Third Ethics Panel Dings Avvo Flat-Fee Referral Service

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By Samson Habte

Oct. 3 — Attorneys risk violating several ethics rules if they participate in a newly launched Avvo program that connects lawyers with consumers seeking limited-scope legal services, the Pennsylvania bar’s ethics committee advised in a September opinion (Pa. Bar Ass’n Comm. on Legal Ethics & Prof’l Responsibility, Formal Op. 2016-200, 9/16).

The opinion marked the third time in four months that an ethics panel has warned attorneys about participating in an Avvo-branded client referral program that one legal technologist has described as a harbinger of the coming “Uberization of Legal Services.”

None of the ethics opinions mentioned Avvo, but the company’s chief legal officer, Josh King, said it was clear that the opinions were about Avvo Legal Services, which has been introduced in 25 states since itsFebruary launch.

Avvo Legal Services connects consumers seeking “limited scope” legal services with lawyers willing to do that work for a flat fee. The fee, which Avvo sets and and collects in advance, varies by task—from $295 for creating a will to $2,995 for preparing a green card application. Avvo remits the full fee to lawyers after the services are completed, and lawyers then pay Avvo a “marketing fee” that is calculated as a percentage of the legal fee, typically between 20 and 30 percent.

All three ethics panels—in South Carolina, Ohio and now Pennsylvania—concluded that lawyers who participate in such a program would violate ethics rules that prohibit fee-sharing with nonlawyers, and would risk violating a number of other ethics standards.

Avvo Att’y: Bad For Consumers

King told Bloomberg BNA that the South Carolina opinion, issued in July, caused his company to temporarily “pull back” its launch in that state because some lawyers who had agreed to participate “got cold feet.”

In a subsequent e-mail, King also criticized the Pennsylvania opinion as “overly cautious” and short-sighted.

“Maybe the Bar is just being careful, or maybe it’s trying to protect its Lawyer Referral Service from something it views as competitive,” King said. “But it’s a real shame the Bar isn’t recognizing the benefit to consumers and lawyers here.”

“I’m happy to take any feedback from [state] Bars on ways we can improve Avvo Legal Services for consumers, but our opinion of the ethics of the program is certainly different than that of the Bar,” King said.

Early Avvo Critic Vindicated, but Not Gloating

State bar ethics panels weren’t the first to sound alarms about the risks of joining Avvo’s network.

That distinction goes to Susan Cartier Liebel, a Connecticut family law attorney who penned a January 2016 blog post that highlighted many of the issues later raised in the South Carolina, Ohio and Pennsylvania opinions.

But Liebel, the founder and CEO of Solo Practice University®—a company that educates solo practitioners about the issues and difficulties they will face in hanging a shingle—hasn’t been gloating about her prescience.

In an interview with Bloomberg BNA, Liebel said her blog post was a dispassionate analysis of how the rules of professional conduct applied to Avvo Legal Services—and not a normative critique of the program.

“I’m agreeing with their reasoning,” Liebel said when asked whether she was gratified that many of the criticisms she directed against Avvo Legal Services were echoed by the first three ethics panels to analyze the program.

“There are two different issues,” Liebel said. “As the rules stand, [the Avvo program] violates the rules. But should the rules still stand? That’s the bigger question.”

Liebel said she thinks the profession’s strict rules against paying for referrals may be worth revisiting, and that “a responsible softening of the rules” may be warranted.

“Disproportionately, the people who benefit the most from referrals are solos,” Liebel said. Marketing “is a tremendous challenge” for many solo practitioners, she added, and a great many lawyers who work alone are grateful for the opportunity to outsource that aspect of running a law practice.

But Liebel said there is no getting around the fact that Avvo Legal Services in its current form runs afoul of the ethics rules that govern fee-splitting and client trust accounts, at minimum.

And the lawyers who sign up to join Avvo’s network have to care about that problem because their necks—not Avvo’s—will be on the line if an aggressive bar prosecutor decides to set an example.

“If these grievance committees want to tackle this and make a point, who are they going to go after?” Liebel asked. “They are going to after the solos who they think violated the rules by participating with these companies.”


