Category Archives: Non lawyer compensation

Proposed Virginia Bar ethics opinion finds that AVVO and similar lawyer matching services are unethical

Hello everyone and welcome to this Ethics Alert which will discuss the recent approval of a Virginia ethics opinion which finds that AVVO and similar matching services unethical.  Proposed Legal Ethics Opinion 1885 is here: http://www.vsb.org/site/regulation/leo_1885

On October 27, 2017, the Virginia State Bar voted to approve a draft ethics opinion regarding online attorney-client “matching services”, such as AVVO, which are called “attorney-client matching services” (ACMS),. The opinion finds that a lawyer’s participation in the matching services would violate the Virginia Rules of Professional Conduct.

The opinion does not name any specific services; however, the description of the is similar to the business model of Avvo Legal Services, which allows consumers to purchase legal services for a flat fee.  The opinion describes a business model that it calls an “attorney-client matching service” (ACMS), which it describes as a for-profit entity that provides an online platform for matching attorneys and clients.  An ACMS gives a client a limited scope fee agreement, and the client pays the full fee to the ACMS.

The lawyer does not negotiate the scope of services or the fee or receive any of the client’s money until the services have been performed. Under ACMS’s terms, the lawyer agrees to provide flat fee legal services.  When the matter is completed, the attorney receives the full amount of the legal fee paid by the client.  ACMS then debits the attorney’s account for a “marketing fee” which varies depending upon the amount of the legal fee received.

The opinion identifies five problems with the ACMS business model:

  1. The lawyer is not properly handling the client’s advanced fee because it is allowing a third party to hold the funds. Thus, the funds are not being held in an IOLTA account as required.
  2. Since the lawyer has no access to the client’s money until he is paid in full by the platform, he is unable to fulfill his obligation to refund any unearned fees at the conclusion of the matter.
  3. Without being in control of the definition of the scope of legal services or negotiation of the fee, the lawyer may well be undertaking representation which violates any number of ethics rules. The services may not be appropriate to the client. The fee may not be commensurate with the value of the services provided. The services may be inadequate for the client’s needs. And so on.
  4. The payment of the marketing fee to ACMS constitutes the sharing of legal fees with a non-lawyer.
  5. The payment of the marketing fee constitutes payment for recommending the lawyer’s services.

The opinion criticizes the fact that Avvo holds the fee between the time that the prospective client pays for the services until the lawyer completes the services and states that “the ACMS collects advanced legal fees from a prospective client before the prospective client has had any contact with the lawyer whom she might engage” and that this is a violation of the Bar rules which require that advance fees be held in an the lawyer’s trust account until services are completed.

Under lawyer trust account rules, unearned fees are to remain in trust. As an ACMS is not a law firm, it cannot have an IOTA trust account or hold client fees in trust. Since the fees are not paid to the lawyer, the lawyer is unable hold the funds in trust if same is required under the Bar rules. In addition, under the Bar rules, a lawyer has an to refund any unearned fees at the end of the representation.

The opinion also discusses some potential solutions to the problems with the current model.  Regarding the issue of the lawyer not having control over the fee and the scope of the representation, the opinion did not flatly state that lawyers are prohibited from participating in the ACMS model. It concluded that a lawyer could participate if the lawyer consults with the client and is satisfied that the services can be performed competently and in compliance with the ethical rules before accepting a matter.  The lawyer would also have to exercise independent professional judgment to insure that the fee is not unreasonable or excessive.

The opinion held that the arrangement results in unethical fee sharing with the matching service and “(t)he fact that the ACMS executes a separate electronic debit from the lawyer’s bank account for its ‘marketing fee’ following the firm’s electronic deposit of the full legal fee to the lawyer’s bank account does not change the ethically impermissible fee-sharing character of the transaction.”  The opinion left the possibility that fee splitting might be avoided if the lawyer’s fee was based upon the number of clients received through the platform or the number of inquiries or clicks on their profile.

Bottom line: If this opinion is approved by the Virginia Supreme Court, Virginia will join five other states, New York, New Jersey, Ohio, South Carolina, and Pennsylvania, in disapproving or criticizing the AVVO business model. The New York and New Jersey opinions, which were issued this year, determined that the “marketing fee” taken from the lawyer’s account involves improper fee splitting.

Be careful out there…and stay tuned.

Disclaimer:  this e-mail is not an advertisement, does not contain any legal advice, and does not create an attorney/client relationship 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.

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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New York ethics opinion finds that fees paid to Avvo for legal services violate referral, fee splitting, and advertising Bar Rules

Hello everyone and welcome to this Ethics Alert which will discuss recent (August 8, 2017) New York Ethics Opinion 1132 which found that lawyers in New York are prohibited from participating in AVVO’s client referral services.  This opinion found that the referral services violate the Bar rules since they involve improper “vouching for” (and recommendation of) the lawyer, improper lawyer referral fees, and fee sharing with a non-lawyer.

