In the face of opposition from Responsive Law, the Virginia State Bar (VSB) has backed off from a proposed ethics opinion that would have restricted Virginians’ ability to use affordable fixed-fee legal services.
The proposed opinion would have declared that lawyers were acting unethically by participating in programs where a company advertises their services for discrete tasks—such as creating a will, reviewing a lease, or filing for an uncontested divorce—and charges a fixed flat fee for those services. The opinion was clearly directed at Avvo Legal Services, which has begun to roll out such services in markets nationwide.
In the proposed opinion, the VSB’s Standing Committee on Legal Ethics opined that lawyers could be violating legal ethics rules by paying a marketing fee to a company like Avvo, which it considered a violation of the prohibition on lawyers sharing fees with non-lawyers. It also said that it would be unethical for Avvo to maintain possession of client fees while a client waits for the lawyer to complete the work for which they were hired. Instead, the committee claimed, such money should be held in the lawyer’s client trust account.
Responsive Law submitted comments to the committee opposing the proposed opinion. We noted that clients were likely to be better protected against misappropriation of their fees under Avvo’s model than by a client trust fund. A client trust account, we noted, “is not a subterranean vault guarded by a goblin at Gringotts Wizarding Bank; it’s a paper (or electronic) construct to which the lawyer has complete access.” By contrast, under Avvo’s model, it holds the fees until the client indicates that the lawyer has satisfactorily completed the work.
Our comments also noted that a lawyer’s payment of a marketing fee to Avvo is a reasonable business expense, much like a credit card processing fee, and is also a totally reasonable way for lawyers to advertise that causes no harm to consumers. Rather than looking for technical violations of the ethics rules, the VSB should consider whether the increased access to legal services such services provide outweighs a theoretical harm that has not been demonstrated.
Finally, we pointed out that attempts by the VSB to restrict innovative new business models is a potential violation of the U.S. Supreme Court’s recent ruling in North Carolina State Board of Dental Examiners v. Federal Trade Commission. In that case, the Court held that self-regulating professions cannot hide behind “state action” immunity from antitrust law when the regulators are market participants. Several elements of the proposed opinion relied upon bar rules that are anticompetitive, making antitrust liability a strong possibility for the VSB, the Ethics Committee, and their individual members.
Aside from Avvo and one individual lawyer, Responsive Law was the only entity to submit comments opposing the proposed ethics opinion. In response to those comments, the Ethics Committee voted not to submit the proposed opinion to the Bar Council. VSB Ethics Counsel James McCauley told Virginia Lawyers Weekly (sub. req’d) that the committee now plans to “go back and study the affected rules.”
To read Responsive Law’s comments to the VSB, click here.
Responsive Law recently submitted comments to the American Bar Association regarding proposed rule changes to the Model Rules of Professional Conduct governing lawyer advertising and solicitation. Lawyer advertising is one of the most common ways that people find out about where they can get legal help. Restrictions on truthful advertising not only hinder the lawyer's ability to advertise her services, but also the consumer's ability to find the right lawyer for her legal matter. Lawyers have the right to convey truthful information and consumers have the right to make an informed decision among different options for legal services.
The current rules of professional conduct maintain an antiquated mindset under which advertising is heavily restricted due to being seen as undignified. While a Victorian era gentleman could find a good lawyer through recommendations from family members or friends from the country club, the modern consumer relies on advertising—especially online—to find professional services. Despite repeated court rulings that lawyers are free to advertise like any other profession, the ABA's Model Rules (followed by nearly all states) keep them shackled with unnecessary restrictions that serve to protect this antiquated business model rather than to protect consumers. This view of advertising as some type of "tasteless" activity leads to a society of uninformed consumers. If this type of pressure on lawyers continues, then the legal profession will never see change and consumers will always be left out of the equation.
A recent research study by Rebecca Sandefur (a member of our policy advisory board) concluded that most Americans are unaware when their problems have a legal component and wouldn't know how to find a lawyer even if they thought one would help them. Under the current rules, lawyers end up providing less information to consumers due to fear of punishment for running afoul of overly restrictive and unnecessarily technical restrictions.
