In Ethics Advisory Opinion 16-06, the SC Ethics Advisory Committee opined that lawyers cannot ethically participate into fixed-fee legal referral services like Avvo.
The Committee had been asked to opine on whether an arrangement in which an attorney participates in an internet advertising directory website like Avvo (“Service”) agreeing to offer flat fee services with the flat fee being set by the Service which makes the referral to the attorney and the attorney contacting the client. In the arrangement on which the Ethics Committee opined, the payment for the legal fees is handled by the Service, which transfers the funds to the lawyer only when the representation is completed. At the completion of the representation the Service charges the lawyer a “per service marketing fee” “which seems to be based upon the service provided”. SC Ethics Opinion 16-06.
The Committee concluded that:
The arrangement described herein violates the prohibition of sharing fees with a non-lawyer as described in Rule 5.4(a). In the alternative, assuming, for the purposes of this question only, that the arrangement does not violate Rule 5.4(a), the arrangement would violate the Rule 7.2(c) prohibition of paying for a referral and is not saved by the exceptions found in Rule 7.2(c)(1), (2), or (3).
Basically, in the Committee’s view, the arrangement violates either the prohibition on fee splitting with nonlawyers (SCRPC 5.4) or the advertising rules.
Avvo operates with a similar arrangement in 25 states. The Lawyer’s Weekly (Phillips Batz, Ethics Opinion scares lawyer in SC off Avvo, Lawyer Weekly, August 29, 2016 ) reports that Avvo’s chief legal officer said that as a consequence of the SC opinion, many SC lawyers dropped out from the arrangement so that offering the service in SC was no longer feasible. However, Avvo – whose position is that its marketing fee is no different than a credit card fee – plans to re-open the service as soon as possible, to meet the supposed legal needs of South Carolinians.
Similar opinions were issued in Ohio in June 2016 and in Pennsylvania in September 2016.
In Ohio Opinion 2016-3, the Board of Professional Conduct, concluded:
This business model presents multiple, potential ethical issues for lawyers. These include fee-splitting with nonlawyers, advertising and marketing, a lawyer’s responsibility for the actions of nonlawyer assistants, interference with the lawyer’s professional judgment, and facilitating the unauthorized practice of law. As similar online services that match lawyers and clients exist, the Board will evaluate this type of referral service generally to determine if a lawyer’s participation would comply with the Rules of Professional Conduct.
In PA 2016-200, Pennsylvania Bar Association, in a 14-page-long advisory opinion, concluded that
A lawyer who participates in a Flat Fee Limited Scope Legal Services referral program such as that described in this Opinion, in which the program operator collects “marketing fees” from that lawyer that vary based upon the legal fees collected by the lawyer, violates RPC 5.4(a)’s prohibition against sharing legal fees with a non-lawyer. In addition, under the procedures of the FFLS program described in this Opinion, the advance fees paid by the client remain in the possession of the non-lawyer program operator until the operator concludes that the requested legal services have been performed, at which time the operator deposits the funds into the lawyer’s operating account. Consequently, a lawyer who participates in such a program violates RPC 1.15(i), which requires advance fees to be deposited in the lawyer’s Trust Account.
The Pennsylvania Bar also opined that a lawyer participating in an arrangement like Avvo is also at risk to run afoul of several other rules: RPC 2.1 (independence of professional judgment), RPC 5.4(c) (prohibiting “a lawyer from allowing a person who recommends a lawyer to direct or regulate the lawyer’s professional judgment”), RPC 5.3(c)(1) (supervision of non-lawyers), RPC 8.4(a) (indirect violation of rules), RPC 1.16(d) (requiring refund of advance unearned payment of fees), RPC 1.2(c) (limitation of scope of representation), RPC 1.6(a) (confidentiality) and RPC 7.7(a) (acceptance of referrals from a lawyer referral service that engages in communications prohibited under the lawyer advertising rules). The Opinion also warns lawyers that participation in the program could also potentially result in assisting in the unauthorized practice of law (RPC 5.5(a).)
Comment [5] to ABA Model Rule 7.2, adopted based on the recommendations of the Commission 20/20, allows lawyers to pay for leads: “[A] lawyer may pay others for generating client leads, such as Internet-based client leads, as long as the lead generator does not recommend the lawyer, any payment to the lead generator is consistent with Rules 1.5(e) (division of fees) and 5.4 (professional independence of the lawyer), and the lead generator’s communications are consistent with Rule 7.1 (communications concerning a lawyer’s services”). Some (but not many) jurisdictions (for example Illinois) have adopted Comment [5] so that lawyers in those jurisdictions are allowed to pay the lead generator as an advertising cost. However, the arrangement with Avvo – as described at the start of this blog – is more than a payment for a lead.
While the Avvo arrangement might pass muster in those jurisdictions that have adopted ABA Comment [5] as a “lead generation”, if it would not involve the imposition of the fees by the Service and the possession of the fee by the Service until the end of the representation, I understand that these are fundamental aspects of the business model of the Service. Moreover, many other ethical issues (for example competency) remain with internet referral services. Avvo T&Cs — at least at a cursory review – fails to tackle the issues that make ethically improper for lawyers of many jurisdictions to participate into the program.
There might be ways of structuring fixed-fee services in a way that is consistent with the ethics rules of the several jurisdictions (so that the lawyers of those jurisdictions could ethically participate into the program and not just hope that the disciplinary authorities will just close their eyes to the violation); however, a deeper analysis of the rules (in light of the relevant case law and ethics opinions) should be done to that effect.
For more information, Nathan M. Crystal.