Friday follow-up – more proof that it’s risky for lawyers to work with Avvo Legal Services

I’ve written about this topic several times (some might say probably too many times) now, but here is the first example of people who — unlike me — actually matter reaching a very familiar sounding set of conclusions about something that quite obviously is the Avvo Legal Services program.

South Carolina put out an advisory ethics opinion back in the middle of July.  I don’t exactly know how I missed it before yesterday, but thanks to an ABA Journal online story about it, I’ve now learned about it.  It hits exactly the two issues that, outside of jurisdiction like Tennessee that have a separate barrier like RPC 7.6, I tried not-too-subtly to emphasize in one of my earlier posts present a real problem for any lawyer thinking about signing up with Avvo Legal Services.  The two issues that, amount to something of a Schylla and Charybdis scenario, are the rule against fee sharing with non lawyers – RPC 5.4(a) — and the rule against paying people for giving people something of value in exchange for recommending your services – RPC 7.2(c).

The South Carolina opinion, quite succinctly, walks through why the arrangement about which it was asked manages to sound like both a fee sharing problem and alternatively a payment for referral problem.  As to fee sharing:

[T]he service collects the entire fee and transmits it to the attorney at the conclusion of the case.  In a separate transaction, the service receives a fee for its efforts, which is apparently directly related to the amount of the fee earned in the case.  The fact that there is a separate transaction in which the service is paid does not mean that the arrangement is not fee splitting as described in the Rules of Professional Conduct.

A lawyer cannot do indirectly what would be prohibited if done directly.  Allowing the service to indirectly take a portion of the attorney’s fee by disguising it in two separate transactions does not negate the fact that the service is claiming a certain portion of the fee earned by the lawyer as its “per service marketing fee.”

As to the lawyer giving Avvo Legal Services money in exchange for a recommendation or referral of the lawyer’s services and whether the “marketing fee” can be considered the “reasonable costs of an advertisement”:

The service, however, purports to charge the lawyer a fee based on the type of service the lawyer has performed rather than a fixed fee for the advertisement, or a fee per inquiry or “click.”  In essence, the service’s charges amount to a contingency advertising fee arrangement rather than a cost that can be assessed for reasonableness by looking a market rate or comparable services.

Presumably, it does not cost the service any more to advertise online for a family law matter than for the preparation of corporate documents.  There does not seem to be any rational basis for charging the attorney more for the advertising of one type of case versus another.  For example, a newspaper or radio ad would cost the same whether a lawyer was advertising his services as a criminal defense lawyer or a family law attorney.  The cost of the ad may vary from publication to publication, but the ad cost would not be dependent on the type of legal service offered.

As the ABA Journal story indicates, Avvo continues to argue against this kind of result on the basis of things that maybe “ought” to be true but just aren’t “actually” true at the moment with respect to pretty much any state’s ethics rules.   Avvo also has in a variety of online spots advanced the argument that it is not even making referrals but just offering a marketplace.  All of this is extremely intellectually interesting from a distance of course because there are models for providing a “marketplace” that actually do work within the existing ethics rules, even ones where the company charges the attorneys for the privilege of getting to be in the marketplace.  But the approach in that regard doesn’t involve charging a fee that is only tied to successful outcomes – i.e., transactions where legal services are provided and fees paid.  (Although even that kind of approach can be made to work if the consumer is the one that pays the freight to the entity hosting the marketplace.)  A much less controversial approach along those lines would be like the eBay model of providing a marketplace, where the participants are paying a fee associated with being involved and they pay it whether they end up getting to a successful transaction or not.

Importantly, Avvo’s response to developments like this SC opinion also makes clear that it plans to carry on full speed ahead, as you’d expect it would given its size, its capital, and its investment in its approach.  That kind of reaction to regulatory barriers is very similar to other market disruptors in other industries who sort of take a “we’re so big and we’re so influential, we dare you to try to stop us” approach.  Uber would be a fine example, but as to Uber there is very little risk to the users or the drivers in being affiliated with the entity when regulators come calling.

As to Avvo Legal Services there are real, and potentially really serious consequences for participating lawyers.  Individual lawyers will make their own decisions, but South Carolina lawyers will have to be extremely reticent about doing business with Avvo Legal Services in light of this opinion.  And I don’t think the SC opinion will be the last to come out and to reach similar conclusions.  My guess is that this will be the first of several jurisdictions that will put out similar opinions.

Thus, if you are a lawyer that is thinking about participating in this kind of arrangement, or continuing to participate if you are already doing so, you know, of course, that no matter what Avvo won’t be the one getting reprimanded and they can’t serve your suspension for you, but it would be a pretty reasonable conversation to pursue to see if Avvo is willing to pay for the costs of your defense if you end up facing disciplinary proceedings over your participation.

 

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