Fee-Sharing

The Pennsylvania committee said the “marketing fee” lawyers pay to participate in the “Flat Fee Limited Scope” (FFLS) program addressed in the opinion was a disguised fee-sharing arrangement with a nonlawyer and would thus violate Pennsylvania Rule of Professional Conduct 5.4(a).

“Ethics opinions that have considered similar compensation arrangements have concluded that marketing, advertising, or referral fees paid to for-profit enterprises that are based upon whether a lawyer received any matters, or how many matters were received, or how much revenue was generated by the matters, constitute impermissible fee sharing under RPC 5.4(a),” the committee said.

The opinion cited Ohio Supreme Court Ethics Op. 2016-3, 32 Law. Man. Prof. Conduct 394 (2016), and South Carolina Ethics Op. 16-06 (2016).

The committee rejected the notion that the marketing fee might be authorized under Rule 7.2(c)(1), which permits lawyers to pay the “reasonable cost” of advertisements.

The committee noted that the “marketing fee” a lawyer must pay is tied to the cost of the underlying legal services—an arrangement that “do[es] not correspond to any traditional model of compensation for advertising.”

“Advertising and marketing fees are typically based upon a before-the-fact assessment of the likely value and effectiveness of such services and not on an after-the-fact calculation of the revenue the advertiser actually derived from such services,” the committee said.

Delegation Problems

The committee said the FFLS program also improperly “delegates to a non-lawyer several critical decisions and functions that fall within the exclusive domain of the practice of law.”

“This includes, for example, the decision whether the professional services the client requested of the lawyer have been satisfactorily completed, such that the advance fee has been earned by and is payable to the lawyer,” the committee said. “Such delegation violates RPC 2.1, which requires a lawyer to exercise independent professional judgment, and RPC 5.4(c), which prohibits a lawyer from allowing a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.”

The committee said this delegation hampers a lawyer’s ability to comply with Rule 1.16(d), which requires lawyers to refund any fees that have not been earned at the end of a representation. “Because, under the procedures described above for the FFLS program, the lawyer never possesses or controls the advance fee, the lawyer is unable to ensure that those obligations are fulfilled,” the committee said.

“The delegation of the possession and distribution of advance fee payments to a non-lawyer [also] violates RPC 1.15(i),” the committee said. That rule requires lawyers to deposit any advance fees in their trust accounts, and to refrain from withdrawing those fees until they have been earned.

The committee said the “only way to rectify” these problems would be for the program operator “to immediately remit advance fee payments to the lawyer ... as soon as a lawyer-client relationship is established.”

Limited Scope Problems

The committee said the FFLS program also makes it difficult for lawyers to follow Rule 1.2(c), which says a lawyer may limit the scope of a representation only if doing so is “reasonable” and the client gives informed consent.

The committee said the FFLS operator “cannot properly assess” whether a limitation on the scope of representation is appropriate. The importance of having a lawyer make that assessment is “heightened,” it added, by the “broad and vague descriptions of limited scope services” offered through “a typical FFLS program operator.”

“Even if the prospective client selects the correct general category of service, the prospective client’s perception of what is needed may differ from what is actually required, and the lawyer would have no way of ascertaining the scope and magnitude of the effort required to meet the prospective client’s true needs until after speaking with the client, possibly at great length,” the committee said.

Confidentiality

The committee said the “structure of the FFLS programs exposes the [operator] to significant information that would ordinarily be considered confidential” under Rule 1.6(a), which generally prohibits revealing any “information relating to representation” of a client.

The committee noted that the FFLS program operator would be privy to the potential client’s legal needs and to the fee arrangement. “This information, as well as the very existence of the lawyer-client relationship, would typically be considered ‘information relating to representation of a client’ and therefore confidential under RPC 1.6(a),” the committee said.

Assisting UPL

The committee said a lawyer who participates in an FFLS program might also run afoul of Rule 5.5(a) by assisting the unauthorized practice of law.

"[M]any of the aspects of the FFLS programs described above involve the operators of such programs at least initially making judgments and decisions which are only appropriately made by lawyers,” the committee said.

To contact the reporter on this story: Samson Habte in Washington at shabte@bna.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bna.com

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