TX: Underlying referral of a personal injury case to another law firm
Student Contributor: Anna Ford (J.D. ( 2011) Texas Tech University School of Law; B.B.A. (2008) Emory University)
FACTS: After a helicopter crash, James Chang, an associate with the firm of Brewer & Pritchard, recommended that the firm take the personal injury cases for the victims of the crash. Chang personally knew one of the victims, Herbert King, because he was Chang’s close friend’s father. After a partner at the firm recommended that the case be referred to another firm, Chang scheduled a meeting for King with Nick Johnson, a personal injury lawyer and close friend of Chang’s. Johnson referred the case to the firm of Jamail & Kolius, who made an agreement to pay Johnson a referral fee. A year after the case settled, Chang and Johnson formed a partnership together. Chang never told his employer about the referral but defendants’ facts support their contention that Chang did not receive any compensation as a result of the King suit or Johnson’s referral to Jamail & Kolius. Thereafter, the firm sued its former associate, Chang, and Johnson, alleging breach of fiduciary duty, actual and constructive fraud, conversion, and negligence.
The district court entered summary judgment for defendants on all causes of action. The appellate court reversed and remanded the breach of fiduciary duty and constructive fraud causes of action against both defendants and affirmed the remaining causes of action. The Supreme Court affirmed the appellate court’s holding, disagreeing with its reasoning.
On appeal, the firm asserts that Chang had breached a fiduciary duty that he owed to the firm and that Johnson had knowingly assisted Chang in committing that breach. The firm contends that Chang violated the policies in place forbidding associates to refer cases without securing a referral fee for Brewer & Pritchard.
Defendants argue that as a matter of law Chang owed no fiduciary duty to plaintiff, mainly because there was no employment agreement to that effect.
ISSUE: Does an associate of a law firm breach a fiduciary duty to his employer when gainfully referring a matter to another firm or lawyer without the employer’s permission?
RULING: Yes. The associate owes a fiduciary duty to his employer not to personally profit or realize any gain or advantage from referring a matter to another law firm or lawyer, absent the employer’s agreement otherwise. However,
“an associate may participate in referring a client or potential client to a lawyer or firm other than his … employer without violating a fiduciary duty to that employer as long as the associate receives no benefit, compensation, or other gain as a result of the referral.”
LESSON: The employee of a law firm should not profit from a referral to another firm or lawyer without the consent of his employer. The employee should disclose to his employer when he has referred a case to another lawyer or firm. A lawyer should not share a fee with a lawyer who is not in the same firm without permission of his client.