A weird-ish court opinion here in Tennessee.

On the heels of my criticism of an ethics opinion out of New York as weird-ish, let me turn my attention closer to home to discuss a Court of Appeals opinion this week here in Tennessee that is fortunate for the law firm involved but unfortunate for lawyers in Tennessee in general.

In Guo v. Woods & Woods, PP (which you can read by clicking on this link: guox_031417 ) the Tennessee Court of Appeals issued an opinion that held that a lawyer (and his firm) were entitled to keep the entirety of a $7,000 fee paid to them at the beginning of a representation because it was earned when paid.  The outcome was certainly fortunate for the lawyer involved, and it is likely the correct outcome in the appeal if for no other reason than the inept nature of the effort of the pro se plaintiff on appeal, as the opinion describes.

The really unfortunate part of the opinion, however, is that it makes no reference whatsoever to our ethics rule – Tenn. Sup. Ct. R. 8, RPC 1.5(f) – that addresses what is necessary to charge a nonrefundable fee.  Instead, the Court of Appeals looked to an earlier appellate opinion from 2005 [before our state enacted RPC 1.5(f)] and applied a three-part test for non-refundable retainer fees established in that case, Stalls v. Pounders.

Charging and enforcing non-refundable retainer fees or other non-refundable fees is a tricky enough area.  The last thing Tennessee lawyers need is two separate tracks of authority to have to work through and seek to reconcile.  Particularly when one of them relates to potential discipline against their law license.  Unfortunately, this Court of Appeals opinion adds to that risk by not even acknowledging the existence of RPC 1.5(f).  The ethics rule reads:

A fee that is nonrefundable in whole or in part shall be agreed to in a writing, signed by the client, that explains the intent of the parties as to the nature and amount of the nonrefundable fee.

Given the pro se nature of the losing party in the matter and the small stakes involved, it seems unlikely that the case will go to the Tennessee Supreme Court where there would be an opportunity to make clear that a nonrefundable fee has to comply with RPC 1.5(f).  So, hopefully, over time there will not be any further appellate opinions in Tennessee that tackle this kind of matter without acknowledging the rule.

Until such time, the safer course for lawyers is to make sure to comply with the rule because it is hard to decipher a way that satisfying the rule would not also satisfy the Court of Appeals’ three-part test.  (Although insisting on saying that the fee has to be “just and reasonable” when the rule only requires that it be “reasonable” as explaned in cmt. [4a] to the rule at least creates a smidgen of doubt,)  The converse is not as clear particularly if you look at the language of the letter in Guo, take heed of footnote 2 in that opinion, and analyze the requirement in the rule that the writing has to “explain() the intent of the parties as to the nature and amount” of the nonrefundable fee.

Traps for the Unwary – Avvo Legal Services Comes to Tennessee

I’ve written previously about the maelstrom of issues presented by Avvo’s expansion from its original core business as a lawyer rating service into new things such as Avvo Legal Services — an arrangement where it makes clients, who will have already paid Avvo for the legal services they want, available directly to lawyers to perform certain limited duration, flat rate services.  This is not lead generation, which finds blessing in a Comment to ABA Model Rule 7.2.  Avvo’s own marketing materials make this perfectly clear:

Get paying clients, not leads.

With more than 8 million visits to Avvo each month, we can connect you with clients who have already paid for limited-scope legal services.  There’s no chasing leads.

Earlier this week, Avvo Legal Services launched in 4 more states, including Tennessee.  Right around the beginning of 2016, I wrote a post about why I don’t think anyone can do business with Avvo Legal Services in my state unless they can show compliance with RPC 7.6.  From the best I can tell, Avvo Legal Services hasn’t registered appropriately — they are not listed here — and that’s no surprise because back when its General Counsel was kind enough to interact on my site with a comment, he stated that it wouldn’t be registering as an intermediary organization.

Fundamentally, as I hinted at in the second post I wrote about the ALS rollout, the problem for any lawyer trying to decide whether to take on the risk of working with Avvo Legal Services is that ALS continues to largely ignore the gap between what perhaps “ought” to be and what actually “is” when it comes to various attorney ethics rules.

It is hard to blame Avvo for that approach, of course, as it, and the folks behind it, are in the business of making money and aren’t going to be the people who are going to get in trouble if their business model is ruled not to comply with the attorney ethics rules.  The people at risk of getting into trouble in those circumstances are the lawyers that decide to do business with Avvo Legal Services.

I can’t find anything that would involve any changes to the Avvo Legal Services business model that would change my initial conclusion that Avvo is likely to be treated as an intermediary organization under RPC 7.6 in Tennessee.

Of course, even if I’m wrong about that, the second layer of risk for Tennessee lawyers is that the most likely routes that might exist for trying to categorize what is going on as something not regulated by RPC 7.6 will only strengthen concern that the “marketing fee” that the lawyer pays Avvo is really fee-sharing with a nonlawyer.

And, Avvo Legal Services certainly does its case against the idea that it is sharing fees no favors when its General Counsel tackles the issue with a statement (appearing in the Frequently Asked Questions part of this link) such as:

Fee splits are not inherently unethical.  They only become a problem if the split creates a situation that may compromise a lawyer’s professional independence of judgment.

