Hello and welcome to this Ethics Alert blog which will discuss the recent American Bar Association formal ethics opinion which states that lawyers may market using Groupon type websites; however, there are “numerous difficult issues associated with prepaid deals, especially how to properly manage payment of advance legal fees”. The opinion is ABA Formal Opinion 465 (October 21, 2013). The ethics opinion is attached and is also here: http://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/formal_opinion_465.authcheckdam.pdf
The opinion does not specifically mention the Groupon website except in a footnote referencing a state bar opinion (Alabama State Bar, Formal Op. 2012-01 (2012)); however, the opinion describes arrangements that are similar to Groupon which include “daily deals” that are advertised on a website and consumers who want deal notifications can sign up to receive them in e-mails. After a certain number of people purchase a “deal”, the marketing organization and the business share the proceeds. The buyers get a voucher, code or coupon.
The ethics opinion says these “Deal-of-the-day or group-coupon marketing programs” are structured in two ways. In a “coupon deal”, a lawyer would sell a coupon for a 50 percent discount for a certain number of hours of legal services. In a “prepaid deal”, a lawyer would charge a certain reduced amount for up to a certain number of hours of legal services, which would be double the value of the amount paid. The payments are collected by the marketing organization and this “prepaid” structure is what primarily concerns the ABA Standing Committee in the formal opinion.
According to the ABA opinion, “(t)he committee believes that coupon deals can be structured to comply with the Model Rules. The committee has identified numerous difficult issues associated with prepaid deals, especially how to properly manage payment of advance legal fees, and (the committee) is less certain that prepaid deals can be structured to comply with all ethical and professional obligations under the Model Rules.”
The opinion states that the reason that “coupon deals” may be structured to comply with the ethics rules is the fact that no legal fees are paid unless a lawyer/client relationship is established, after which time is spent and the discounted fees are collected. According to the opinion, the aggregate amount collected from coupon sales may be deposited into a lawyer’s general account. The opinion states that, conversely, the funds collected in “prepaid deals” amounts to advance legal fees that must be identified by purchaser name and deposited into a trust account. The lawyer would therefore be required to obtain sufficient information about the prepaid deal buyers to comply.
Some other questions included what the lawyer must do if a deal is purchased and never used. The opinions states that the lawyer can retain the funds from a coupon deal as long as the offer explains there will be no refunds; however, the funds collected in a prepaid deal most likely will need to be refunded to prevent the fee from becoming unreasonable/excessive under the ABA Model Rules.
In addition, if a lawyer is unable perform legal services because of a conflict of interest or other ethical restriction, the lawyer must provide a full refund to the buyer, even if the deal is structured as a coupon. If that happens, the lawyer must refund the full amount paid by the buyer, including the funds retained by the marketing organization. According to the opinion, this is based on “the fact that it would be unreasonable to withhold any portion of the amount paid by the purchaser if the lawyer is precluded from providing the proffered services through no fault of the purchaser.”
The opinion noted several other ethical issues, including the duty of the lawyer to insure that the marketing statements are accurate. The scope of services offered must also be clearly defined and the circumstances for refunds fully described, the opinion says. Finally, the advertising should state that a client-lawyer relationship will not exist until the consultation takes place.
There is no Florida ethics opinion on Groupon type marketing; however, I have previously blogged about the recent Indiana ethics opinion (Indiana State Bar Ass’n Legal Ethics Comm., Advisory Op. 1 (2012)) which addressed this type of marketing. The Indiana opinion reached virtually the same conclusions as the ABA opinion and stated that this type of marketing is “fraught with peril.”
Bottom line: It is clear that lawyers who wish to participate in this marketing must be very wary of the numerous ethical “perils”.
Let’s be careful out there!
Disclaimer: this blog is not an advertisement and does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.
Joseph A. Corsmeier, Esquire
Law Office of Joseph A. Corsmeier, P.A.
2454 McMullen Booth Road, Suite 431
Clearwater, Florida 33759
Office (727) 799-1688
Fax (727) 799-1670