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Indiana Opinion Warns Lawyers Not to Use Group Coupon Programs as Marketing Tool

Wednesday, March 14, 2012

By Joan C. Rogers  

Bucking the trend, the Indiana bar's ethics committee has concluded that lawyers' use of group coupon or daily deal programs to obtain new clients is “fraught with peril” and probably unethical (Indiana State Bar Ass'n Legal Ethics Comm., Op. 1 of 2012).

The opinion warns that a lawyer's participation in a program that reaches out to potential clients and takes advance payment of fees, and then remits only a portion of the fees to the lawyer, may violate the Indiana Rules of Professional Conduct by:

  • delegating the creation of the attorney-client relationship to a nonlawyer, contrary to Rule 2.1 and an Indiana guideline on using nonlawyer assistants;
  • permitting someone other than the attorney to hold client funds, which is not permitted by Rule 1.15;
  • paving the way for potential clients to create conflicts with current clients, which may force the lawyer to withdraw for an inappropriate reason under Rule 1.16; and
  • sharing fees for channeling clients, in violation of Rules 5.4 and 7.2.
Hot Topic

The opinion addresses lawyers' participation in the burgeoning phenomenon of marketing through group coupon or daily deal arrangements.

The committee noted that in these arrangements the company and the participating business establish a discounted price for the item or service to be sold and share that amount. The company charges the customers for the coupon only after a predetermined number of people respond to the deal. Some customers purchase coupons and do not redeem them within the time period stated in the offer.

Of the few states that have examined the group coupon issue, “The reports are that they have considered different aspects of the program as important and have disagreed as to the propriety of such programs,” the committee said, citing ethics opinions from Missouri, New York, North Carolina, and South Carolina.

Lawyer-Client Engagement

Rule 2.1 requires a lawyer to exercise independent professional judgment in representing a client. That standard is difficult to meet, the committee said, if the decision to represent a client is made not by the lawyer but by the potential client's decision to purchase a coupon without any opportunity for consultation about a course of conduct best fitting the client's situation.

The committee also noted that Indiana's guidelines on use of nonlawyer assistants provide that the creation of an attorney-client relationship is the nontransferable duty of the lawyer. One guideline states that a lawyer may not delegate to a nonlawyer assistant the responsibility for establishing an attorney-client relationship, the opinion points out.

Before deciding to undertake a representation, the panel said, a lawyer must ensure there are no conflicts of interest under Rule 1.7; if conflicts are not resolved before the representation begins, the lawyer must terminate the representation under Rule 1.16 and return any fees paid, as required by Rules 1.5 (fees), 1.15 (safekeeping property), and 1.16(d) (duties upon termination).

The committee found it conceivable that users could qualify as a prospective client under Rule 1.18 if they deposited money with a group coupon company for the purpose of forming an attorney-client relationship. Accordingly, it said, lawyers would have to meet that rule's obligations concerning confidentiality and avoiding conflicts of interest.

Safekeeping Property

The committee also found it troubling that group coupon companies hold funds paid by clients until the money is disbursed to the lawyer, and that some companies pay out the funds over time in incremental amounts.

That arrangement, it said, violates the mandate in Rule 1.15(c) that fees paid in advance must be held in a trust account and withdrawn only as earned, and does not permit the lawyer to keep the client's funds segregated and maintain complete records as required by Rule 1.15(a). The provision in some contracts that the funds remain the property of the company also violates Rule 1.15, the committee added.

In addition, the committee expressed concern that participating lawyers would not be able to comply with Rule 1.16(a), requiring lawyers to refund any advance fees that have not been earned, if the consumers who purchased coupons do not end up being represented by the lawyer.

The lawyer must timely identify all those who bought a coupon but did not become clients, and then refund the entire amount of the fee paid—including the company's share—to the client, the opinion states.

The committee suggested that some online coupon advertising arrangements designed to produce potential clients may be permissible under certain limited circumstances. It posited, for example, that a lawyer could provide a coupon to offer legal services at a specified rate, with the client to pay the lawyer directly. If the client paid a nominal fee for this coupon, in line with the reasonable costs of the marketing, this arrangement would not violate professional conduct rules, according to the opinion.

Fee-Sharing and Channeling Clients

Rule 5.4 prohibits fee-sharing with nonlawyers in most circumstances, and Comment [4] to Rule 7.2 states that lawyers are not permitted to pay others “for channeling professional work.”

By the process of creating buying groups, the panel said, 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.”

Rule 7.2(b)(1) allows a lawyer to pay the reasonable costs of advertisements. The group coupon arrangements used by some companies violate that rule, the panel found, because they keep half of the fees collected rather an amount tied to the reasonable costs of the advertising.

Watch Out

The committee concluded that it is likely not appropriate for a lawyer licensed in Indiana to advertise through a group coupon program designed like those discussed in this opinion.

Lawyers considering such an arrangement should do “rigorous research” and may even want to hire counsel to help navigate the dangers and discuss alternative approaches that comply with professional conduct rules, the opinion recommends.

For More Information

Full text at http://www.inbar.org/Portals/0/downloads/appellate/Legal_Ethics_Committee_Op-1-2012.pdf.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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