 

Now, I have no personal beef with Josh King.  He has been kind enough to post comments at my blog before and. like me, he’s an active member of the Association of Professional Responsibility Lawyers, and he’s advocating for his client’s position.  But the assertion that fee splitting is not inherently unethical and that a fee split is only a problem if might compromise professional independence of judgment is simply not a correct statement of the law.  It perhaps ought to be how the ethics rules are set up and perhaps ought to be how lawyers are regulated, but it isn’t how things currently are.

In Tennessee and many other states, the sharing of legal fees with a nonlawyer is inherently not okay and only ethical if it can be shown to fit one of the exceptions in RPC 5.4(a).  Maybe those rules should be changed, but any lawyer agreeing to participate in an arrangement that runs afoul of them until any such change occurs is running a real risk.

Is it a risk worth taking for any particular individual lawyer?  Not my call to make, of course, but you’d have to be extremely desperate to take on that kind of risk for say the $109 you would get, after Avvo takes its $40 marketing fee, for doing a document review.

ABA Formal Opinion 16-474: half (or more) of a pretty good opinion

Last week, the ABA Standing Committee on Ethics and Professional Responsibility issued its latest formal opinion – Opinion No. 16-474 addressing the topic of “referral” fees under the ABA Model Rules and, specifically, the intersection of Model Rule 1.5(e) and conflicts requirements under Model Rule 1.7.   Along the way, the opinion also stakes out a position on timing in terms of when the necessary written agreement required under Rule 1.5(e) must be created.

In its evaluation of the intersection of the conflicts rules and 1.5(e)’s requirements, the ABA opinion does a spot-on job of explaining why a lawyer who is going to share a fee, even under the assumption-of-joint-responsibility prong (i.e. something that without the assumption of responsibility would be pure referral fee prohibited under the ethics rules), has to recognize that they are representing the client and, therefore, can’t be involved in the arrangement without also being in compliance with the conflicts rules.

Though really just nitpicking, I do wish the opinion had taken the opportunity to explicitly address a relevant, related topic that I hear lawyers ask about from time-to-time (and that I think, and am happy to be corrected if wrong, the ABA has not previously addressed in a formal opinion) — if you have a conflict preventing taking on a prospective client, is it somehow unethical to give that person a referral to other competent counsel.  Absent truly extraordinary circumstances, if all the lawyer is doing is making a referral to another lawyer of the matter – without any component of fee sharing — then the answer should be that no conflict problem is created at all, and Formal Opinion 474 would have offered a nice opportunity to drive that point home through juxtaposition with any one of the three variations on The Flower Shoppe hypo offered up.

The logic that the opinion offers as to the “timing” question regarding when a writing must be created appears to have two parts to it.

The first is to stress the use of future tense in the text of the rule and in paragraph [7]  of the Comment.  (Rule 1.5(e)(2) – “including the share each lawyer will receive” & Cmt. [7] – “the client must agree to the arrangement, including the share that each lawyer is to receive”)  That logic only goes so far, however.  The language that the opinion stresses to make its point is a part of a rule that speaks separately about the act of the client agreeing to the arrangement and the act of the arrangement being memorialized in a writing.  Thus, placing so much emphasis on the use of “will receive” and “is to receive” isn’t a shatterproof construct beyond proving that a written memorialization that happened after the fee was paid out would be stretching it.

The second piece of the puzzle is the notion — supported by some case law citations in a footnote of the opinion –that the creation of a written agreement to indicate that the lawyer had undertaken joint representation is a meaningless act if it only happens after the representation has come to an end.  That also is a position that is not 100% true.  Given that many courts have allowed litigants to settle a case and then file suit against their lawyers for malpractice – claiming that but for a lawyer’s error, they could have gotten a better outcome — even an 11th hour written agreement to be jointly responsible for the outcome could be a quite meaningful financial commitment by a lawyer.  Further, the opinion stresses only one side of the coin – an arrangement based on assumption of joint responsibility.  If two lawyers and a client are late in papering up a fee sharing agreement based on proportional work performed, then there seems even less reason to insist that Rule 1.5(e) be read to take a later is not better than never approach.  It is also worth noting that even in the absence of such a writing, there are courts that have indicated that the lawyers involved may still be held to their agreement on sharing of fees.  See generally Daynard v. Ness Motley Loadholt Richardson & Poole, P.A., 178 F. Supp. 2d 9 (D. Mass. 2001).

Obviously, the better practice is for the written memorialization of the fee sharing arrangement to be created promptly in connection with the agreement itself, but as with many issues there ought to be some recognition that there is a difference between handling something in a way that is less than ideal and a declaration that conduct is unethical because the agreement, including the confirmation in writing of client consent, “must be completed before or within a reasonable time after the commencement of the representation.”

 

The Wisdom of Ferris Bueller. The reality of Machiavelli.