The companion New York Ethics Opinion 1131 (August 8, 2017) sets forth the structures of various web-based services and attempts to explain how those services could comply with the New York Bar Rules.  Both New York State Bar Ethics Opinions are here: http://www.nysba.org/EthicsOpinion1132/ and here: http://www.nysba.org/EthicsOpinion1131/ .

NYSBA Ethics Opinion 1132 states that, since Avvo Legal Services provides ratings of lawyers using the service based on various qualifiers such as years in practice, information provided by the lawyers, volunteer bar work and other publicly available information, and offers to find a client “the right” lawyer with a money-back guarantee, there is an implied recommendation as to the lawyer’s “credentials, abilities, competence, character, or other professional qualities”; therefore, the marketing fee is “an improper payment for a recommendation in violation the New York  Bar Rules.

The opinion also states that since “the Avvo website also extols the benefits of being able to work with highly rated lawyers,” it creates a reasonable impression that it is recommending its top-rated lawyers. and the satisfaction guarantee “also contributes to this impression.”

“Avvo is giving potential clients the impression that a lawyer with a rating of ‘10’ is ‘superb,’ and is thus a better lawyer for the client’s matter than a lawyer with a lower rating. Avvo is also giving potential clients the impression that Avvo’s eligibility requirements for lawyers who participate in Avvo Legal Services assure that participating lawyers are ‘highly qualified.’” The opinion states that Avvo Legal Services’ “satisfaction guarantee” also contributes to the impression that Avvo is recommending its lawyers’ services “because it stands behind them to the extent of refunding payment if the client is not satisfied.”

According to the opinion, Comment 1 of New York Rule 7.2 prohibits a lead generator not only from stating that it is recommending a lawyer, but also from implying or creating a reasonable impression that it is making such a recommendation.

NYSBA Ethics Opinion 1132 concludes:

“This opinion does not preclude a lawyer from advertising bona fide professional ratings generated by third parties in advertisements, and we recognize that a lawyer may pay another party (such as a magazine or website) to include those bona fide ratings in the lawyer’s advertisements. But Avvo Legal Services is different.  It is not a third party, but rather the very party that will benefit financially if potential clients hire the lawyers rated by Avvo.  Avvo markets the lawyers participating in the service offered under the Avvo brand, generates Avvo ratings that it uses in the advertising for the lawyers who participate in Avvo Legal Services, and effectively ‘vouches for’ each participating lawyer’s credentials, abilities, and competence by offering a full refund if the client is not satisfied. As noted earlier, Avvo says: ‘We stand behind our services and expect our clients to be 100% satisfied with their experience’” Accordingly, we conclude that lawyers who pay Avvo’s marketing fee are paying for a recommendation, and are thus violating Rule 7.2(a).”

NYSBA Ethics Opinion 1131 sets forth the structures of various web-based services and attempts to explain how those services could potentially comply with the New York Bar Rules.  That opinion concludes:

“A lawyer may pay a for-profit service for leads to potential clients obtained via a website on which potential clients provide contact information and agree to be contacted by a participating lawyer, as long as (i) the lawyer who contacts the potential client has been selected by transparent and mechanical methods that do not purport to be based on an analysis of the potential client’s legal problem or the qualifications of the selected lawyer to handle that problem; (ii) the service does not explicitly or implicitly recommend any lawyer, and (iii) the website of the service complies with the requirements of Rule 7.1.  A lawyer who purchases such a lead to a potential client may ethically telephone that potential client if the potential client has invited the lawyer selected by the service to make contact by telephone.”

The opinions also briefly discuss the potential confidentiality issues related to AVVO’s “money back guarantee”.

Bottom line:  New York has now joined the list of jurisdictions finding that Avvo’s “marketing fee” taken from fees paid to lawyers using its client generation services violate ethics rules and are impermissible referral fees.  This New York ethics opinion (like all ethics opinions) is advisory only; however, it is the most recent finding that the fee charges in AVVO’s plan constitute improper referral fees and fee sharing.  Other jurisdictions (such as a pending North Carolina opinion) may also publish ethics opinions in the future.  Stay tuned…

…and be careful out there.

Disclaimer:  this e-mail is not an advertisement, does not contain any legal advice, and does not create an attorney/client relationship 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.

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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Ethical issues and requirements for lawyers in compensating nonlawyer employees

Hello everyone and welcome to this Ethics Alert which will discuss the ethical considerations for lawyers when compensating non-lawyer employees.  State Bar disciplinary rules, including Florida Bar Rule 4-5.4(a), prohibit lawyers from sharing legal fees with nonlawyers.  The Comment to the Florida Bar Rule states, “The provisions of this rule express traditional limitations on sharing fees.  These limitations are to protect the lawyer’s professional independence of judgment….”  Notwithstanding this prohibition, the Bar rules provide for exceptions.

