September 2017

The Ethical Pitfalls of Using an Online Marketing Company

By Richard Hendlin

Attorney at Law

Alara Chilton's February 2016 For the Record article "Think Twice Before Using an Online Marketing Company” rightly cautioned attorneys about the ethical pitfalls in participating in internet-based flat-fee limited scope marketing programs. This article will provide an update with analysis of recent out-of-state ethics committee opinions which have similarly concluded that an attorney’s participation in marketing programs such as Avvo Legal Services may create a number of potential ethical risks.

Rule 1-320(A) of the California Rules of Professional Conduct, “Financial Arrangements with Non-Lawyer,” generally prohibits “directly or indirectly” sharing legal fees with non-lawyers. (CRPC 1-320(A); see Bar Ass'n of San Francisco Form.Opn. 1976-2—ethically improper for attorney to pay referring organization percentage of attorney’s recovery on behalf of client pursuant to agreement between referring organization and clients; see also ABA Model Rule 5.4(a); Vapnek, Tuft, Peck & Wiener, Cal. Prac. Guide: Professional Responsibility §§5:399.8 and 5:509 (The Rutter Group 2016) [“Vapnek”]

Rule 1-320(A) is designed to (a) protect the integrity of the attorney-client relationship; (b) prevent control over attorney services from shifting to laypersons; and (c) ensure that the client's best interests remain paramount. [Los Angeles Bar Ass'n Form.Opn. 510 (2003)]

Although not binding in California, the ethics opinions, rules and standards promulgated by other jurisdictions and bar associations may be considered for guidance on proper professional conduct. (CRPC 1-100(A) (State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 656.)

On June 3, 2016, the Supreme Court of Ohio Board of Professional Conduct issued Opinion 2016-3 finding that “A lawyer should carefully evaluate a lawyer referral service, or similar online model, to ensure that it complies with the Rules of Professional Conduct and the ethical requirements of the lawyer.” The Ohio Board concluded:

“A lawyer’s participation in an online, nonlawyer-owned legal referral service, where the lawyer is required to pay a “marketing fee” to a nonlawyer for each service completed for a client, is unethical.” (http://www.supremecourt.ohio.gov/Boards/BOC/Advisory_Opinions/2016/Op_16-003.pdf)

The Ohio Board found that “A lawyer must ensure that the lawyer referral service does not interfere with the lawyer’s independent professional judgment, and that a lawyer is responsible for the conduct of the nonlawyers of the service, as well as the advertising and marketing provided by the service on the lawyer’s behalf. Additionally, a fee structure that is tied specifically to individual client representations that a lawyer completes or to the percentage of a fee is not permissible, unless the lawyer referral service is registered with the Supreme Court of Ohio.

In 2016, the South Carolina Bar Ethics Advisory Committee rendered its Opinion 16-06 concluding that an attorney directory website which had a new fixed-fee legal referral service arrangement violated the prohibition of sharing fees with a non-lawyer as described in Rule 5.4(a). Alternatively, assuming, the arrangement did not violate Rule 5.4(a), the arrangement would violate the Rule 7.2(c) prohibition of paying for a referral and was not saved by the exceptions found in Rule 7.2(c)(1), (2), or (3).

The South Carolina Committee stated: “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.’” (https://www.scbar.org/lawyers/legal-resources-info/ethics-advisory-opinions/eao/ethics-advisory-opinion-16-06/)

In September 2016, the Pennsylvania Bar Association Legal Ethics and Professional Responsibility Committee [Pennsylvania Committee] issued Formal Opinion 2016-200 on “Ethical Considerations Relating to Participation in Fixed Fee Limited Scope Legal Services Referral Programs.” (https://www.pabar.org/members/catalogs/Ethics%20Opinions/formal/F2016-200.pdf)

The Pennsylvania Committee flatly declared that a lawyer who participates in a Flat Fee Limited Scope Legal Services (“FFLS”] referral program 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 to finding that participation in such a program poses a “substantial risk” that the lawyer violates various other ethical rules, the Pennsylvania Committee found that since the operators of such FFSL programs at least initially were making judgments and decisions which are only appropriately made by lawyers, a lawyer participating in such a FFLS program could also be assisting in the unauthorized practice of law. (https://www.pabar.org/members/catalogs/Ethics%20Opinions/formal/F2016-200.pdf pg. 13.)

On June 21, 2017, the New Jersey Supreme Court Advisory Committees on Professional Ethics, Attorney Advertising and the Unauthorized Practice of Law issued a binding Joint Opinion (ACPE Joint Opinion 732, CAA Joint Opinion 44, UPL Joint Opinion 54) finding that “New Jersey lawyers may not participate in the Avvo legal service program” because it improperly requires the lawyer to share a legal fee with a nonlawyer in violation of RPC 5.4(a), and to pay an impermissible referral fee in violation of RPC 7.2(c) and 7.3(d). The Committees further found that LegalZoom and Rocket Lawyer appear to operate legal service plans through their websites but New Jersey lawyers may not participate in these plans because they are not registered with the Administrative Office of the Courts in accordance with Rule of Professional Conduct 7.3(e)(4)(vii). (https://www.judiciary.state.nj.us/notices/2017/n170621f.pdf.)

On August 8, 2017, the New York State Bar Association Committee on Professional Ethics issued Opinion 1132. It noted, but declined to answer, many ethical questions posed by the Avvo model. Instead, it found “dispositive” that payment of Avvo’s marketing fee constitutes an improper payment for a recommendation (i.e., an improper referral fee) in violation of Rule 7.2(a). (http://www.nysba.org/EthicsOpinion1132.)

California’s counterpart to Rule 7.2(a) is Rule 1-320(B) which states in relevant part that a lawyer “shall not compensate, give, or promise anything of value to any person or entity for the purpose of recommending or securing employment of the [lawyer] … or as a reward for having made a recommendation resulting in employment…”

The above five ethics opinions from other jurisdictions all agree, albeit sometimes on different grounds, that an attorney’s participation in such online fixed-fee limited scope marketing programs is unethical. Given the obvious parallels that exist between the ethics rules considered in the above-described opinions and the Rules of Professional Conduct, attorneys practicing in California are wise to consider carefully the ethical pitfalls associated with participating in flat-fee limited scope marketing programs.

**No portion of this article 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.**