Be Careful When Accepting Referral Work

August 8, 2013

New attorneys starting out as sole practitioners often try to hook up with other lawyers to bring in new work.  For example, as a new lawyer interested in helping clients start new businesses you might approach a small firm that specializes in litigation and ask them if they could refer clients who also have questions about forming a corporation or limited liability company.  All of this sounds great; however, you need to get the basics right to be sure that you get paid and that your relationship with the referring firm is clear and professional.  Recently I observed a situation where a new lawyer agreed to help the client of another firm with a securities matter but failed to get an engagement letter (and retainer) directly from the client.  The new lawyer relied on the referring firm to bill the client and, predictably, when the time for payment came around things turned out badly for everyone.  First of all, the bill sent to the client included work done by both firms and when the client only paid part of the bill our new lawyer ended up getting far less than she expected for her work.  Second, when the client balked at paying the remainder of the bill since it was no longer interested in pursuing the securities matter the referring firm refused to aggressively pursue payment lest it lose litigation business from the client.  Now it looks like the new attorney will have to simply write off the remaining time.  What’s the lesson here?  Well, apart from pick your “friends”, or “referral partners”, carefully, new attorneys need to insist on engagement letters with clients referred by other firms and then establish clear guidelines with the referring firm about managing the client relationship.  Law schools don’t do a good job in teaching new lawyers about setting up new client relationships and this means you should study the resources available from local and state bar associations as well as our Beyond the Bar video program on The Attorney-Client Relationship: The Key to Long-Term Success as a Business Counselor.