Florida Bar Rule 4-5.4(a)(4) states that “bonuses may be paid to nonlawyer employees for work performed, and may be based on their extraordinary efforts on a particular case or over a specified time period. Bonus payments shall not be based on cases or clients brought to the lawyer or law firm by the actions of the nonlawyer. A lawyer shall not provide a bonus payment that is calculated as a percentage of legal fees received by the lawyer or law firm…”

In Florida Bar Ethics Op. 02-1 (1/11/02), the lawyer requested an ethics opinion regarding the following question:  “May I bonus a non-lawyer employee based on the number of hours the non-lawyer employee has worked on a case for a particular client?”  The lawyer stated that “I would like to bonus my employees based on their own productivity. I would not be utilizing any portion of the fees received by me for that purpose.”

The opinion concluded:

“Based on the rules and opinion, the inquiring attorney may pay the legal assistant a bonus based on the legal assistant’s extraordinary efforts on a particular case or over a specific period of time. While the number of hours the legal assistant works on a particular case or over a specific period of time is one of several factors that can be considered in determining a bonus for the legal assistant, it is not the sole factor to be considered. It must be remembered that the rule allows a bonus to be paid to a nonlawyer based on “extraordinary efforts” either in a particular case or over a specific time period. A bonus which is solely calculated on the number of hours incurred by the legal assistant on the matter is tantamount to a finding that every single hour incurred was an “extraordinary effort”, and such a finding is very unlikely to be true. Therefore, unless every single hour incurred by the legal assistant was a truly extraordinary effort, it would be impermissible for the inquiring attorney to pay a bonus to his legal assistant calculated in the manner the inquiring attorney has proposed. However, the number of hours incurred by the legal assistant on the particular matter or over a specified time period may be considered by the lawyer as one of the factors in determining the legal assistant’s bonus.” (emphasis added). 

Florida Bar Rule 4-5.4 (b) – Qualified Pension Plans, states that a “lawyer or law firm may include nonlawyer employees in a qualified pension, profit-sharing, or retirement plan, even though the lawyer’s or law firm’s contribution to the plan is based in whole or in part on a profit-sharing arrangement.”

ABA Model Rule 5.4(a)(3) states that: “A lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit sharing arrangement…”  ABA Informal Opinion 1440 also states that a compensation plan proposed for an office administrator which relates to the net profits and business performance of the firm and not to the receipt of particular fees does not violate the model rules.

Other state bar opinions address when nonlawyers can participate in such compensation plans.  New York State Bar Assoc. Ethics Op. 887 (2011) states that a law firm may pay a marketing employee a bonus based on the firm’s profits, the profits of a department, or as a percentage of the marketer’s salary; however, the bonus cannot be based on referrals of specific legal matters or on firm profits that come from cases that the marketer brought to the firm.  District of Columbia Ethics Op. 322 (2004) states that a nonlawyer employee may not be paid a bonus based on fees the firm receives from a specific case or series of related cases, but may be paid a bonus contingent upon the firm’s overall profitability.

Unless there is an exception, lawyers are prohibited from paying nonlawyers a bonus that is based on the referral of specific clients to the firm.  Florida Bar Rule 4-1.17(b) -Payment for Referrals- states that a lawyer “may not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may pay the reasonable cost of advertising permitted by these rules, may pay the usual charges of a lawyer referral service, lawyer directory or other legal service organization, and may purchase a law practice in accordance with rule 4-1.17.”

A lawyer cannot circumvent the Rule by providing non-monetary “gifts” to nonlawyer employees.  Such gifts would most likely be considered to be something “of value” under Florida Bar Rule 4-1.17(b) and would therefore by prohibited under that rule as well. The key issue is whether something “of value” is exchanged for future referrals.

Examples include: Maryland Ethics Op. 2000-35 (2001)- lawyers who participate as panelists in seminars offered by accounting and financial services company, in exchange for referrals, could be interpreted as giving “something of value” to accounting firm; Pennsylvania Bar Association in Op. 2005-81- a lawyer may not give a nonlawyer employee a paid day off for referring a new client to the firm; and Connecticut Informal Ethics Op. 92-24 (1992)- a lawyer may not give indirect benefits, including gifts, to a client who made referrals to a lawyer.

Bottom line:  Lawyers must be aware of the Bar rules governing compensation to non-lawyers in order to fully comply with the rules and avoid an unintentional failure to comply.

Disclaimer:  this e-mail is not an advertisement, does not contain any legal advice, and does not create an attorney/client relationship 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.

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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