to the lead generator must be consistent with Rule 5.4 (professional independence of the lawyer).
  • The lead generator’s communications must be consistent with Rule 7.1 (communications concerning a lawyer’s services).  To comply with Rule 7.1, a lawyer must not pay a lead generator that states, implies, or creates a reasonable impression that it is recommending the lawyer, is making the referral without payment from the lawyer, or has analyzed a person’s legal problems when determining which lawyer should receive the referral.
  • See also Rule 5.3 for the (duties of lawyers and law firms with respect to the conduct of nonlawyers); Rule 8.4(a) (duty to avoid violating the Rules through the acts of another).


          Rule 7.2(b) A lawyer shall not give anything of value to a person for recommending the lawyer's services except that a lawyer may

(4) refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if
(i) the reciprocal referral agreement is not exclusive, and
(ii) the client is informed of the existence and nature of the agreement.
Available at http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_7_2_‌‌‌‌advertising.html. 
D.  North Carolina

          Sharing fees with a non-lawyer, even a paralegal in the firm, violates Rules of Professional Conduct, Rule 5.4. 


          A paralegal in a firm may receive bonuses not based on a percentage of the fees. 


E.   Wisconsin

          In re Weigel, 817 N.W. 2d 835 (Wisc. 2012) (collecting cases)

          Permissible to pay a bonus to a non-lawyer employee out of a class of cases.  Reviewed:

1.   Philadelphia Bar Association, Ethics Opinion 2001-7. 

          It is this committee's opinion that the inquirer's proposal to pay non-lawyer employee collectors a bonus if the gross amount collected as a result of their efforts exceeds a predetermined figure would not violate Rule 5.4 provided that the bonus is not tied to or contingent on the payment of a fee from a particular case or specific class of cases relating to a particular client or debtor. In the employment and use of employee collectors, the inquirer must comply with the other Rules of Professional Conduct, including, but not limited to, Rules 1.4, 1.5, 1.6, 5.3, 5.5 and 5.7,

2.   Va. St. Bar Standing Comm. of Legal Ethics, Op. 885 (Mar. 11, 1987) (a nonlawyer may be paid based on the percentage of profits from all fees collected by the lawyer).    
                            
3.   Florida Ethics Opinion 89-4: "[b]onuses to non-lawyer employees cannot be calculated as a percentage of the firm's fees or of the gross recovery in cases on which the non-lawyer worked."

4.   Matter of Struthers, 179 Ariz. 216, 877 P.2d 789 (1994) (an agreement to give to nonlawyer all fees resulting from nonlawyer's debt collection activities constitutes improper fee splitting).

5.   Florida Bar v. Shapiro, 413 So.2d 1184 (Fla.1982) (payment of contingent salary to nonlawyer based on total amount of fees generated is improper); State Bar of Montana, Op. 95-0411 (1995) (lawyer paid on contingency basis for debt collection cannot share that fee with a nonlawyer collection agency that worked with lawyer)

Wisconsin Supreme Court held:  “We do not perceive a material ethical distinction between profit-sharing and revenue-sharing for purposes of this bonus calculation. The ethical considerations are the same.”

F.   Lawyers Mutual



III.         Analysis

          The Social Security Administration regulates the conduct of attorneys and non-attorneys under the generic title of “representatives.”  42 U.S.C. § 406(a).  The agency regulates fees for services provided by representatives.  Id. 

          The agency permits representatives to receive fees for services rendered to claimants for benefits only when authorized by the Social Security Administration.  Once a representative submits to the jurisdiction of the agency on a claim, that representative may only receive fees directly or indirectly from the claimant that the agency authorized. 

          The Act gives the Commissioner authority to shape the contours of the representational process by regulation and rule.  42 U.S.C. § 406(a).  That includes the charging of fees by representatives.  42 U.S.C. § 406(a)(1)(A).  Once a person submits to the jurisdiction of the Social Security Administration with respect to any claim under the Act, all aspects of that relationship with the client become subject to the rules and interpretations of the Commissioner.  The regulations get deference unless plainly erroneous.  Chevron U.S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-843 (1984).  The sub-regulatory promulgations get deference unless plainly erroneous.  Auer v. Robbins, 519 U.S. 452, 461 (1997); Pagter v. Massanari, 250 F.3d 1255, 1260 (9th Cir. 2001); see also McNatt v.Apfel, 201 F.3d 1084 (9th Cir. 1999).

          The Commissioner does not now recognize law firms, partnerships, or other entities as “representatives.”  A firm, partnership, corporation, or other entity cannot possess a license to practice law and does not meet the Commissioner’s interpretation of the word “person” as used in the regulations.  20 C.F.R. §§ 404.1705(b); 416.1505(b). 

          A fair question arises whether the non-appointed employer, partner, or affiliate of a representative could engage in conduct that the appointed representative could not.  To permit the non-representative to engage in conduct that the Commissioner prohibits the representative from performing would circumvent the rules of conduct and the regulation of fees.  See also California State Bar Formal Opinion 1981-64 (all lawyers employed by a firm owe identical professional responsibilities to clients of the firm).  Therefore, it is likely that the Commissioner would impute any act by a person affiliated with an appointed representative to that representative.  The word “representative” includes other persons under the direction, control, managing, supervising, or otherwise having contact with the claimant by virtue of the appointment and acceptance of the appointment of representative. 

