Ethics Opinon 1989-2

I
QUESTION PRESENTED

An attorney has been retained to represent an executor in the probate of an estate. The attorney is or will be compensated according to statutorily determined probate fees.

Part of the probate estate includes real property which the attorney is instructed to sell. As a result, the attorney contacts a real estate broker to list the property for sale. However, the attorney demands that the broker pay the attorney a "referral" fee in return for the attorney's agreement to retain the broker. The broker's fee to the attorney is not disclosed to the executor or the court.

1. May the attorney ethically demand the payment of the referral fee by the broker as a prerequisite to retention of the broker?

2. To what extent is the attorney's receipt of a referral fee affected by disclosure of the fee to either the executor or the court?

II
SUMMARY

1. No. The demand raises an unavoidable conflict of interest between the lawyer and his client.

2. Acceptance and disclosure of a referral fee does not cure the conflict and is not the proper procedure to be paid for these services. The proper procedure is an application to the court under Probate Code sec. 902 for additional compensation for extraordinary services. Any "referral fee" should become an estate asset, even in the situation where the fee to the estate is not increased, any amount that the broker rebates to the attorney should become an estate asset.

III
DISCUSSION

An attorney has a duty of undivided loyalty to his client. That duty is breached in the situation described above.

Rule 1-320(B) (formerly Rule 3-102(B)) of the California Rules of Professional Conduct prohibits an attorney from paying anything of value to obtain clients. The situation presented "is the obverse of that prohibited by Rule 3-120(B) and presents the potential of an even more direct ethical conflict." L.A.C.B.A. Formal Opinion 443 (attorney may not accept compensation for referring client to doctor for medical services).

Rule 1-320(B) protects the person seeking legal help by removing others' incentive to guide that person, not to the most competent lawyer, but to the highest bidder. See, Linnick v. State Bar 62 Cal.2d 17, 21 (1964) (person paid the referral fee "may not keep the best interests of the client paramount when he profits from his referral").

In the situation presented, the lawyer may be more concerned about recovering an attractive referral fee than obtaining the most competent broker and highest price for the property. The demand, therefore, is unacceptable.

Disclosure and written consent by the client (per Rule 3-300) does not cure the abuse. Mere disclosure to the client circumvents the probate court's authority to compensate the attorney for his or her beneficial actions.

If an attorney does perform extraordinary services on behalf of the executor he or she should apply for compensation under California Probate Code sec. 902:

Such further allowances may be made as the court may deem just and reasonable for any extraordinary services, such as sales . . . of real . . . property . . . .

All interests are safeguarded by such an application. Further, it can be an abuse of discretion for a trial court to deny warranted extraordinary fees to an executor's attorney. Estate of Schuster 163 Cal.App. 337 (1984).

This opinion should not be construed to prevent an executor's attorney from applying for additional fees or negotiating a lower broker's commission with the broker prior to employment. Any decrease in the commission or any rebate back, however, should be an estate asset and any additional attorney fees should be received only after application and award.

This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees, or the San Diego County Bar Association, or its agents, employees, or members.

 

Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.