Fortunately, the proposed amendments may indicate a shift in the bar's thinking. The amendments would streamline the rules to focus more on the truthfulness of lawyer advertising and solicitation and less on the form that such advertising takes. Responsive Law's comments to the ABA support these proposals in the hope that they will move the legal profession out of the Victorian-era and into the era of technology, where consumers can more easily access information about lawyers at the touch of a button.
You can find Responsive Law's testimony here
Angel Gutierrez is a Responsive Law intern
The Florida Supreme Court is considering amendments to its rule regulating lawyer referral services which could drastically restrict consumer access to justice.
Lawyer referral services collect legal information and resources in a single forum and play a vital role in making community members aware of the legal aspects of their problems. These agencies describe lawyers’ qualifications and experience, provide cost comparisons between lawyers offering similar services, and guide consumers toward lawyers specializing in specific services, such as assistance with consumer debt or child custody issues. Such recommendations are invaluable to ordinary consumers, who are generally inexperienced with the legal system and have considerable difficulty determining which lawyer will best serve their needs.
Despite a continually growing need, particularly among first time consumers, such services remain out of reach for most low and middle income individuals, organizations, and families. Many individuals fail to recognize the legal components of their problems. For example, a tenant facing eviction may view her issue as purely financial even though she has a legal right to challenge the eviction. Even when a consumer recognizes that she has a legal need, she may be unable to determine what sort of aid is needed and how it can be located. A 2013 study found that two-thirds of random adults in a mid-sized American city experienced at least one significant legal issue within an 18-month period, but only one-fifth of those sought formal help. Consumers often find the legal system confusing and inefficient. They fail to seek formal assistance because they believe such help would be ineffective, too difficult to locate, or too costly.
In response to the increased availability of online referral services, the Florida Supreme Court asked the Florida Bar to propose amendments to Florida Bar Rule 4-7.22, regulating lawyer referral services. If approved by the Florida Supreme Court, the Bar’s proposed amendments would merge referral services into a larger category of “qualifying providers,” including not only traditional referral services but also directories, online matching systems, grouped or pooled advertising, and tips or lead systems. Underlying the amendments is a concern that such services, particularly when operated for profit, encourage agencies to favor certain attorneys and firms over the consumers that the services are meant to aid.
Responsive Law opposes this change because it will make legal services less available to consumers. This definition will fail to address the consumer harms feared by theBar, and it will also significantly and negatively affect such agencies’ ability to provide high-quality, affordable legal services to consumers. Responsive Law submitted an official comment encouraging the Florida Supreme Court to reject the expanded definition the amended rules propose.
If you would like to read Responsive Law’s full comment to the Florida Supreme Court, click here.
Lynn Bechtol is a Responsive Law Legal Fellow
Josh King, general counsel and vice-president at Avvo, has called for a gutting of the current attorney advertising rules, both in Avvo's testimony to the ABA Future of Legal Services Commission and on his blog. He asserts (and we agree) that most of what is contained in lawyer advertising rules "is the crusty accretion of over-regulation." He also points out that "there is absolutely nothing in this dog’s breakfast of regulations that actually buys us any greater consumer protection. Anything egregious and harmful in attorney communication can be enforced via the general prohibition on false and misleading advertising."
Responsive Law has addressed the issue of anti-consumer restrictions on lawyer advertising several times and will continue to advocate for streamlining these byzantine and anachronistic regulations when they're considered by the ABA Commission.
Groupon and Living Social are two companies which represent one of the most popular business models of the internet age. These companies offer discount certificates through online daily deal (“daily deal”) emails usable for products or services at local or national companies. These deals have restrictions on when you can use them, what locations will honor them, and what exactly the deal entitles the owner to. The deal company gives approximately 50% of the proceeds to the participating business and retains the other half. For example, a common deal is to pay $10 for $25 worth of food at a local restaurant or $10 for two movie tickets. The restaurant or movie theatre would get half of the amount paid and the company advertising the daily deal would receive the other half.
