Category Archives: Lawyer sharing fees with non-lawyers

South Carolina ethics advisory opinion states that matching legal services such as those offered by Avvo are prohibited

Hello everyone and welcome to this Ethics Alert which will discuss the recent South Carolina ethics advisory opinion which states that marketing fees to non-lawyer companies collected as part of legal fees are prohibited.  The advisory opinion is here: http://www.scbar.org/Bar-Members/Ethics-Advisory-Opinions/Opinion-View/ArticleId/2455/Ethics-Advisory-Opinion-16-06

The July 14, 2016 ethics advisory opinion discusses a marketing program and fee arrangement similar to the one used by Avvo Legal Services.  Avvo states that the service matches lawyers willing to provide specific legal services to clients who pay a fee to Avvo, which includes a marketing fee.  Lawyers who participate then receive earned fees from Avvo once a month and Avvo takes its marketing fee from the lawyers in a separate transaction.

The South Carolina advisory opinion states that this type of fee arrangement/program constitutes improper fee sharing with non-lawyers, and, in the alternative, constitutes improper payment of a referral fee to a non-lawyer, which is also prohibited.

According to the opinion, “In the situation described above, the service collects the entire fee and transmits it to the attorney at the conclusion of the case. In a separate transaction, the service receives a fee for its efforts, which is apparently directly related to the amount of the fee earned in the case. The fact that there is a separate transaction in which the service is paid does not mean that the arrangement is not fee splitting as described in the Rules of Professional Conduct.”

“A lawyer cannot do indirectly what would be prohibited if done directly. Allowing the service to indirectly take a portion of the attorney’s fee by disguising it in two separate transactions does not negate the fact that the service is claiming a certain portion of the fee earned by the lawyer as its ‘per service marketing fee.’”

The opinion also states that marketing fees must represent the reasonable cost of the service, and these fees do not meet that criteria.  “Presumably, it does not cost the service any more to advertise online for a family law matter than for the preparation of corporate documents. There does not seem to be any rational basis for charging the attorney more for the advertising services of one type of case versus another.”

“The service, however, purports to charge the lawyer a fee based on the type of service the lawyer has performed rather than a fixed fee for the advertisement, or a fee per inquiry or “click.” In essence, the service’ s charges amount to a contingency advertising fee arrangement rather than a cost that can be assessed for reasonableness by looking at market rate or comparable services.”

Avvo representatives have previously stated that their “matching services” fee arrangement does not violate lawyer disciplinary rules.  I discussed Avvo’s program in my January 15, 2015 Ethics Alert, which is here:  https://jcorsmeier.wordpress.com/2016/01/25/lawyer-directory-website-avvo-is-offering-fixed-fee-legal-services-on-a-limited-basis-and-plans-to-expand-the-services/

An online FAQ about the legal services program on Avvo’s website states that “(l)ocal clients purchase legal services, choose the attorney they want to work with, and pay the full price of the service up front. The chosen attorney then completes the service for the client and is paid the full legal fee. As a separate transaction, the chosen attorney pays a per-service marketing fee for the completed, paid service.”

Avvo General Counsel Josh King also stated in the FAQ that Avvo is not acting as a lawyer referral service and that lawyers should not be concerned about fee splitting since “(f)ee splits are not inherently unethical.  They only become a problem if the split creates a situation that may compromise a lawyer’s professional independence of judgment.  We believe that Avvo Legal Services fees, like credit card fees, would involve the sort of technical fee split that would not create such a potential for compromise.  Nonetheless, we have tried to keep things simple and clear by making the per-service marketing fee a separate charge.”

Bottom line:  The South Carolina ethics advisory opinion makes it clear that Avvo’s (and other similar) “matching service” arrangements constitute improper fee splitting and improper referral fees.  Lawyers who are interested in participating should carefully review their jurisdiction’s Bar rules and/or consult with and consult their Bar or consult with a lawyer familiar with their jurisdictions Bar rules before considering participation in the service.

Disclaimer:  this Ethics Alert 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.

Please note:  Effective June 27, 2016, my new office address is:

29605 U.S. Highway 19 N., Suite 150, Clearwater, Florida 33761

E-mail addresses and telephone numbers below will remain the same. 

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

29605 U.S. Highway 19 N., Suite 150,

Clearwater, Florida 33761

Office (727) 799-1688

Fax     (727) 799-1670

jcorsmeier@jac-law.com

www.jac-law.com

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Filed under Attorney discipline, Attorney Ethics, Avvo legal services, joe corsmeier, Joseph Corsmeier, Lawyer ethics, Lawyer Ethics and Professionalism, Lawyer ethics opinions, Lawyer improper referral fees and fee splitting, Lawyer matching services Avvo, Lawyer referral fees, Lawyer Referral Services, Lawyer sharing fees with non-lawyers

Indiana Bar Ethics Opinion warns that lawyer participation in group coupon programs as a marketing tool may be unethical

Hello and welcome to this JACPA Ethics Alert blog which will discuss the recent Indiana State Bar Association Ethics Opinion which states that a lawyers’ use of group coupon or daily deal programs to obtain new clients is “fraught with peril” and most likely violates Indiana Bar Rules.  The opinion is Indiana State Bar Association Legal Ethics Comm., Op. 1, 2012-JDH-1.  A copy of the opinion is attached.

The opinion addresses lawyers’ participation in the escalating industry of marketing through group coupon or daily deal arrangements (such as Groupon) and notes that in these arrangements the group coupon company and the participating business establish a discounted price for the item or service to be sold and then share that price.  The company charges the customers for the coupon only after a certain number of people respond to the offer and also, some customers who purchase coupons do not redeem them within the time period stated in the offer.

