I Will Honor RPC 7.2(c) in
My Heart, and Try to Keep it
All the Year*

Joy, a former client, has steered a half dozen prospective clients your way this year, and several of them have become valued clients of your firm. It would be an appropriate gesture, would it not, to thank Joy by inviting her and her hus-band out for the best steak in town? And last February, Joe, your former moot court partner in law school (now an established personal injury practitioner), referred a conflict matter to you that just resulted in a six-figure settlement. There wouldn’t be anything wrong with sending him a pair of courtside seats for the Sonics-76ers game--as a holiday “thank you” gift--would there? The answers to these questions might surprise you.

The Model Rule and Washington’s RPC 7.2(c)

The American Bar Association’s Model Rule of Professional Conduct 7.2(b) states that a lawyer “shall not give anything of value to a person for recommending the lawyer’s services,” but may pay the reasonable costs of advertisements or communications otherwise permitted by the Rule.1 This is a specific application of the basic prohibition on payment of a “runner” to procure business for a lawyer, and it represents the ABA’s attempt to delineate the “sometimes uncertain line between permitted advertising and prohibited solicitation.”2

This language, in the form of Rule of Professional Conduct 7.2(c), has been on the books in Washington since 1985.3 And it is certainly clear that RPC 7.2(c) prohibits a lawyer from compensating a third party for recommending the lawyer’s services (unless the referral is by a not-for-profit lawyer referral service or other legal service organization).4

For example, a lawyer may not hire a paralegal to operate a law office in a nearby town and to place advertisements in local media featuring the paralegal’s photograph; if the paralegal’s work consists primarily of touting the lawyer’s legal services and procuring clients, such an arrangement constitutes the giving of value for recommending the lawyer’s services, a violation of RPC 7.2(c).5 Except for a division of fees between lawyers authorized by RPC 1.5(e), “referral fees” of any type are prohibited.

Interpreting the Rules

A seemingly open ethics question is whether there is a middle ground between merely thanking in words and overtly compensating in a tangible form. Is the giving of a gift or de minimis gratuity to thank a person for a referral or recommendation permissible under RPC 7.2(c), or does it cross the line into the realm of prohibited solicitation and exchange of value? What if the value of the gift is negligible? Does size matter? If so, how small is “small?”

There is no “de minimis” exception in the Model Rule or its accompanying Comment, which, on this topic, merely states, “Lawyers are not permitted to pay others for channeling professional work.”6 The ABA’s use the term “channeling” arguably indicates that the ethical concern here is payment for the recommendation or referral, i.e., quid pro quo arrangements. And this is certainly consistent with Washington’s general approach to creative compensation schemes involving referrals. For example, a lawyer may not accept referrals from real estate brokers in exchange for free or discounted legal services if such legal services are provided on a quid pro quo basis.7 But is a “thank you” gift a payment “for,” or is it some other species of payment8 entirely? Or is it not “payment” at all?

The Life and Death of a Suggested Rule Amendment

During the recent review of Washington’s RPCs by the WSBA Special Committee for the Evaluation of the

Rules of Professional Conduct (known informally as the Ethics 2003 Commit-tee), the issue of de minimis gifts came up during a subcommittee’s evaluation of Title 7. The subcommittee recommended adoption of a new exception to RPC 7.2, designed to permit a lawyer to “give a gift acknowledging a referral so long as the gift is not offered as consideration for the referral or as consideration for other referrals in the future.” A draft comment explained the intent of this exception:

A lawyer may give gifts to referral sources in the ordinary course of business and social hospitality. [This provision] permits “thank you” gifts so long as the gift is not offered as consideration for past or future referrals. Such gifts are meant as tokens of thanks and must be of minimal value. A lawyer giving a “thank you” gift should always bear in mind that the gift is intended to be symbolic in nature and may not be used as a means of compensation for the referral. Examples of permissible gifts include a holiday fruit basket, a bouquet of flowers, or taking the referral source out for a meal.

The idea died in committee. In a divided vote, the Ethics 2003 Committee rejected the suggested amendment, and the issue did not resurface during the WSBA Board of Governors’ review of the Committee’s recommendations. Instead, the Board of Governors has recommended adoption of the Model Rule language.9 Hence, even if the RPCs are amended next year, it appears unlikely that any additional light will be cast on the issue of “thank you” gifts for referrals.

