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
(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
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.