Life moves pretty fast.  If you don’t stop and look around once in a while, you could miss it. – Ferris Bueller

Back in December 2015, during my Ethics Roadshow I talked a little bit about one of the items that had been rolled out for public comment by the ABA Commission on the Future of Legal Services, model regulatory objectives that might be used by jurisdictions to examine both how they regulate lawyers and how they might go about regulating others who provide legal services.  The discussion I had about this topic with audiences was way too disjointed at the time. (It is a topic that itself could have had an hour’s worth of dedicated discussion, but it was just one of many topics covered during the three hours of my presentation repeated across several cities in Tennessee.)  Earlier this week, a version of those regulatory objectives was adopted by the ABA House of Delegates after heated arguments and over significant opposition.  The ABA is now hawking Resolution 105 as a way to move the needle forward in an effort to ensure that those who provide legal services to consumers but are not lawyers are appropriately regulated.  Time will tell whether that effort will gain traction.

It was slightly less than a month ago that the news started to roll out about the planned launch of Avvo Legal Services and I wrote about it here. At the time, it was being tested in five cities.  Presumably, such testing was positive (or the outcome of the testing never really mattered) because now the news comes along that Avvo Legal Services has officially launched in 18 states.  Which states?  Well you can go read the article at the link, or you can see the list at the end of this post.

I’ve always liked the Ferris Bueller and life does move pretty fast, but another quote somehow seems more appropriate in this moment, though it comes from someone much less lovable:

[F]or there is such a gap between how one lives and how one ought to live that anyone who abandons what is done for what ought to be done learns his ruin rather than his preservation. – Niccolo Machiavelli

Oh yeah, which states has Avvo Legal Services launched in and is looking to have lawyers participate:

  • Arizona (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may: 1) pay the reasonable costs of advertisements or communications permitted by this Rule; (2) pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service, which may include, in addition to any membership fee, a fee calculated as a percentage of legal fees earned by the lawyer to whom the service or organization has referred a matter, provided that any such percentage fee shall not exceed ten percent, and shall be used only to help defray the reasonable operating expenses of the service or organization and to fund public service activities, including the delivery of pro bono legal services. The fees paid by a client referred by such service shall not exceed the total charges that the client would have paid had no such service been involved. A qualified lawyer referral service is a lawyer referral service that has been approved by an appropriate regulatory authority….”)
  • California (Rule 1-600 (A) “A member shall not participate in a nongovernmental program, activity, or organization furnishing, recommending, or paying for legal services, which . . . allows any third person or organization to receive directly or indirectly any part of the consideration paid to the member except as permitted by these rules, or otherwise violates the State Bar Act or these rules.”)
  • Colorado (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a layer may (1) pay the reasonable costs of communications permitted by this Rule; (2) pay the usual charges of a not-for-profit lawyer referral service or legal service organization….”)
  •  Florida (Rule 4-7.17(b) “A lawyer may not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may pay the reasonable cost of advertising permitted by these rules, may pay the usual charges of a lawyer referral service, lawyer directory or other legal service organization….”)
  • Georgia (RPC 5.4(a)(5) “A lawyer or law firm shall not share legal fees with a nonlawyer, except that: . . . a lawyer may pay a referral fee to a bar-operated non-profit lawyer referral service where such fee is calculated as a percentage of legal fees earned by the lawyer to whom the service has referred a matter pursuant to Rule 7.3. Direct Contact with Prospective Clients.”)
  • Illinois (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may (1) pay the reasonable costs of advertisements or communications permitted by this Rule; (2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service….”)
  • Massachusetts (RPC 7.2(c) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may: (1) pay the reasonable costs of advertisements or communications permitted by this Rule; (2) pay the usual charges of a not-for-profit lawyer referral service or legal service organization….”)
  • Maryland (RPC 7.2(c) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may (1) pay the reasonable cost of advertising or written communication permitted by this Rule; (2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service….”)
  • Michigan (RPC 7.2(c) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may: Michigan Rules of Professional Conduct Last Updated 2/4/2015 (i) pay the reasonable cost of advertising or communication permitted by this rule; (ii) participate in, and pay the usual charges of, a not-for-profit lawyer referral service or other legal service organization that satisfies the requirements of Rule 6.3(b)….”)
  • North Carolina (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may (1) pay the reasonable costs of advertisements or communications permitted by this Rule; (2) pay the usual charges of a not-for-profit lawyer referral service that complies with Rule 7.2(d), or a prepaid or group legal services plan that complies with Rule 7.3(d)….”
  • New Jersey (RPC 7.2(c) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that: (1) a lawyer may pay the reasonable cost of advertising or written communication permitted by this Rule; … (3) a lawyer may pay the usual charges of a not-for-profit lawyer referral service or other legal service organization.”)
  • New York (RPC 7.2(a) “A lawyer shall not compensate or give anything of value to a person or organization to recommend or obtain employment by a client, or as a reward for having made a recommendation resulting in employment by a client, except that: . . . (2) a lawyer may pay the usual and reasonable fees or dues charged by a qualified legal assistance organization or referral fees to another lawyer as permitted by Rule 1.5(g).”)
  • Ohio (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may pay any of the following: (1) the reasonable costs of advertisements or communications permitted by this rule; (2) the usual charges of a legal service plan; (3) the usual charges for a nonprofit or lawyer referral service that complies with Rule XVI of the Supreme Court Rules for the Government of the Bar of Ohio ….”)
  • Pennsylvania (RPC 7.2(c) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may pay: … (2)  the usual charges of a lawyer referral service or other legal service organization….”) (RPC 7.7(b) “A ‘’lawyer referral service’’ is any person, group of persons, association, organization or entity that receives a fee or charge for referring or causing the direct or indirect referral of a potential client to a lawyer drawn from a specific group or panel of lawyers.”)
  • Texas (Rule 7.03(b) “A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed to practice law for soliciting prospective clients for, or referring clients or prospective clients to, any lawyer or firm, except that a lawyer may pay reasonable fees for advertising and public relations services rendered in accordance with this Rule and may pay the usual charges of a lawyer referral service that meets the requirements of Occupational Code Title 5, Subtitle B, Chapter 952.”)
  • Virginia (7.3(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may:(1) pay the reasonable costs of advertisements or communications permitted by this Rule and Rule 7.1; (2) pay the usual charges of a legal service plan or a not-for-profit qualified lawyer referral service ….”)
  • Washington (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may (1) pay the reasonable cost of advertisements or communications permitted by this Rule; (2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service….”)
  • Wisconsin (RPC 7.2(b) “A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may: (1) pay the reasonable cost of advertisements or communications permitted by this rule; (2) pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service. A qualified lawyer referral service is a lawyer referral service that has been approved by an appropriate regulatory authority….”)

