Referral fee agreements are generally enforceable between attorneys. But what if the referring attorney is on inactive status? Is such an agreement allowed?
The Rules of Professional Conduct allow lawyers who are not in the same firm to divide a legal fee if certain conditions are met. However, subject to a few exceptions, the Rules prohibit the sharing of legal fees with nonlawyers.
So is an “inactive” attorney considered a lawyer or a nonlawyer? Under the definition provided in the Rules, a lawyer on inactive status is not authorized to practice law in the state and thus, is not a “lawyer.” So it appears that an attorney cannot enter into an enforceable referral fee agreement with an “inactive” attorney. At least one court agrees.
A Michigan court that has addressed this issue concluded that a referral fee agreement between a law firm and an inactive attorney is not enforceable. The court held that an attorney on inactive status may not hold herself out as a “lawyer,” because she has no right to engage in the practice of law. As such, the referral agreement at issue was void as a matter of public policy.