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Shabbat Parashat Teruma 5783

P'ninat Mishpat: Continued Referral Fee between Former Partners?

(based on ruling 82001 of the Eretz Hemdah-Gazit Rabbinical Courts)

Case: The plaintiff (=pl) and the three defendants (=def1, def2, def3) were partners in a law firm. According to their partnership agreement, any of them who referred a client to another of them would get 15% of the case’s fees, minus expenses. After some time, pl left the firm. A lawyer (=lyr) helped them arrive at an agreement of dissolution of pl’s part. Pl received a sum of money to cover all of his rights. Nevertheless, par. 6 spoke of the continuation of referral payment. Pl claims that there are referrals def got and did not yet pay for. Pl also says it is standard to receive 30% for referrals. Lyr has referred clients, and during the partnership, pl was credited for this. Pl wants this to continue, whereas def claims that based on discussion with lyr, they realize it was a mistake to relate his help to pl. The client AZ signed with def after pl left, but pl claims that he deserves credit because it was based on his work prior to leaving. Def claim that from whatever pl is awarded, expenses should be subtracted, as usual. Pl argues that the new agreement does not mention expenses. Also, def2 counterclaims that pl owes him 50,000 NIS for an investment he found for pl, as pl agreed to pay 1%. Pl denies such an agreement.   


Ruling: According to the Israel Bar Association (=IBA), there is a referral fee only if called for in an explicit agreement, which existed here from the outset. The updated (dissolution) agreement contains an apparent contradiction. Par. 4 states that referral fees were covered by the lump-sum payment. Par. 6 says that pl will continue to receive referral fees. We understand that par. 4 refers to fees that were received before the dissolution agreement, and par. 6 refers to client fees received after the agreement.

There is no indication from the dissolution agreement about clients who engaged the firm after the dissolution. Therefore we follow the original agreement, which indicates that pl gets a share. This applies to clients who continued to come through lyr. Because the obligation continues based on agreement rather than standard practice, the fee remains 15%, as the dissolution agreement does not change the rate.

IBA’s rules disallow receiving a referral fee if the referring lawyer is unable to take the case. Pl admitted that a conflict of interest prevented him from taking AZ as a client. We must assume that the sides did not intend to a payment against the IBA’s ethics rule. Therefore, pl will not receive a fee for AZ.

Since the dissolution agreement does not address subtracting expenses, def has the right to it based on the original agreement. However, based on the complicated mode of calculation, this is a minor amount of money.

Def2 has no proof for his counterclaim. The question is who is extracting money from whom, as pl demands money from def2 and the counterclaim is reason not to pay, making def2 in possession (see Shulchan Aruch, Choshen Mishpat 75:7). However, that is true when the defendant could have claimed that there is no basis for the claim or that he paid (Shach ad loc.); however, def could not make either of these claims against pl’s claims. Therefore, we view the counterclaim separately, so that it is mainly not accepted. Def2’s counterclaim is only accepted partially, corresponding to the reduction due to pl’s obligation to swear he did not promise def2 a finder’s fee.

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