Pursuing a popular cause? Crowdsourcing payment of your fees may be an option for your client.

Some time ago, I wrote a bit about how existing ethics rules make attempting to use Kickstarter to launch a law firm not a viable option.  The primary problem with using crowdsourcing to raise funds to start a law practice is the prohibition in the ethics rules on nonlawyer ownership or investment in law firms.

Having someone other than a client pay the fees and expenses of an attorney, however, is a concept that the ethics rules have long acknowledged, permitted, and embraced as long as certain safeguards are in place — primarily measures to make certain the attorney does not permit the person paying the fees to call the shots or impact the lawyer’s independent professional judgment.

Thus, it should come as no surprise to hear that the use of crowdsourcing platforms to raise money to pay for attorney fees is permitted by the ethics rules as long as the same kinds of safeguards are in place.  Yet, given that new technologies can sometimes lead bodies that draft ethics opinions to lose sight of the “old wine in a new bottle” aspect of some questions, it is always refreshing to read a well-written ethics opinion that gets the answer to such a question correct.

And that is exactly what the Philadelphia Bar Association’s Professional Guidance Committee offers in Opinion 2015-6.  And to make matters even better, Opinion 2015-6 does so in the context of educating the lawyer who made the initial inquiry that s/he can accomplish the goal but not in a fashion different from what s/he initially contemplated.

Opinion 2015-6 starts out answering an inquiry from a lawyer who is contemplating representing a client who cannot afford to pay a fee in pursuit of litigation against a government entity on a cause of action that would not include damages but where the possibility exists for a statutory attorney fee award.  The lawyer’s proposal in requesting the opinion was:

to solicit compensation for his or her work on a crowdfunding platform, an internet site that enables users to post information about a project and solicit financial contributions from persons who believe the project to be a worthy cause.  The inquirer would publicize the anticipated litigation on such a website and solicit contributions to serve as his or her fee.

The lawyer’s inquiry also explained that any contract with the client would make clear that money obtained from crowdfunding would belong to the lawyer under any circumstances.  Before working through the ethical issues implicated by, and the one real flaw associated with, the specific proposal, Opinion 2015-6 offered highly practical, and ultimately helpful, advice about the existence of an alternative that should work much better under the guidance the rest of the opinion will provide:

It is possible to raise funds on a crowdfunding site to support litigation, either by paying lawyers’ fees or expenses or both, but to hold the funds raised in some sort of trust arrangement and pay them out only as earned or incurred.

After teeing up the existence of this alternative, to which it returns in its discussion about the ethical requirement for reasonableness of fees, the opinion works through the traditional concept under the ethics rules permitting someone other than the client to pay an attorney’s fees as long as the safeguards imposed by RPC 1.8(f) are met.  The opinion then addresses the reality that, in order to avoid violating RPC 1.6, the client will have to give consent to any disclosures about the case that would be made in connection with seeking to raise funds from public supporters on any such site.

The longest portion of the opinion, however, involves working through why having the money raised be the property of the lawyer creates ethical problems — and simultaneously why the contrasting alternative approach where the funds raised belong to the client (or even to a separate entity created on the client’s behalf) — is a much sounder ethical approach for lawyers.

We suspect that the inquirer anticipates that the amount raised will total far less than he would expect to be paid if the matter takes as long as he or she now anticipates, he or she spends the total number of hours now anticipated and if those hours were compensated at average rates of pay in the area.  However, it may not turn out that way…. The litigation could end quickly, either favorably or not; before the litigation’s end the inquirer may seek to withdraw or the client may wish to discharge him; or the inquire may or may not succeed in seeking the payment of fees and expenses under an applicable fee shifting statute…. Without knowing how much was raised, it would therefore be difficult to determine whether or not the fees would be clearly excessive….

