Concept
Other Permitted Payments
Permitted means of advertising and payment for recommendations
Other Permitted Payments
Rule 7.2(b) bans paying for recommendations and then writes every lawful payment into the ban as an exception: a lawyer shall not compensate, give, or promise anything of value to a person for recommending the lawyer's services, except that a lawyer may do the particular things the rule lists.1 Because the list follows "except," a payment is lawful only if it fits an item on it. A payment that fits none stays inside the ban, however reasonable it looks. The previous section covered the first item, paying the reasonable costs of advertisements and communications the Rule permits, which is the widest exception and the one exam questions reach most often.2
Four narrower exceptions remain. A lawyer may pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service; pay for a law practice in accordance with Rule 1.17; refer clients to another lawyer or a nonlawyer professional under a reciprocal referral agreement; and give nominal gifts as an expression of appreciation.3 Each carries a condition of its own, and that condition separates the permitted payment from the forbidden one. A lawyer who gives a referral source a gift of real value, or who ties a referral agreement to exclusivity or a cash payment, has left the exception that sounds closest to what the lawyer is doing.
The four share a design. The ban targets the purchased endorsement, a recommendation the client takes as disinterested advice although someone paid for it. Each exception either pays for something other than an endorsement, such as a business or a place in an organized program, or hedges the arrangement with a limit that keeps it from working as one. On a fact pattern, name the exception the lawyer is invoking and test that exception's own condition. Meeting one exception's condition does nothing for a payment that needs another. Rule 7.1 also stays in force throughout. It states the overarching standard for all regulation of attorney advertising and solicitation, that a lawyer may not make a false or misleading communication about the lawyer or the lawyer's services.4
Legal Service Plans and Referral Services
Rule 7.2(b)(2) lets a lawyer "pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service."5 These organizations exist to connect people with lawyers, which is why the ban on paid recommendations might seem to reach them. A plan that assigns members to a panel lawyer, or a referral service that tells a caller whom to phone, recommends a lawyer directly, and the lawyer pays to take part.
The exception reflects how the profession widened access to counsel. Even when advertising was largely forbidden, bar association referral programs were among the few accepted ways for a client to find a lawyer.6 A separate opinion in Bates v. State Bar of Arizona lists the group plans that unions, cooperatives, and trade associations use, and the referral plans that local and state bars operate, among the bar's efforts to help low- and middle-income citizens who had difficulty finding counsel willing to serve at reasonable prices.7
A legal service plan lets a person pay in advance for legal help that may be needed later. A membership group such as a labor union, trade association, or church organization may offer legal services as a benefit of belonging. An insurer may let a consumer spread the risk of needing a lawyer by paying a premium that creates an entitlement to stated services when certain events occur.8 Plans were first imagined for the broad middle class, people too well off for government-subsidized legal aid yet unable to afford counsel easily.9 A plan takes one of two forms. In a closed plan, the entity that sets it up arranges with a particular lawyer, firm, or group of firms to provide the services. In an open plan, members receive a level of benefits that they may apply to any provider, and the benefit may be a free consultation, a discounted fee, a defined range of services, or full coverage.10 The rule gives no detailed definition of a qualifying plan. It concentrates on the limited compensation the lawyer may give the plan and on the lawyer's duty to see that the plan behaves appropriately when it speaks to the public.11
The payment is tolerated because of what it buys. A lawyer on a closed plan's panel pays the usual charges of participation and receives clients because members hold a benefit that entitles them to a lawyer, not because someone vouched for this lawyer to a particular person in return for money. The payment buys a place in an organized program whose members know what the plan is, which differs from a private, paid word of endorsement that the client cannot see. The word "usual" does matching work. It ties the lawyer to the ordinary terms on which participants take part, so a side payment that rewards the plan's operator for steering clients to one lawyer falls outside the exception.
The plan's own conduct is the second condition. Rule 7.3(a) bars a lawyer from soliciting employment by in-person, live telephone, or real-time electronic contact when a significant motive is the lawyer's pecuniary gain, and that prohibition remains nearly absolute.12 A plan could otherwise become a way around it, so a plan may use in-person or telephone solicitation only toward the general public, its members, or a group not known to need legal services in a particular matter. It may make no such contact with persons known to need services in a matter the plan covers, and a lawyer may not cooperate with a plan that does. The solicitation must also aim at securing members or subscribers. It must promote the plan itself and must not sell the lawyer's services directly. The reason is agency: a plan that phoned people to steer them to its panel lawyer would be making, as the lawyer's specific agent, the live solicitations the lawyer is forbidden to make personally.13
A referral service differs from the media covered in the previous section, and the difference decides which exception applies. A directory listing conveys only the facts the lawyer supplied, so the fee for it is an advertising cost. A referral service tells a caller which lawyer to call, and that is a recommendation. A lawyer who pays for it therefore needs Rule 7.2(b)(2) and cannot rely on the advertising-cost exception.14 The rule names two kinds of service that qualify, one not-for-profit and one qualified, and the qualifier would mean nothing if an organization could earn it by taking the name. A service is qualified because of what it is: consumer-oriented, giving unbiased referrals to lawyers suited to the matter, protecting clients through measures such as complaint procedures or malpractice insurance requirements, and approved by an appropriate regulatory authority.