While restaurants have played a lead role in taking advantage of daily deal advertising, other industries have quickly followed suit, including personal care, home services, health services, and most recently the legal industry. However, while some legal practitioners are pushing for this consumer savings innovation, some bar associations are reluctant to allow it.
Currently New York, North Carolina, and South Carolina have passed ethics rules allowing lawyers to offer online daily deals to potential clients. However, Alabama and Indiana have rejected such forms of advertising at the expense of legal consumers.
Lawyers’ rules of ethics are the central issues involved in these states’ decisions to allow or disallow daily deals. These issues include excessive advertising costs, sharing legal fees with a non-lawyer, client trust accounts for unearned fees, an inability to perform conflict checks, and an inability of a lawyer to competently and diligently represent a client in their specific legal matter. However, while legal ethics rules about these subjects generally help protect consumers of legal services, the strict application of these rules to online daily deals harms consumers rather than protects them.
The legal ethics concerns of states such as Indiana and Alabama are not valid in this situation. While it is important to lawyers to observe the highest standards of ethics, prohibitive regulations should not be put in place at the expense of consumers when far less restrictive measures are just as effective, and can allow greater access to affordable legal services.
The question of whether or not the cost of daily deals equal excessive advertising has become a contentious point. As stated previously, daily deal companies usually retain approximately 50% of the profits, and some critics consider that a violation of the cost allowed to advertise for legal services. However, lawyers should be free to choose this form of advertisement if they think it will be advantageous, and excessive advertising does not hurt a consumer.
States’ opinions are also split on whether daily deals violate the prohibition on sharing legal fees with a non-lawyer. These limitations are intended to protect the lawyer’s professional independence of judgment. Courts and bar associations are concerned that if someone other than the lawyer receives the lawyer’s fee or salary, the lawyer might place the interests of that third party over the client’s. In the case of daily deals, the third party merely disseminates the advertisement information the lawyer asked to be disseminated. The lawyers making use of these types of advertising owes no more allegiance to them than other lawyers who advertise in phone books or billboard owe to those companies.
Responsive Law believes that since daily deal companies do not have the ability to exercise any control over the services that will eventually be rendered to the consumer, their use should not be considered prohibited fee sharing. South Carolina’s Ethics Advisory Committee agreed with this stance in a recent Advisory Opinion.
Another object that bar associations have to daily deals concerns the obligation of lawyers to have client trust accounts for unearned fees. Client trust accounts are set up by lawyers to keep clients’ funds segregated from the lawyer’s general funds. The purpose behind requiring client trust accounts for unearned fees is to protect the funds from the lawyers’ own finances. ABA Model Rule 1.15 (c) provides that “a lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.” This assures the client that they will receive any remaining amount that the lawyer does not use or earn. According to ABA Model Rule 1.16(d), when the representation terminates, unearned fees and costs must be refunded to the client.
If a lawyer chooses to engage in daily deal advertising, they should take on the responsibility that if there is an issue with representation, the lawyer will refund the consumer the entire amount the consumer paid to the daily deal company, including any amount that the company kept for profit. Therefore, if the lawyer chooses to offer $400 of legal services on a daily deal website for $200 will only receive $120 due to advertising costs, the lawyer should be required to not only put that $120 in a client trust account but also match it with $80 in order to protect the consumer if no services are provided.
A lawyer’s inability to perform conflict checks prior to the consumer purchasing the deal raises additional ethical concerns. Lawyers perform conflict checks regarding a client’s legal matter prior to creating an attorney-client relationship with the potential client to make sure that they do not currently have cases whose legal interests are adverse to the new client’s interest. While this rule does protect consumers’ interests, online daily deals can still operate within this framework. Disclaimers and restrictions are common in these deals. Lawyers who wish to offer these deals to potential new clients can add disclaimers to the offered deal which explains what conflict checks are, and explain that if a conflict of interest is discovered, the consumer will be refunded any amount paid for the services. As mentioned earlier, this will have to be a cost that the lawyer takes on if they choose to advertise in this way.