Opinion 2015-6 then proceeds to explain the kind of agreement attorney should enter into with client to pursue such an endeavor so as to avoid the RPC 1.5 concerns:

First, the fee arrangement should include terms which describe the lawyer’s obligations including the lawyer’s obligation to remain in the case, assuming the client wishes him to do so, until its conclusion or until some other point at which retention of the total fees paid would not constitute an excessive fee.  For example, the fee arrangement with the client could state that the inquirer is obligated to remain in the representation until the time expended reaches a total figure such that the total fee paid is reasonable in light of that time expended.

Second, the arrangement should require that the amount raised be placed in a trust account established under Rule 1.15 until those amounts are earned in accordance with the terms of the final fee agreement.  Until such time that it is determined that the fee is actually earned, the monies raised constitute Rule 1.15 funds and should be held separate from the lawyer’s own property.

The best part of the Philadelphia committee’s willingness to proffer such guidance is that it makes this kind of crowdfunding endeavor practically much more viable in terms of fundraising.  One would anticipate that the average person would be more likely to throw some money toward an impecunious client than a lawyer representing that client.  But even if the client in question would not qualify as impecunious, having the person who is the face of whatever cause is being pursued as the person making the plea for funds that can be used to pay an attorney seems like a rich vein of opportunity.  Particularly so, given how divided the public is on so many polarizing issues and how fervently each side feels on a variety of issues, such that the number of “causes” that could be popular enough to generate ample fundraising is likely larger than you might otherwise think.

And, I’m certainly no tax lawyer, but depending on the nature of the cause to be pursued, I would guess the possibilities exist for the creation not only of entities separate from the client who would be the recipient of the funds raised and then paid on the client’s behalf to an attorney but also of even entities that might qualify as non-profits in terms of the “mission” of the litigation.

(One caveat worth referencing is that in any jurisdiction in which the mostly outdated concepts of champerty, maintenance, or barratry are still alive and kicking, an attorney would be wise to assist a client in working through whether any of those common law doctrines might offer some risk to an otherwise potentially successful crowdfunding endeavor.)

[Edited to add: Crowdsourcing also works for editing purposes.  Thank you kind reader for catching my significant error which is now corrected above.]

Avvo Legal Services won’t work in Tennessee without RPC 7.6 compliance, but should it be so?

The evolution of Avvo from its origins as a lawyer-rating service to something with a much, much more extensive impact in the legal marketplace continued this week with the news of the launch of Avvo Legal Services.  Robert Ambrogi was, as often is the case, the first to break the news online about the development, briefly describing the nature of the service and helpfully linking to the FAQ Avvo offers attorneys about it.

The nutshell version of what exactly this is can be found in the Attorney FAQ under “What are Avvo Legal Services?

Avvo Legal Services are fixed-fee, limited scope legal services determined by Avvo and fulfilled by local attorneys.  Avvo defines the services and prices.  Attorneys choose which services they would like to offer in their geographical area.  Local clients purchase legal services, choose the attorney they want to work with, and pay the full price of the service up front.  The chosen attorney then completes the service for the client and is paid the full legal fee.  As a separate transaction, the chosen attorney pays a per-service marketing fee for the completed, paid service.

Now a writer at the Solo Practice University blog has already teed up a thoughtful piece asking some questions about fee-splitting concerns, which do seem significant when, despite the separate transactions involved there is no question that the “marketing fee” rises as the attorney fees charged rises, and whether it would be highly inadvisable for lawyers to run these transactions through their trust accounts.  I will, for the most, part omit further discussion of those two issues for now.

However, Avvo can say what it wants in its FAQ about why this service is not a lawyer referral service (just as it can attempt to analogize its marketing fee to a credit card processing fee if it thinks that might fly), but I don’t think there is any doubt that, under current ethics rules in a number of states, lawyers who participate with Avvo Legal Services will be taking on significant risk.

Should a lawyer in Tennessee, for example, want to participate in this arrangement (assuming a future roll out here), the likely outcome of any scrutiny would be that the lawyer would violate RPC 7.2(c) unless and until Avvo Legal Services can manage to obtain approval as a registered intermediary organization under our RPC 7.6.

This becomes clear when you look at each of those two Tennessee rules.

Our RPC 7.2(c) generally prohibits a lawyer from “giv[ing] anything of value to a person for recommending or publicizing the lawyer’s services” but provides 4 specific exceptions.  Two of those exceptions are unquestionably unavailable with respect to Avvo Legal Services (publicity in exchange for charitable sponsorships/contributions or purchase of a law practice).  One of the exceptions involves the usual charges of a registered intermediary organization permitted by RPC 7.6.  The other allows payment for “the reasonable costs of advertisements permitted by [RPC 7.2].”

Now, perhaps a lawyer handling cases through Avvo Legal Services could muster an argument that the “marketing fee” being paid is just the reasonable cost of an advertisement.  But nothing about the way Avvo Legal Services describes the program lends itself to such a view as everything about the explanatory materials point to the idea that the lawyer is paying for a result — a paying client — and not just an advertisement.  It’s also paying more for a more lucrative client engagement.  From paying $40 to earn $149 in attorney fees, up to paying $400 to earn $2,995 in attorney fees.

Nevertheless, paying the “marketing fee” could be justifiable under RPC 7.2(c) if it is the “usual charge” of a registered intermediary organization.