On an exam, the word "qualified" is where the question usually turns, so check first whether the organization has those features.
The organization sends clients to the lawyer in both scenes. What moved the answer was approval, client protections, and unbiased selection of lawyers. Two errors follow from overlooking that. One treats any organization with "referral" in its name as qualified. The other treats the exception as approving whatever a plan does to find members, which ignores that the plan's solicitation must promote the plan and must stay away from people known to need a lawyer in a matter the plan covers.
Buying a Law Practice
Rule 7.2(b)(3) permits a lawyer to pay for a law practice in accordance with Rule 1.17, the rule that governs the sale of a practice.16 A sale moves a set of client relationships from one lawyer to another, and the seller usually tells those clients that the buyer is taking over their matters. Read loosely, the buyer has paid a person, the seller, for sending clients to the buyer, which is the exchange the general ban reaches. The exception takes the sale out of the ban. It works differently from the advertising-cost exception, which pays for the carrying of a message, because this one pays for a business.17
The purchase price is tolerated because of what it buys. It pays for the practice itself, meaning its files, its client relationships, and its goodwill, and once the sale closes the seller has nothing further to recommend because the seller no longer practices in the area. A referral fee has the opposite shape. The referrer stays in business, sends one client after another to the paying lawyer, and the clients cannot see the money behind each recommendation. A one-time transfer of a whole business involves no continuing stream of endorsements, and it happens in the open.
The exception is only as wide as Rule 1.17, which is taught in full elsewhere. Here its conditions matter in brief, and each can be checked against the facts of a sale.
The conditions fall into two pairs, and each pair answers a different risk. The first two concern the seller. A seller who keeps practicing in the same area remains a source of future clients, so a payment to that seller can operate as pay for each later introduction. A sale of only some clients has the same defect, since a buyer who selects the lucrative relationships and leaves the rest is buying clients one by one, and the clients not chosen are left stranded. The last two protect the clients. Written notice gives each client a chance to decide who will handle the matter, and the ban on fee increases keeps clients from paying for a deal made without them. Because Rule 7.2(b)(3) covers a practice only "in accordance with Rule 1.17," a transaction that fails those conditions loses the exception, and the price must then find shelter in another exception or fall under the ban.18
An exam stem typically describes a payment between two lawyers and asks whether it is a sale of a practice or a purchase of clients. The failing version is the one students miss, because the money moves between lawyers and the word "practice" can appear in the facts.
Both scenes involve a lawyer paying money and receiving clients. What moved the answer was the completeness of the transfer and the seller's exit, together with the client protections that make the transfer an open sale of a business. Students err in two directions. Some conclude that paying another lawyer for clients is always forbidden, which overlooks that the rule expressly permits paying for a practice. Others accept the word "sale" without checking whether the whole practice or area was sold and the seller stopped practicing there, which overlooks that the exception reaches only a purchase made in accordance with Rule 1.17.
Reciprocal Referral Agreements
Rule 7.2(b)(4) lets a lawyer refer clients to another lawyer or to a nonlawyer professional, such as an accountant, under an agreement that provides for the other person to refer clients or customers to the lawyer.20 The exception is needed because a swap of referrals fits the general ban on giving or promising anything of value for recommending the lawyer's services. When a lawyer promises to send clients to an accountant in return for the accountant's sending clients back, the promised flow of business is something of value, and the accountant's recommendation is what the lawyer receives for it. The fourth exception takes that arrangement out of the ban, subject to two conditions stated in the rule's text. It also carries a threshold requirement: the agreement must be one "not otherwise prohibited under these Rules," so the exception cannot validate an arrangement that some other rule forbids.21
The rule tolerates the arrangement because each side gives the other a referral and nobody gives money. A referral is a judgment that the other professional's services fit the client's problem, and the professional who makes it stands behind that judgment in front of the client. A lawyer whose estate-planning client needs a tax return prepared, and an accountant whose client needs a will drafted, each serve the client better by knowing a trustworthy professional in the neighboring field. The exchange leaves no purchased endorsement behind it, because the lawyer pays no cash to the person who recommends the lawyer. What the exchange can still do is bend each side's referrals toward the partner, and the rule's two conditions aim at that risk.
The first condition is that the reciprocal referral agreement is not exclusive.22 An exclusive agreement would bind each side to send clients only to the other, whatever the client happens to need. If a client's tax problem falls in a niche the partner accountant does not handle, an exclusive agreement would still push the client to that accountant, so the referral would follow the contract and ignore the client's problem. A non-exclusive agreement leaves each professional free to send a client elsewhere whenever someone else is a better fit, which keeps the referral tied to the client's interest. On a fact pattern, the words that signal a defect here are "only" and "exclusively."
The second condition is that the client is informed of the existence and nature of the agreement.23 A recommendation sounds like advice from someone with no stake in the outcome, and a client who hears "you should see my accountant" has no way to know that the accountant sends the lawyer business in return. The lawyer then has an interest in keeping the accountant satisfied, and that interest could tilt the recommendation without the client ever seeing it. Disclosure lets the client discount the advice and look for other professionals if the client prefers. The condition has two parts, so a bare statement that the two professionals know each other falls short. The client must also learn what the arrangement consists of, namely that each side sends clients to the other.
