Some members of the Colorado Supreme Court appeared wary last week of repealing the prohibition on attorneys receiving referral fees of any kind, with opponents warning it could give rise to an industry consisting solely of middlemen and supporters maintaining the change would lead to better outcomes for clients.

However, during the May 7 hearing, one of the leaders behind the proposal testified the intent behind the change was far narrower than what either its critics or its backers had in mind.

“If you think about a rule that say all referral fees are prohibited, that’s a very, very broad rule. It doesn’t take a lot of imagination to realize that covers a whole lot of ground that I don’t think it was ever intended to cover,” said attorney Alec Rothrock, chair of the subcommittee behind the rule change.

The justices heard Colorado is one of only two states — Louisiana being the other — that completely prohibits lawyers from receiving compensation in exchange for referring people to others for services. The proposed change, recommended unanimously by the Supreme Court’s committee on the rules of professional conduct, would delete that prohibition. It would clarify attorneys may not receive payment for referring a client to a third party for nonlegal services but can, however, receive compensation for referrals outside an attorney-client relationship.

“Prohibiting referral fees could, in its broadest sense, prohibit lawyers from receiving all kinds of referral fees that have absolutely nothing to do with the practice of law. You belong to a gym. You refer a customer to us and we’ll give you one month free. The lawyer is receiving a referral fee,” said Rothrock. “Why shouldn’t a lawyer be able to receive a referral fee for referring somebody, a friend, to an investment advisor and getting a referral fee back?”

Of the multiple comments the Supreme Court received prior to the hearing, all addressed a completely different dynamic that could arise from ending the blanket prohibition on referral fees: Lawyers sending personal injury cases to other lawyers and pocketing some of the eventual monetary judgement.

“If this change takes place, there will be a huge increase in ‘advertising lawyers’ who will seek only to sign up clients for the sole purpose of selling their cases to a different lawyer for the highest price,” attorney David Crough wrote to the court. “These ‘advertising lawyers’ won’t be providing real legal services, but instead acting as middlemen for their own personal profit.”

Justice Richard L. Gabriel indicated he was skeptical of changing anything, given the potential effects the pursuit of referral fees would have on the legal profession.

“I worry that that situation will create a new cottage industry of client brokers. There will be the lawyer who just puts it on there, ‘We’ll take any kind of case,’ to make money from the referral fees. That strikes me as the antithesis of professionalism,” he said.

Defending the concept of referral fees was personal injury attorney Kevin Cheney. He acknowledged there could be a rise in middlemen who seek to draw in clients, only to refer them to other firms and pocket the fee.

But Cheney argued referral fees would ultimately benefit the public by providing an incentive for law firms to connect personal injury clients to more knowledgeable practitioners, rather than attempting to handle a case for which they have little experience or without formally becoming co-counsel.

“Right now, there are too many lawyers handling cases, especially in the personal injury world, that they shouldn’t because those cases are very profitable and can be very supplemental to their income. So, a criminal defense lawyer keeps a personal injury case that they have no business handling because if they refer it out, they have no ability to make money in that situation,” he said.

“Your view,” said Justice Carlos A. Samour Jr., “is that under the rule being proposed, the attorney in your hypothetical would say, ‘I’m not experienced enough to take this case. This looks like a money maker but I’m just not up to it. So, I’m going to refer it and make money that way?'”

Yes, Cheney responded, and the money that small firms receive from referring cases could help keep them afloat.

Rothrock emphasized that other rules of conduct would still preclude a lawyer from referring a case, having no responsibility for what happens and simply collecting a fee at the end. Both sets of attorneys would be liable for any accusations of malpractice, retain ethical responsibilities to the client and, he said, would need to “know what’s going on.”

“The referring lawyer still has skin in the game,” observed Justice William W. Hood III.

Cheney remarked that he receives calls from out-of-state law firms seeking to refer cases, but they go elsewhere when they learn about Colorado’s prohibition on referral fees. He said he suspected some Colorado firms are “more aggressive” in taking those referrals than the current rules allow. Chief Justice Brian D. Boatright wondered if ending the prohibition on paper would be a significant change in practice.

“Is this going on no matter what?” he asked. “Are we just trying to recognize the practice of this, rather than sort of this subterfuge that’s going on?”