Given how broadly Tennessee RPC 7.6(a) defines the term “intermediary organization,” it seems difficult to figure a way that the Avvo Legal Services program would not meet the definition:

An intermediary organization is a lawyer-advertising cooperative, lawyer referral service, prepaid legal insurance provider, or a similar organization the business or activities of which include the referral of its customers, members, or beneficiaries to lawyers for the provision of legal services to the organization’s customers, members, or beneficiaries in matters for which the organization does not bear ultimate responsibility.

Whether or not Avvo Legal Services becomes properly registered will matter to Tennessee lawyers not only because then they could ethically pay a “usual charge,” but also because a Tennessee lawyer would be ethically prohibited by RPC 7.6(b) from “seek[ing] or accept[ing] a referral of a client, or compensation for representing a client, from” Avvo Legal Services unless several specific things were true.  For today’s purposes, the most significant would be that Avvo Legal Services would have to have “registered with the Board of Professional Responsibility and complied with all requirements imposed [on it] by the Board.”  RPC 7.6(b)(iv).

Tennessee lawyers can check, at any time, the list of entities that are properly registered with the Board in this respect at this link.  You’ll see that Avvo Legal Services is not on that list; of course, their current roll out explains that they are only launching in a few cities to start.  Presumably, Avvo Legal Services might pursue registration under our RPC 7.6/Supreme Court Rule 44 before opening the program up to lawyers in any Tennessee cities.

But should it have to?  What really is the rationale that would be used to justify why this sort of service should be off-limits to lawyers?

In jurisdictions that do not have Tennessee’s approach under RPC 7.2(c) and  RPC 7.6, this service may be more viable, albeit still burdened by a few thorny issues regarding arguments that this is fee sharing or what role Avvo Legal Services has (an agent/fiduciary for the client or an agent for the attorney or what exactly?) while it holds money paid by the client for the rendering of legal services.

Unlike Tennessee’s RPC 7.2(c), the ABA Model Rule does not include the words “or publicizing” and only imposes restrictions on the ability to pay someone for “recommending the lawyer’s services.”  Further, language in the Comment  to ABA Model Rule 7.2 further distinguishes between “recommendations” and “channeling” of work to the lawyer, as [5] indicates that while payments for recommendations are off limits altogether but that paying others for “channeling work” is only a problem if the channeling is “in a manner that violates RPC 7.3.”  Further, that same Comment elaborates that

a lawyer may pay others for generating client leads, such as Internet-based client leads, as long as the lead generator does not recommend the lawyer, any payment to the lead generator is consistent with Rule 1.5(e) (division of fees) and 5.4 (professional independence of the lawyer), and the lead generator’s communications are consistent with Rule 7.1 (communications concerning a lawyer’s services).

Yet, even with that seeming additional flexibility in jurisdictions that track the ABA Model Rules approach, issues would remain that will depend significantly on how the program actually works — particularly the consumer side of the interactions.  The very next sentence of that Comment exhorts that a lawyer “must not pay a lead generator that states, implies, or creates a reasonable impression that it is recommending the lawyer, is making the referral without payment from the lawyer, or has analyzed a person’s legal problems when determining which lawyer should receive the referral.”

A review of what appears to be the consumer-side FAQ for Avvo Legal Services does not contain any explicit disclosure of the fact that the attorney providing the service will be paying Avvo Legal Services for getting to work for the client.  In addition to what it doesn’t say, it has some language that could be construed as at least “implying” a recommendation of the particular lawyer doing the work:

You will work with the lawyer you selected during checkout. For phone call advice sessions, you can also choose to speak to the next available lawyer. In that case, Avvo will connect you with a highly reviewed attorney who is experienced in your topic area and licensed to practice in your state.

But, again, a question worth asking is:  should this be something the ethics rules work to prohibit?  Avvo Legal Services certainly seems to think that this endeavor can be sufficiently profitable, which strongly implies that there are a large number of consumers of legal services who would be willing to make use of such an arrangement and, ultimately, a significant number of lawyers who would be willing to provide services to such consumers in this manner and on these financial terms.  So, the larger question ought to be — if the rules governing our profession will not abide this kind of arrangement, then what is the rationale for nixing it?

Just who exactly are we seeking to protect, and why?

More on contingent fees and the overall requirement of “reasonableness”

In my last post of 2015, in the context of a discussion of a slightly different fee topic (nonrefundable fees), I made reference to the overarching “reasonableness” requirement under the ethics rules for attorney fees of any flavor, including contingency fees.  The example I grabbed for at the time was how a 60% contingency fee could be subject to attack as unethical even if a client had agreed to it in a signed writing that would otherwise meet all of the requirements to comply with RPC 1.5(c).

The Eye on Ethics column in the January 2016 issue of the online YourABA has a good, overview-style article worth reading for lawyers who use contingent fee agreements as their stock in trade.  The article lays out the traditional issues that lawyers are expected to wrestle with before deciding to enter into a contingency agreement, as well as the different approaches used by jurisdictions in evaluating whether a particular contingency agreement was reasonable.  It helpfully highlights the variance among jurisdictions with the biggest impact in such disputes — whether the reasonableness of a contingency fee agreement will be judged only on a prospective basis looking at the case as it appeared at the outset or whether such an arrangement is fairly scrutinized with the benefit of hindsight.  If a contingency arrangement is permitted to be scrutinized only after the litigation has played out, you can expect the results to be harsher for attorneys seeking to enforce such an agreement over a client’s objection.