Indiana Bar Rule 2.1 requires a lawyer to exercise independent professional judgment in representing a client and the opinion notes that this standard is difficult (if not impossible) to meet if the representation of a client is determined by the potential client’s decision to purchase a coupon without any consultation.

The opinion also notes that Indiana’s guidelines on use of non-lawyer assistants provide that the creation of an attorney-client relationship is the nontransferable duty of the lawyer and a lawyer may not delegate to a non-lawyer assistant the responsibility for establishing an attorney-client relationship, which would occur of the company offers the coupons.

Indiana Bar Rule 5.4 also prohibits fee-sharing with non-lawyers in most circumstances, and Comment (4) to Indiana Bar Rule 7.2 states that lawyers are not permitted to pay others “for channeling professional work” (i.e. referrals).  By creating buying groups, the companies offering group coupon arrangements “are being paid to channel buyers of legal work to the specific lawyer, in violation of the advertising and fee-sharing rules.”

In addition, under Indiana Bar Rule 1.7, a lawyer is required to insure there are no conflicts of interest or any conflicts are resolved before undertaking the representation and, if any conflicts are not resolved before the representation begins, the lawyer is required to terminate the representation and return any fees paid.

According to the opinion, the coupon users might qualify as prospective clients under Indiana Bar Rule 1.18 if they deposit money with a group coupon company for the purpose of forming an attorney-client relationship and, if that occurred, lawyers would be required to meet the rule’s obligations regarding confidentiality and avoiding conflicts of interest.

The opinion found it “troubling” that group coupon companies hold funds paid by clients until the funds are disbursed to the lawyer and that some companies pay out the funds over time in incremental amounts.  This arrangement would violate Indiana Bar Rule 1.15(c), which requires that advance fees must be held in trust and withdrawn only when earned.  In addition, the client’s funds are most likely not segregated and complete trust records are not maintained as required by Indiana Bar Rule 1.15(a). The provision in some of the group coupon contracts that the funds remain the property of the company also violates Indiana Bar Rule 1.15.

The opinion also expressed concern that if consumers who purchase coupons are not ultimately represented by the lawyer, the participating lawyer would not be able to comply with Indiana Bar Rule 1.16(a), which requires a lawyer to refund any advance fees which have not been earned.  In addition,  the lawyer would not be able to timely identify each individual who bought a coupon but did not become clients and refund the entire amount paid to the client, including the company’s share, which is required by the Indiana Bar Rules.

Although Indiana Bar Rule 7.2(b)(1) allows a lawyer to pay the reasonable costs of advertisements, the group coupons used by some companies violate that rule since the company keeps as much as 50% of the amount collected, instead of allocating an amount related to the reasonable costs of the advertising.

The opinion suggests that online coupon advertising arrangements may be permissible under certain limited circumstances, for example, if the lawyer offers a coupon for legal services at a specified rate, with the client to pay the lawyer directly.  If the client paid a nominal fee for this coupon related to the reasonable costs of the marketing, this arrangement would not violate the Indiana Bar Rules.

According to the opinion, a few states have examined this issue and “(t)he reports are that they have considered different aspects of the program as important and have disagreed as to the propriety of such programs.”  The opinion refers to ethics opinions from Missouri, New York, North Carolina, and South Carolina.

The opinion concluded that “it is likely not appropriate for a lawyer licensed in Indiana to advertise through a group coupon program” similar to those discussed in the opinion and lawyers considering such an arrangement should do “rigorous research before entering into such an arrangement” and may even want to hire private counsel to “guide the lawyer through the dangers inherent in such marketing, including discussion of alternative courses of action that may comply with the rules.”

Bottom line: The Florida Bar’s Professional Ethics Committee has not issued an ethics opinion on this issue; however, this Indiana ethics opinion makes it very clear that, at least in Indiana, lawyers must be aware that unless the group coupon program avoids the minefields set out in the opinion, a lawyer who participates would potentially violate the Indiana Bar Rules and be subject to disciplinary consequences.

Be careful out there!

As always, if you have any questions about this Ethics Alert or need assistance, analysis, and guidance regarding these or any other ethics, risk management, or other issues, please do not hesitate to contact me.

THE LAW OFFICE OF JOSEPH A. CORSMEIER, P.A.

PROVIDES ETHICS ADVICE AND EXPERT OPINIONS TO LAWYERS AND LAW FIRMS

DEFENDS LAWYERS IN BAR MISSION AND DISCIPLINE CASES

(AND MUCH MORE!)

My law firm focuses on review, analysis, and interpretation of the Rules Regulating The Florida Bar, advice and representation of lawyers in Bar disciplinary matters, defense of applicants for admission to The Florida Bar before the Board of Bar Examiners, defense of all Florida licensed professionals in discipline and admission matters before all state agencies and boards, expert ethics opinions, and practice management for lawyers and law firms.  If there is a lawyer or other Florida professional license involved, I can defend the complaint or help you get your license.

If you have any questions or comments, please call me at (727) 799-1688 or e-mail me at jcorsmeier@jac-law.com.  You can find my law firm on the web at www.jac-law.com. In addition to handling individual cases, matters, problems and issues for my clients, I also am on retainer to provide ethics advice to numerous lawyers and law firms throughout the state of Florida.  I also provide legal assistance and advice to numerous individuals and non-legal entities to help insure compliance with the law and rules related to UPL and other issues.

Disclaimer:  this e-mail 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

jcorsmeier@jac-law.com

www.jac-law.com

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