NC State Bar Proposed 2017 Formal Ethics Opinion 6 Update: January 25, 2018

At its meeting on January 25, 2018, the Ethics Committee voted to return proposed 2017 Formal Ethics Opinion 6, Participation in Platform for Finding and Employing a Lawyer, to a subcommittee for further study. Suzanne Lever, Assistant Ethics Counsel at NC State Bar, wrote an article outlining the issue for the NC State Bar Journal in its Fall 2017 issue, which was republished on the Lawyers Mutual web site in January 2018. Below is an excerpt from the article. Please keep following this issue and commenting when Opinions are released!

“I am sure many of you are aware of Avvo’s online legal directory. However, you may not know that Avvo, as well as a handful of other platforms, is now offering fixed fee limited scope legal services online.

How do these online legal service platforms work? In the case of Avvo Legal Services, Avvo determines the fee that will be charged for each discrete service and charges participating lawyers a percentage of the fee. The percentage charged to the lawyer, which varies depending on the particular legal service, is called a “marketing fee.” Avvo initially collects the entire legal fee from the consumer and deposits the funds in an Avvo bank account. On a monthly basis, Avvo pays the participating lawyer all legal fees generated by the lawyer in the preceding month. In a separate transaction, Avvo collects its marketing fees for these legal services by debiting the lawyer’s operating account.

“So basically, the business model for these online legal platforms involves the service collecting the legal fee from the client/consumer and then—wait for it—splitting the fee with the participating lawyer. Say what???

Now I know, and you know, that fee sharing is a no-no under the Rules of Professional Conduct. Rule 5.4(a) clearly states that a lawyer “shall not share legal fees with a nonlawyer, except” blah blah blah not relevant here. So what gives? Well, four jurisdictions give the thumbs down to this business model….

“The proposed opinion addresses many ethical issues implicated by the Avvo business model. In fact, 13 rules of professional conduct are cited in the proposed opinion, including Rule 5.4(a).  In its discussion of fee-sharing, North Carolina falls in line with the other four opinions in concluding that the structure of the payments in the business model is irrelevant to the fee sharing issue, and also agrees that “the fact the marketing fee is a percentage of the legal fee implicates the fee-sharing prohibition.” Now here is where we go rogue.

[writing on behalf of the committee] “Our proposed opinion focuses on the purpose for the fee-splitting prohibition — “to protect the lawyer’s professional independence of judgment.” The opinion references two current North Carolina ethics opinions approving payment arrangements similar to that of the Avvo business model. The payment arrangements in 2010 FEO 4, involving a barter exchange program, and 2011 FEO 10, involving an online group coupon, were approved because the nonlawyer receiving the payment exercised no influence over the professional judgment of the lawyer, and the fee was a reasonable charge for marketing or advertising services. Similarly, Proposed 2017 Formal Ethics Opinion 6 concludes that, “if there is no interference by Avvo in the independent professional judgment of a participating lawyer, and the percentage marketing fees paid by the lawyer to Avvo are reasonable costs of advertising…the lawyer is not prohibited from participating in [Avvo Legal Service] on the basis of the fee-sharing prohibition.” Mic drop.

“To clarify the committee’s position, the Ethics Committee is considering an amendment to Rule 5.4(a). The amendment addresses the payment structure utilized in the Avvo business model. The proposed amendment is an additional exception to the prohibition on sharing legal fees set out in Rule 5.4(a) and allows a lawyer to pay a portion of a legal fee to a credit card processor, group advertising provider, or online platform for identifying and hiring a lawyer if the amount paid is for payment processing or for administrative or marketing services, and there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship

“The proposed amendment to Rule 5.4(a) makes sense, but I’m not sure it solves the conundrum presented by Rule 5.4(a) and perhaps responsible for the inconsistent holdings in the ethics opinions. A literal application of Rule 5.4(a) would prohibit all payments by a lawyer to a nonlawyer employee or vendor if the source of the funds is legal fees previously earned by the lawyer. As already noted, comment [1] to Rule 5.4 states that the provisions of the rule “express traditional limitations on  sharing fees.” These “traditional limitations” may be unnecessary and even unworkable in today’s legal marketplace. The stated purpose for the prohibition against fee-sharing is met by other rules of professional conduct. Rule 2.1, Rule 5.4(c) and Rule 1.8(f), among others, protect a lawyer’s professional independence of judgment without establishing an unworkable restriction on the lawyer’s use of his own legal fees. Rule 5.4(a) states that a lawyer “shall not share legal fees with a nonlawyer.” Do lawyers who participate in Avvo Legal Services share legal fees with Avvo? Yes. Does it matter? I don’t think so.

“If you have gotten this far I would like to emphasize two very important things about Proposed 2017 Formal Ethics Opinion 6: (1) it is a proposed opinion, and (2) it is being published for comment. If this proposed opinion makes you want to pack up and move to South Carolina, Ohio, Pennsylvania, or New Jersey, please unpack and send us your comments and concerns instead.”

RELANC MEMBERS: Please keep following this issue and commenting when Opinions are released!

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