And, to be clear, I keep saying that the evaluation of a contingent fee under RPC 1.5(a) involves a determination of reasonableness, but that is not, strictly speaking, true.  The evaluation actually involves determining whether the contingent fee can be said to be unreasonable.  In most instances, reasonable versus unreasonable can be thought of as a binary concept, like an on and off switch.   When it comes to interpreting a rule prohibiting the charging of an unreasonable fee rather than mandating lawyers charge only a reasonable fee, there is room for more nuance at the margins.  The “not unreasonable” fee, if you will.  And, in the world of determinations of reasonableness. it still remains true that “whether the fee is fixed or contingent” is just one of many factors under RPC 1.5(a) for determining reasonableness (here in Tennessee it is just 1 of 10; under the ABA Model Rules approach it is 1 of 8).

The ABA Eye on Ethics article does an admirable job of surveying the landscape in terms of some of the case law scrutinizing contingent fee arrangements.  The article also reminds readers about some of the guidance provided by the ABA more than 20 years ago in Formal Opinion 94-389.  The article picks these four of the thirteen factors listed in 94-389 to stress:

What is likelihood of, or any anticipated difficulties in, collecting any judgment?  What is the amount of time that is likely to be invested by the lawyer?  What is the client’s ability and willingness to pay a noncontingent fee?

But there are two others listed in Formal Opinion 94-389 that really should not be overlooked:  “The attitude and prior practices of the other side with respect to settlement,” and “The likely amount of the fee if the matter is handled on a non-contingent basis.”

My strong suspicion has long been, and continues to be, that plaintiffs’ lawyers who routinely have the kind of conversation with a client about whether something other than a contingency fee might be in their best financial interest contemplated by 94-389 are the exception and not the rule.  To some extent, I think it is because many lawyers are not aware that the ethics rules can be construed in a fashion that contemplates such a conversation occur.  For example, Tennessee’s rule doesn’t give a tremendous level of detailed guidance when it says: “Contingent fees, like any other fees, are subject to the reasonableness standard of paragraph (a) of this Rule.  In determining whether a particular form of contingent fee is reasonable, or whether it is reasonable to charge any form of contingent fee, a lawyer must consider the factors that are relevant under the circumstances.”  A lawyer has to dig into ethics opinion, like 94-389, and case law to get a better sense of the standard to which s/he might ultimately be held.  In Tennessee, a lawyer who digs in may be surprised to find case law support for the idea that the lawyer’s fiduciary duty extends so far as to cover initial negotiations over fees with a potential client.  See Alexander v. Inman, 974 S.W.2d 689, 694 (Tenn. 1998).

My instinct though is that the larger explanation for why these conversations don’t often occur is because the business model of a plaintiffs’ contingency fee practice involves having to balance out losses with recoveries and that need for balance makes it very difficult for lawyers to give clients whose cases look like lucrative, low-hanging fruit on the front end the chance to negotiate a flat fee or to arrange an hourly fee structure for work performed.  (And, in some shops, hourly billing is not even in the realm of the possible because the firm’s lawyers don’t keep time records as a matter of course.)

“Licensed to bill?” or “When a fee award won’t hold its worth”

Practicing in the part of the world that I do, I gape with both amazement and jealousy at the hourly rates lawyers are able to charge in much larger metropolitan areas.  I try not to think about the difference in a way that is demeaning; instead, I try (perhaps just for more own sanity) to be rational and remember that you can buy a 3,500 plus square foot home in my part of the world for what a studio apartment in New York City might cost.  So, to some extent, it is all relative.

What is pretty consistent though is that people tend to be willing to really pay some exorbitant amounts in attorney fees — even amounts that seem well out of proportion to the size of their dispute — when they are hopeful that someone else will be the one to ultimately foot the bill.

A high-profile example of this phenomenon can be found in the intellectual property dispute between the Beastie Boys and Monster Energy Drink.  After the Beastie Boys prevailed, they sought to shift some $2.4 million in fees they incurred.  Their effort to offload the full amount of their attorney fees onto Monster Energy Drink was rebuffed because the court considered them to have chosen and paid for a Cadillac Escalade instead of a Honda Civic.  So, the attorney fee award against Monster was reduced to a smidge above $667,000.

Earlier this month, an example closer to home of this phenomenon surfaced when the Tennessee Court of Appeals reversed a trial court’s attorney fee award of over $460,000 as alimony in solido in Holdsworth v. Holdsworth.

The court of appeals, of course, could have simply stopped its opinion after indicating that the award had to be reversed because the recipient, the wife, had not demonstrated financial inability to get counsel (her parents paid in exchange for promissory notes) and because both she and the husband would be equally harmed by having to deplete their marital share to pay the amount.  The judges did not stop there, however.  Instead, the appellate court managed to simultaneously call out, and take it a bit easy, on a prominent domestic attorney in Tennessee for managing to run up more than $460,000 in attorney fees and expenses defending a divorce case in which the total estate was ultimately determined to be worth slightly less than twice that amount:  “We would be remiss if we did not convey our displeasure with the extraordinary amount of attorney’s fees incurred in this case.”  Yet, after then laying out its view that there really was not much in the case for the parties to fight about, the court then opted for rhetoric of the “pox on both houses” variety when simple math would indicate that one side’s lawyer may have run up a bill 9 times higher than the other side:  “Nevertheless, the parties somehow incurred more than half of a million dollars in attorneys’ fees and expenses.”

