Use of Websites Like Groupon to Get Clients Violates Fee-Sharing Rule, Alabama Advises

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By Joan C. Rogers  

Alabama lawyers must steer clear of Groupon and similar “daily deal” websites as a tool for obtaining new clients, the state bar's ethics commission has advised (Alabama State Bar Disciplinary Comm'n, Op. 2012-01).

Contrary to opinions from several other state bars that have addressed this subject, the commission concluded that a lawyer's use of such sites to sell legal services violates the ethics rule against sharing legal fees with nonlawyers, as well as the ethics rule requiring all unearned fees to be placed into a trust account.

Lawyers who offer legal services through these sites also risk violating rules on conflicts of interest, competence, diligence, and communication, the commission warned.

Deal Me In.

The opinion addresses the ethical propriety of using Groupon and other daily deal websites as a marketing tool for legal services. As described in the opinion, these websites typically send consumers an email offering the opportunity to purchase a certificate for services or products from a retailer at a discounted rate of at least 50 percent.

For example, the commission related, a law firm might agree to sell a coupon entitling the purchaser to $500 worth of legal services for a discounted rate of $250. A purchaser would pay the website $250 and receive a certificate for $500 to redeem legal services with the law firm. The website would keep half of the revenue--$125 in this example--and remit the remaining $125 to the law firm.

New York, North Carolina, and South Carolina have issued opinions approving lawyers' use of websites like Groupon, but an Indiana opinion disapproved of such sites. All of these opinions have acknowledged that marketing discounted legal services through these sites is fraught with potential peril, the commission said.

Fee-Sharing With Nonlawyers.

The commission found that the chief ethical impediment to lawyers' use of daily deal websites such as Groupon is Alabama Rule of Professional Conduct 5.4(a), which prohibits lawyers from sharing legal fees with nonlawyers.

Agreeing with Indiana Ethics Op. 1 of 2012, 28 Law. Man. Prof. Conduct 153, the commission concluded that the share of fees websites of this type keep cannot be justified as a reasonable cost of advertising permitted under Rule 7.2(c). The sites do not charge a flat-rate fee or even a fee based on the website's traffic, but instead take a percentage of each and every purchase and charge an amount not tied in any manner to the “reasonable cost” of the advertisement, the commission explained.

In reaching this conclusion, the commission drew heavily on Alabama State Bar Ass'n v. R.W. Lynch Co., 655 So. 2d 982 (Ala. 1995), which held that an “injury helpline” touted in a television commercial was a permissible form of group advertising rather than a forbidden referral service. The court in that case pointed out that participating lawyers paid a flat-rate fee for the advertising regardless of the number of calls forwarded to them, the commission noted.

The commission was unconvinced by North Carolina Ethics Op. 2011-10, 27 Law. Man. Prof. Conduct 744 (2011), and South Carolina Ethics Op. 11-05, 27 Law. Man. Prof. Conduct 570, which found that the portion of fees retained by daily deal websites is merely an advertising cost.

New York State Ethics Op. 897, 28 Law. Man. Prof. Conduct 15 (2011), did not address the fee-sharing issue, the commission said.

And That's Not All.

The commission also pointed out that under the fee model Groupon uses, half of the legal fee the customer pays is claimed by Groupon at the time of purchase. This makes it impossible for the lawyer to place the entire unearned legal fee into trust as required by Rule 1.15(a), the commission observed.

The opinion also states that a participating lawyer would be obligated to make a full refund to a purchaser who demanded his money back before any legal services were provided, regardless of the fact that half of the fees were claimed by Groupon. Failure to make a complete refund would be viewed as charging a clearly excessive fee in violation of Rule 1.5(a) or as failing to return the client's property as required by Rule 1.16(d) when a client's representation ends, the commission advised.

In addition to those problems, the commission said, a lawyer's participation in daily deal websites could:

• embroil the lawyer in potential conflicts of interest among the lawyer's former and current clients, due to the inability to perform any conflict check before the payment of legal fees by the potential client;

• result in violations of Rule 1.1, which requires competent representation, because the lawyer would have no opportunity to determine his ability to represent each purchaser before being hired; and

• create an unmanageable case load that keeps the lawyer from complying with Rule 1.1 (competence), Rule 1.3 (diligence), and Rule 1.4 (communication with client).

 

The commission pointed out that a lawyer would be bound to honor all purchases made through sites like Groupon under Rule 7.2(f), which requires lawyers who include fees in their advertising to provide the advertised service at the advertised rate.


Full text at http://www.alabar.org/ogc/PDF/2012-01.pdf.

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