A Matter of Opinion

Without a clear rule for guidance, where then can a lawyer turn? The Washington State Bar Association’s Ethics Opinions offer some help. The most significant opinion in this regard addresses the ethical propriety of giving a $25 restaurant gift certificate to a real estate agent after the agent has referred a real estate closing to the lawyer. The response of the WSBA Rules of Professional Conduct Committee was as follows:

The Committee was of the opinion that such conduct would be the giving of something of value for the recommendation of the attorney’s services as prohibited by RPC 7.2(c). Similarly, if the lawyer were to give such certificates to either the buyer or seller for designating him as the closing officer, it would violate the same rule. The Committee was of the opinion that the lawyer could give gift certificates to both parties so long as the lawyer was certain that they were not being passed on to the real estate agent for the recommendation.10

At first blush, Opinion 1535 reflects a scrupulous application of RPC 7.2(c). It appears to exclude the possibility of an implied “de minimis” exception and strictly preclude the giving of anything to a referral source under any circumstances. One naturally wonders whether the answer would have differed if the hypothetical gratuity had been a bouquet of flowers, a holiday fruit basket, or a $5 coffee card.

But Opinion 1535 ought to be read in conjunction with Opinion 1484, which addresses whether a law firm may accept referrals received from a public interest law firm to which the firm makes tax deductible contributions. Given those facts, the RPC Committee issued this terse response:

The Committee was of the opinion that, assuming there is no direct tie between the contributions and the referrals, nothing in the Rules of Professional Conduct would prohibit you from accepting such referrals.

Even if there is no “de minimis” exception, then, there appears to be a “nexus” test, at least in some circumstances. Here, one wonders about the extent to which the contribution-recipient’s “public interest” status influenced the analysis. If the value of a gift or a donation is neither tied directly to the receipt of a particular referral (or referrals) nor offered in expectation of eliciting future referrals, it just might be ethically permissible.

Other Jurisdictions, Other Rules

This middle-ground position--a lawyer may give something of value to a referral source if the giving is devoid of any quid pro quo taint (perhaps this might be called a “soft benefit”)--is consistent with, though generally stricter than, the approach adopted in a number of other jurisdictions.

In California, for example, a lawyer may give a “gift or gratuity” to another lawyer or a nonlawyer who has made a recommendation resulting in the lawyer’s employment, provided that the gift or gratuity is “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.”11

Arizona has flatly rejected strict interpretation of the Rule as “unrealistic and harsh” as applied to restaurant gift certificates and/or movie or event tickets valued at less than $100; if their professional judgment is not affected by the arrangement, Arizona lawyers may give de minimis gifts in acknowledgment of a referral “where no quid pro quo is present.”12

And Philadelphia lawyers may take clients to dinner or give them Christmas gifts having value of less than $100 as long as there is no relationship in timing or value to referrals.13

But unanimity on the issue is lacking. In Rhode Island, a lawyer’s former client recommended the lawyer’s services to another person, employment resulted, and the matter eventuated in a successful and lucrative case. Those who opine in Rhode Island determined that such a lawyer could not give the original client a gift, even if the gift cost less than $100.00.14

So Does RPC 7.2(c) Make Scrooges of Us All?

Do we have an articulable rule, or even a consistent informal statement of policy, in Washington? What emerges from the interstices of Informal Opinions 1484 and 1535 is a proposition not wholly dissimilar to the draft rule rejected by the Ethics 2003 Committee and the positions endorsed by a number of other jurisdictions: giving something of value to a referral source is not unethical if the thing given is not tied directly to a particular past referral and if it does not constitute anticipatory consideration for future referrals.

But when will gift or donation of this sort imply the existence of an impermissible nexus? When will it seem to be a form of camouflaged consideration? The nature of the gift and the surrounding circumstances ought to be carefully assessed by the would-be donor. If the recipient is a past referral source, avoid direct or overt linkage between the making of the referral and the giving of the gift. If you are seized with irrepressible holiday cheer, it may be preferable to send a tower of treats to everyone on the list--referral sources and others alike--rather than to shortlist only those who have guided business your way.

Although there is no fixed monetary limit, the magnitude of a lawyer’s largesse is also prone to scrutiny. Even without an express “de minimis” cap on the value that may be given, it seems inevitable that a high-value gift or “contribution” would be viewed with greater suspicion.

