You are eager to grow your law practice and are considering signing up with an Internet-based marketing company for attorneys named Fast Affordable Lawyers, Inc. (FAL1). You notice an ad from FAL offering local clients limited scope legal services. These services are provided by local attorneys at a fixed fee set by FAL. FAL advertises all clients will receive a 30-minute telephone consultation from an attorney.
If you sign up with FAL, you may only offer the services it lists, although you may choose which service(s) to offer. A client pays FAL in advance for the service(s) to be provided, then selects a local attorney to do the work. If you are the lawyer chosen, you contact the client for a 30-minute consultation. After you agree to represent the client, FAL will deposit the client’s full payment into your bank account upon completion of the service(s). In a separate transaction, FAL will also withdraw a pre-approved, per-service “marketing fee” from the same account. This payment arrangement is presumably intended to comply with Rule 1-320 of the California Rules of Professional Conduct, which governs the sharing of legal fees with non-lawyers.
Internet-based marketing services for lawyers are increasingly common and raise a number of significant ethical considerations. Below are just a few you should examine before signing up:
California Rule of Professional Conduct 4-100
Rule 4-100, subdivision (A), discusses funds that should be held in a client trust account. Under this rule, “no funds belonging to the member . . . or the law firm shall be deposited [in a client trust account] or otherwise commingled[.]” (Rules Prof. Conduct, rule 4-100(A).)
In the above scenario, you have the option of providing FAL with either your general business account or client trust account information. There are issues with the latter. If you provide FAL with the client trust account information, FAL will then withdraw its marketing fee from that account. This result is barred under Rule 4-100, which prohibits attorneys from using client trust funds to pay general business expenses, such as marketing fees.
California Rule of Professional Conduct 1-320
Rule 1-320(A) prohibits, with certain exceptions, sharing legal fees with non-attorneys. (Rules Prof. Conduct, rule 1-320(A).) This is intended to protect the integrity of the attorney-client relationship, maintain an attorney’s independent control over the services provided, and ensure that the best interests of the client remain paramount. (Los Angeles County Bar Ass’n., opn. no. 510 (2003).)
Here, the client has received legal services through an attorney-client relationship with you. The client’s payment for legal fees, initially paid to FAL, is eventually paid to you. However, since FAL’s marketing fee also comes from the client’s payment, your legal fees are now being shared with FAL. This is true even if the marketing fee is taken in a separate transaction. (See Cain v. Burns (1955) 131 Cal.App.2d 439, 441-442 (immaterial whether investigator was paid out of attorney’s general funds or paid directly from client’s fees).)
California Rule of Professional Conduct 1-600(A)
Rule 1-600(A) states that “a member shall not participate in a nongovernmental program, activity, or organization, furnishing, recommending, or paying for legal services, which allows any third person or organization to interfere with the member’s independence of professional judgment or with the client-lawyer relationship . . ..” (Rules Prof. Conduct, rule 1-600(A).)
Assume you agree to provide a client the advertised service of LLC formation through FAL. During the initial consultation with the client, you determine that forming a partnership, rather than an LLC, is in the client’s best interest. Further assume this type of entity formation is not a service offered by FAL.
If you advise the client of your recommendation and she follows your advice, you may be in breach of your agreement with FAL. Alternatively, the client may still believe she needs to form an LLC based upon what she has read on the FAL website, and you are contractually obligated to provide an LLC agreement – it’s the service the client paid FAL to receive. Either way, your relationship with FAL has interfered with the exercise of your independent, professional judgment. Your participation in FAL’s online marketing service runs afoul of the rule by allowing FAL to improperly influence your professional judgment and the attorney-client relationship.
California Rule of Professional Conduct 3-310 and 1-500
Rule 3-310(B) provides that “A member shall not accept or continue representation of a client without providing written disclosure to the client where: (1) [t]he member has a legal, business, financial, professional, or personal relationship with a party or witness in the same matter. . .” (Rules Prof. Conduct, rule 3-310(B)). As discussed in the State Bar’s Formal Opinion 1997-148, this rule is meant to address situations in which a lawyer’s relationships might interfere with her duty of loyalty and her independent professional judgment.
In the LLC example, your client and FAL have different interests in the matter. Your client may be best served by forming an entity other than LLC. However, FAL’s interest is served when you provide the services it offers and which the client has purchased. You thus have a conflict between your client’s representation and your business relationship with FAL.
Rule 3-310 prevents you from representing the client unless you provide the required written disclosures to the client. This includes informing the client in writing of the full extent of your business and financial relationship with FAL, including all amounts exchanged, as well as the conflicting interests of the client and FAL. It also requires you to disclose the “actual and foreseeable adverse consequences” to the client. (Rules Prof. Conduct, rule 3-310(A)(1).)
Rule 1-500 governs agreements restricting a lawyer’s practice. With certain exceptions, the rule bars a lawyer from entering into an agreement “if the agreement restricts the right of a member to practice law.” (Rules Prof. Conduct, rule 1-500(A).) The purpose of the ethical rule prohibiting a lawyer from entering into any agreement restricting the lawyer’s right to practice is the preservation of a prospective client’s choice of competent counsel by removing contractual barriers to accepting or competently representing clients. (Rest.3d Law Governing Lawyers § 13(1).)
As mentioned above, you are contractually obligated to provide an LLC agreement — the service the client has paid FAL to receive. If you advise the client that forming a partnership is in her best interests, you will be in breach of your agreement with FAL. Thus, the contract you have entered into with FAL restricts your ability to practice law.
These are just a few of the ethical issues to consider before signing up with an online marketing company. Every company will devise its own business arrangement with you, but if that arrangement runs afoul of your ethical obligations, it is your bar card at risk.
**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**