          A representative may never charge and receive an unauthorized fee.  42 U.S.C. § 406(a)(5).  Charging or receiving an unauthorized fee constitutes a misdemeanor.  Id.  Failure to comply with the statute or regulations may result in administrative suspension or disqualification.  20 C.F.R. §§ 404.1745; 1545.  Where a representative receives payment connected in any way with the representation of a claimant, directly or indirectly, that act violates the statutory and regulatory oversight of the fee process. 

          Nor may a different representative aid or abet another person in the receipt of an unauthorized fee.  18 U.S.C. § 371.  A conspiracy to commit a crime against the United States or an agency of the United States constitutes a felony that should be punished in the same manner as the underlying misdemeanor.  Id.; 42 U.S.C. § 406(a)(5).  Where a representative receives a fee from the Social Security Administration, the claimant, or a third person, that representative may not pay any part of that fee to a current or former representative that does not have an authorization to charge and receive that fee.  Where a concurrent or prior representative receives payment without an authorization for that amount, the payment by the authorized representative constitutes a total or partial unauthorized fee.  POMS GN 03970.010.D.1. 

          The example provided by POMS illustrates the problem.  Tom Cain received a fee from the insurance company for representing Joe Abel.  Tom Cain stated to the Social Security Administration that he waived fees for his representation.  “Waiver” is a knowing relinquishment of a known right.  Edwards v. Arizona, 451 U.S. 454 (1981).  When the insurance company collects the overpayment of LTD benefits from the claimant and then pays the representative, that indirect payment out of the claimant’s past due benefits circumvents the fee authorization process. 

          Waiving the right to receive a fee and then receiving an undisclosed fee or payment of any kind violates the intent of the rules as reflected in the POMS example.  A

          Similarly, any payment that is akin to fee sharing would constitute the payment of a fee to the other representative.  See e.g. Los Angeles County Bar Ass’n Ethics Opinion 488 (http://www.lacba.org/showpage.cfm?pageid=5041) (unethical to pay a percentage of receipt to an office management company but permissible to pay a monthly set fee); California Formal Opinion 1994-138 (paying a set fee to an outside lawyer or passing through the outside lawyer’s bill to the client does not constitute fee splitting; paying a percentage of collected fees constitutes fee splitting). 

          Nor could lawyers circumvent the rules against fee sharing by paying for leads generation.  The amended ABA Model Rules permit the participation in internet leads generation.  The Comments, but not the rules, prohibit the recommendation of the lawyer by the lead generator.  Paying a fee for the referral of clients is only permitted if the client is informed.  The Social Security Administration oversees all fees on behalf of the claimant for benefits.  Therefore, any duty of disclosure flows to the agency and the client. 

          Based on the oversight of the Commissioner concerning fee arrangements between representatives and claimants, the sharing or splitting of fees between any persons that have a current applicable appointment or a terminated appointment falls under the Commissioner’s jurisdiction.  Representatives should not share fees with other unaffiliated representatives absent an authorization to charge and receive a fee. 

          A person not representing and having never represented a particular claimant before the agency does not fall within the fee regulations of the Social Security Administration.  That person must only comply with state law provisions concerning the payment and receipt of fees.  Under California Rules of Professional Conduct Rule 2-200, the client must consent to that payment and division of fees and the Commissioner should receive fair notice. 

          Implicit in this discussion runs the concept that the Commissioner regulates fees for work performed before the Social Security Administration.  The Commissioner does not regulate nor have jurisdiction over fees for work performed before another tribunal.  Fee splitting or sharing in that context must comply with the ordinary rules for fee amounts and splitting.  See California Rules of Professional Conduct Rule 4-200 and ABA Mode Rules 1.5.   

8 comments:

  1. Is it every time that someone has to apply for an opinion letter on referral fees and do they have to get social security attorneys involved as well? There are just so many things that I wonder about with this whole things. Plus, I know that all the steps that they take are for safety reasons and it is for the best as well.
    http://ransomgilbertson.com/social-security-disability/

    ReplyDelete
  2. I think if you have any issues with social security, it would be a good idea to be in touch with a social security lawyer. You want to make sure that there isn't any confusion. It would be best for all involved.

    Jim Tracy | http://nyworkerscompattorney.com

    ReplyDelete
  3. If the claimant agrees that referring attorney fee can collect from appointed attorney 25% of the attorney fee, and the ALJ issues an Order of the ALJ approving the fee agreement, is that sufficient? if not, does a fee petition have to be filed with all cases involving referring attorneys?

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    Replies
    1. Everyone that receives part of the fee needs to have authorization to receive that fee.

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  4. This is very helpful information for those that are filing for social security disability claims! I have a friend that is looking for help in this area. I have been wanting to help her find a good attorney that can get it all figured out for her. I will remember this information in this article so that I can help her out more! http://www.socialsecurityesq.com/Disability-Law-Fredericksburg-VA.html

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  5. I wonder what it's like to have a career as a social security attorney because I'm considering the field. I would like to learn more about it and maybe even job shadow an attorney a few times. I really want to get informed before I make any choices after law school. http://www.gieg-law.com/services.nxg

    ReplyDelete
  6. This information has been very helpful. My mother-in-law wants to hire a social security disability lawyer and I thought I should learn more. I want to help her as best I can.

    Susan Hirst | http://www.ckdisabilitylaw.com/

    ReplyDelete
  7. Is it essentially the same process if you've had your claim denied once? My wife had her claim denied and we're not really sure how the appeals process works. We didn't use an attorney the first time around, so we might have made some mistakes in her initial application. http://www.russelljgoldsmith.com/massachusetts-social-security-disability-claims.html

    ReplyDelete