The exception covers an exchange of referrals and does not extend to money. A lawyer may not pay the accountant for the referrals the lawyer receives, since a payment to a person for recommending the lawyer's services stays inside the general prohibition unless a listed exception covers it. The advertising-cost exception does not rescue the payment, because it reaches only the reasonable costs of advertisements or communications the Rule permits, and a fee for each client sent over is the price of an endorsement and not the cost of carrying the lawyer's own message.24 A term calling for such a payment, or for splitting the legal fee with a nonlawyer, would also make the agreement one that the Rules otherwise prohibit, which defeats the exception at the threshold.25
An exam stem on this exception usually describes a handshake between a lawyer and another professional and asks whether it is allowed. The failing version tempts students to say yes because referrals move in both directions.
That agreement has two defects, and either one would end the analysis alone. An agreement that is non-exclusive but kept secret fails the second condition, because the client who hears a recommendation cannot see the return flow of business behind it. An agreement that is disclosed but exclusive fails the first, because telling the client about a contract that dictates the referral does not make the referral follow the client's needs. The rule joins the two conditions with the word "and," so success on one never offsets failure on the other.
Students tend to err in two directions. Some see referrals running both ways and conclude that the lawyer has bought a recommendation, which overlooks that the rule expressly permits a swap on stated conditions. Others see the word "reciprocal" and approve any mutual arrangement without checking for exclusivity, disclosure, or a side payment. A non-exclusive, disclosed exchange of referrals is permitted, and money paid for the referrals the lawyer receives is not.
Nominal Thank-You Gifts
Rule 7.2(b)(5), the fifth and last exception, allows a lawyer to give "nominal gifts as an expression of appreciation that are neither intended nor reasonably expected to be a form of compensation for recommending a lawyer's services."27 The exception is needed because the general rule forbids giving anything of value to a person for recommending the lawyer, and a gift is something of value.28 A client's accountant who suggests the lawyer has made a recommendation, so a bottle of wine sent in thanks would, read literally, be a gift to the person who recommended. The four exceptions before this one concern advertising costs, organized programs, the sale of a business, and an exchange of referrals. This one covers a single personal gesture, and the test therefore turns on what the gesture is meant to be and how the recipient will understand it.
The text sets two requirements, and they do different work. The gift must be nominal, which is a question of size, and it must be an expression of appreciation that is neither intended nor reasonably expected to be compensation, which is a question of purpose and expectation.29 The rule supplies no dollar figure, and the sensible reading of "nominal" is relative: the gift is a token of thanks, small enough to look like a courtesy rather than a payment. Size is the easier half to see, but the second half does the heavy lifting, because a modest item can still be compensation when it is handed over as the price of each referral. That half has a subjective part, what the lawyer intends, and an objective part, what the recipient could reasonably expect. A lawyer who privately insists that every gift is only a thank-you has still violated the rule if the recipient would reasonably anticipate another gift each time a client is sent over.
The rule takes this shape because of the danger the general ban targets, a recommender with a financial stake the client cannot see. A modest gesture of thanks, given once and without any commitment, leaves the recommender with nothing riding on future referrals, so nothing pulls the recommender toward this lawyer rather than a better-suited one. A gift that is valuable, regular, or tied to individual referrals changes that, because the recommender now earns something each time a client goes to the lawyer. The client who hears "you should call this lawyer" is then hearing an endorsement that was bought, and the arrangement has recreated the problem the ban exists to prevent. Each part of the test detects that stake: small size suggests none exists, and the absence of intent and reasonable expectation shows the gift is not linked to what the recipient will do next.
A standard illustration of the failing side is a personal-injury lawyer who gives a chiropractor a pair of basketball tickets for every patient the chiropractor refers. The tickets have real market value, they arrive with each referral, and the chiropractor soon learns to count on them, so the gift operates as the price of the referral and no longer as thanks for it. The advertising-cost exception offers no shelter either, because it reaches only the reasonable costs of advertisements or communications the Rule permits, and the tickets pay for no communication of the lawyer's own message.30
The two scenes differ in the facts the test examines. The tickets were worth real money, came with every referral, and could be counted on, while the basket was a token that came once with no promise attached. Timing and pattern carry much of the analysis, because thanks looks backward at a favor already done. A gift announced in advance, or one that follows every referral on a schedule, is hard to describe as appreciation and easy to describe as the price. A lawyer who tells the accountant that a basket will follow each client sent over has turned the same basket into a promise of value for recommending the lawyer, and the accountant now has a reason to keep referring.
Students tend to err in two directions. Some conclude that any gift to a referral source is forbidden, which overlooks that the rule expressly permits a nominal one. Others treat a small gift as safe because it is small, which overlooks that the standard asks what the gift was intended and reasonably expected to be. On an exam, ask whether the gift is a one-time courtesy or part of a pattern tied to referrals, and read the facts for any sign that the recipient expects more.