From an ethics perspective, the key point is, I guess, an obvious one — RPC 1.5(a) imposes a requirement of reasonableness on all attorney fees charged.  It is true that (a)(1) indicates that whether “the fee agreement is in writing” can make it easier to survive a reasonableness challenge when a client has agreed to the fee terms in writing, but there are nine other factors under the rule as well and whether a client is being charged by the hour or on a contingent fee basis, even a fee that a client has agreed to and paid can later cause real problems for the lawyer if it turns out to be unreasonable.  As long as the client is happy, however, it is much less likely to become an issue.  When your client is involved in an effort to shift those fees to someone else though, that same fee becomes much more likely to be scrutinized by the court, and it is worth remembering that none of the factors laid out in RPC 1.5(a) that address what makes a reasonable fee relate to whether or not someone else beside the client would ultimately be on the hook for it.

(P.S.  Apologies for the Bullwinkle-style title, I’m showing my age…”)

Traps for the unwary – Mid-stream changes to your client’s fee agreement

When lawyers think about problematic business transactions with a client, they usually think about things like loans or, perhaps, situations in which a lawyer is joining a client as an investor in a business venture.  The ethics rule regarding business transactions with clients, RPC 1.8(a), is broader in its coverage than just those situations and, in fact, broader than many lawyers realize.  A particular issue that pops up from time-to-time to cause trouble for lawyers is failure to understand that RPC 1.8(a) applies when you renegotiate a fee agreement with a client.  Given the nature of the attorney-client relationship and the broad fiduciary duties attorneys owe their clients, it should be logical that a lawyer faces a heavier than normal burden when trying to turn an existing fee agreement with a client into something more favorable for the lawyer.

It was but one of two problems involving handling of client fees, but failure to comply with RPC 1.8(a) when changing the terms of his client’s fee agreement was part of the reason a Tennessee lawyer was publicly censured at the end of last month.

The trap for a lawyer who does not realize that RPC 1.8(a) applies to such a change is that, even a change that would still amount to a reasonable fee arrangement in compliance with RPC 1.5, amounts to a violation of the rules unless it meets all of the additional requirements of RPC 1.8(a).  (Because the purpose of this rule is to prevent the lawyer from taking advantage of the client, RPC 1.8(a) does not apply when a lawyer is re-doing the terms of a fee agreement to make it more favorable to the client (i.e. marking down or walking away from a bill for example or agreeing to lower their hourly rate)).

Though numbered as three sub-parts, there are actually five additional requirements  to be met: (1) there has to be a writing transmitted to the client that discloses the transaction and the terms in a manner reasonably understood by the client; (2) the transaction and terms have to be fair and reasonable to the client; (3) the client has to be advised in writing that it is desirable to seek independent legal counsel for advice on the transaction; (4) the client must be given a reasonable opportunity to seek independent legal counsel; and (5) there has to be a writing, signed by the client, showing the client’s informed consent to the terms and the lawyer’s role (including whether the lawyer was also representing the client in the transaction.

Comment [1] to the rule offers a pretty specific pointer to try to make it harder for a lawyer to be unwary and, thus, prevent this rule from serving as a trap.  The next sentence in Comment [1] makes clear that this rule does not apply to standard commercial transactions (e.g. you represent a large bank and you also obtain a home mortgage from that bank) not only because requiring compliance would be impracticable but also because there is no real concern of an imbalance between lawyer and client in such situations.

When there is any real doubt about what the net outcome of a midstream fee change would be, the safe course is to make sure to comply with RPC 1.8(a).  Thus, while a lawyer who has been handling a plaintiff’s case on a hourly fee basis may be able to argue that moving the arrangement over to a contingent fee agreement was for the client’s benefit to avoid a burden of continuing to pay fees on a case that might not be successful, it’s a very risky endeavor to proceed without making sure that you tick each of the boxes to comply with RPC 1.8(a).

TN’s Approach to Nonrefundable Fees – A Reminder

Near the end of February 2015, the New York City Bar put out its Formal Opinion 2015-2 evaluating a question of propriety of a flat, nonrefundable monthly fee in a retainer agreement and reached the conclusion that a particular one that was something of a “hybrid” was problematic.  Although the NYC opinion makes for a good read, it is of limited utility in evaluating these issues in Tennessee.

While New York has an RPC 1.5(d)(4) that prohibits non-refundable retainer fees, Tennessee has gone in a significantly different direction.  RPC 1.5(f) in Tennessee makes nonrefundable fees enforceable provided that they are reasonable in amount and that the fee is “agreed to in a writing, signed by the client, that explains the intent of the parties as to the nature and amount of the nonrefundable fee.”  Tennessee lawyers, of course, still have to tread carefully in this area — especially with respect to avoiding problems of commingling by depositing a fee designated as nonrefundable (and therefore earned upon payment) into a client trust account rather than into an operating account where it belongs.