And timing may be a factor. In evaluating whether restaurant gift certificates and tickets valued at less than $100 were intended as an expression of thanks rather than as compensation, the State Bar of Arizona deemed it significant that the items were to be given after the referral, rather than before, when it determined that “the circumstances do not suggest that the proposed gifts are made to be payments to the recipients for having recommended the attorney.” 15

Also, a “waiting period” may serve to ameliorate what might otherwise signify a referral-gift nexus. In other words, a holiday gift in December to a person who referred a matter in February will look somewhat different than a $25 restaurant gift certificate on September 30 to a real estate agent who referred a closing on September 28.

In sum, ethically conservative lawyers will send cards or letters in which they merely thank those individuals who have referred cases to them for doing so. Risk-friendlier lawyers might send a bouquet of flowers, perhaps a holiday gift basket, or, even better, many holiday gift baskets, with an accompanying note. But the note ought not to say “thanks for the referral.” And whereunto the ethically innovative? No matter what they say, size probably matters. Strive to keep it under $100. n

* Adapted from Charles Dickens, A Christmas Carol.

1 The Model Rule goes on to except a number of specific circumstances from this prohibition. For example, a lawyer may pay the usual charges of a not-for-profit lawyer referral service. This provision, formerly Model Rule 7.2(c), was amended and renumbered by the ABA House of Delegates in 2002.

2 2 Geoffrey C. Hazard & W. William Hodes, The Law of Lawyering ¤¤ 56.2 & 56.5 (4th ed. 2004) (noting that use of paid runners is a form of solicitation prohibited by Rules 7.3 and 8.4(a)).

3 Prior to 1985, Washington’s Code of Professional Responsibility provided that a lawyer “shall not compensate or give anything of value to a person or organization to recommend or secure his employment by a client, or as a reward for having made a recommendation resulting in his employment by a client.” Former Washington DR 2-103(B). Before that, the Washington’s Canons of Professional Ethics classified it as disreputable for a lawyer “to employ agents or runners” for the purpose of breeding litigation, or to “pay or reward, directly or indirectly, those who bring or influence the bringing of such cases to his office . . . .” Canon 28 (“Stirring Up Litigation, Directly or Through Agents”).

4 See, e.g., Walsh v. Brousseau, 62 Wn. App. 739, 815 P.2d 828 (1991) (clause in contract for sale of law practice in which seller agreed to “continue to make a positive effort to procure and assist in continuing business of the office” held contrary to RPC 7.2(c)). Such compensative arrangements may also violate prohibitions on fee splitting with nonlawyers and in-person solicitation. See WSBA Informal Ethics Opinion No. 1605 (1995) (employment of nonlawyer paid a base fee plus a percentage bonus based upon gross fees from clients generated would violate RPC 5.4(a) and RPC 7.2(c), and, if nonlawyer were soliciting clients who had no previous relationship with law firm, RPC 7.3 (a)).

5 See WSBA Informal Ethics Opinion 1816 (1998).

6 ABA Model Rule 7.2, Comment [5].

7 See WSBA Informal Ethics Opinion Nos. 1675 (1996) & 1276 (1989).

8 Fanciers of compound prepositions might classify this as a payment in regard to or in consequence of a referral.

9 The recommended version of Rule 7.2 differs from the Model Rule in certain respects not relevant to this article. The entirety of the Ethics 2003 Report and Recommendation is available at the WSBA website: http://www.wsba.org/lawyers/groups/ethics2003/default.htm. The Ethics 2003 recommendations, as modified by the WSBA Board of Governors, have been submitted to the Supreme Court. Should the Court approve the suggested amendments for publication, it is expected that they will be published as proposed rules in January 2005.

10 WSBA Informal Ethics Opinion No. 1535 (1993).

11 See Rules 1-320(B) and 2-200(B) of the Rules of Professional Conduct of the State Bar of California.

12 See Ariz. Ethics Op. 2002-01 (2002).

13 Phila. Ethics Op. 95-10 (1995) (recognizing that the nominal value of such gifts and gratuities supports the position that they are not being given for referrals); see also Pa. Informal Opinion No. 2002-103 (2002) (distinguishing between gifts given to lawyers and those given to nonlawyer clients; providing tickets to a sporting event or some other nominal gift to another lawyer who has referred business to the first lawyer is really in the nature of a business to business “gift,” and does “not seem to have the flavor of a quid pro quo that might raise the discomfort level a bit higher”).

14 Rhode Island Op. 89-05 (1989).