States have also discussed the potential inability of a lawyer who receives clients through this method to competently and diligently represent those clients. Lawyers are ethically required to competently and diligently represent a client and to immediately inform the client if they are unable to do so. Normally, clients seek lawyers who claim to have knowledge in a specific legal area which concerns the client. After an initial discussion, the lawyer informs the client whether or not they possess the knowledge and the time to accept the offer to represent. However, with daily deals it is possible that a lawyer who advertises in this fashion may receive clients whom they are unable to represent due to lack of competence or time. However, there are ways in which to prevent any issues regarding competence and diligence with daily deals. Lawyers can specifically list the services which will be included as well as limit the amount of daily deals that they offer or state in the daily deal that it is only valid for certain types of work.
New York, North Carolina, and South Carolina are all heading in the right direction by allowing the legal profession to take advantage of new innovations that benefit consumers without harming the profession. While the issues raised by states that have rejected these innovations represent valid client protection principles when applied to traditional practice, the strict application of traditional rules to new innovations is not always appropriate. Appropriate regulations can be placed on online daily deals that achieve both the goals of increasing affordable legal services to consumers as well as protecting them from misuse of client funds and other lawyer misconduct.
Jen Roy, a law student at the University of the District of Columbia, is a Responsive Law intern.
The Florida Bar is considering a proposal to place unnecessary restrictions on lawyer referral services. Most people don't use lawyers frequently enough to know how to find one. Lawyer referral services can provide a useful way for people to shop for the lawyer who is right for them. Restrictions on innovation by lawyer referral services, particularly ones that limit how they can operate online, have the effect of limiting access to lawyers for the ordinary person.
You can read our testimony to the Florida Bar on this proposal here.
Proposed rule changes before the Tennessee Supreme Court would restrict lawyer advertising in a baffling array of ways. Among the restrictions in the proposed rules are a ban on "any background sound other than instrumental music," a list of permissible illustrations for ads, including "a photograph of the attorney or group of attorneys in a law firm against a plain, single-colored background or unadorned set of law books" and a comment suggesting that "having space aliens or talking dogs assisting clients in an advertisement" would be a rule violation.
Most people who need to use the legal system don't know where to go for legal help. Unfortunately, there are portions of the bar that still believe that the best way to find a good lawyer is to ask your friends at the country club for a recommendation. For the rest of us, advertising is a way to get information about service providers. When a group of lawyers claims, as the Tennessee Association for Justice does in proposing these rules, that certain advertising could lead to "a decrease in the public perception of lawyers, and misleading of the public," we are suspicious that they are more concerned with the former than the latter.
We're not sure what harm would come to consumers if an advertisement featured law books that were festively decorated, or if a television commercial for a law firm depicted a lawyer as a cartoon dog, with a chorus in the background. We're confident that, while most Tennesseans, like the rest of the country, are unable to afford a lawyer, they are not stupid. They also have seen thousands of hours of television advertising in their lifetimes. Unlike Will Ferrell's character in Elf, they are not going to interpret an advertisement for "World's Best Coffee" literally, let alone an advertisement featuring a talking-dog lawyer.
If the folks at the Tennessee Association for Justice want to help consumers, they wouldn't waste their time restricting the flow of information to consumers. Instead, they should push for a more user-friendly legal system, where people can more easily represent themselves, or where more affordable legal help is available through allowing more non-lawyer assistance. If they are concerned about the image of the profession, they should worry less about how advertising makes the profession look. Instead, they could focus on the state's lawyer discipline system, where, as in the rest of the country, less than 5% of formal client complaints result in public sanctions against a lawyer.
Our testimony to the Tennessee Supreme Court, filled with more musings on the impact of talking dogs and non-instrumental music on the unsuspecting citizenry of Tennessee, can be found here.