Monday, January 25, 2016

Avvo joins the legal market; now offers legal services through network of attorneys; should attorneys be concerned?

Avvo, the somewhat controversial (here and here) online rating company, has evolved into what it calls an online legal services marketplace now offering fixed-fee, limited-scope legal services through a network of attorneys.  This is not surprising since the company's CEO has participated in a number of events calling for the opening of the legal market to outsiders and the elimination of regulation on the unauthorized practice of law to open the way for Avvo itself to join the market.  (You can see a video of one of these events here.)

Finding new ways to provide access to legal representation, including by relaxing some regulations, is not necessarily a bad thing.  But one must be careful not to make mistakes since the regulations have not been relaxed yet.

As I have argued before, the new buzzword in Legal Ethics these days is the notion of "innovation" and states and the ABA are trying to find ways to encourage innovation.  Yet we shouldn't rush to try to be innovative at the risk of creating other problems.  I have no problem with innovation, or change or new initiatives, and I most certainly don't have a problem in trying to find ways to provide access to legal services for people who can't afford them, but whatever is done should be done with a full understanding of the professional responsibility principles involved and of the possible consequences for possible mistakes.

Not too long ago, I made that observation when commenting on the ABA initiative with a company called Rocket Lawyer (another one of those so called online legal services marketplaces).  You can read my comment here.

I am repeating it now in light of the announcement that Avvo is now offering "legal services through a network of attorneys."

Avvo first got into the business of offering legal advice last year when it launched Avvo Advisor, a service that provides on-demand legal advice by phone for a fixed fee of $39 for 15 minutes.  Just a couple of weeks ago, however, the ABA reported that Avvo has begun testing a service that offers fixed-fee, limited-scope legal services through a network of attorneys, and plans to roll out the service more broadly over the next few months.  (You should also read the comments posted at  the end of the ABA Journal story.)

That's a whole different ballgame and one that deserves a closer look.

As described elsewhere, attorneys can sign up with Avvo to offer services by agreeing to pay a "marketing fee" the value of which will depend on the services rendered.  Clients would choose an attorney from those registered with Avvo and form an attorney-client relationship with the attorney (not with Avvo).  Avvo essentially serves as a means for the client to find an attorney.

Viewed this way, Avvo is essentially helping people find a lawyer who can serve their needs. Yet, Avvo claims it is not a referral service.  Why?  Maybe because lawyers have to pay Avvo a fee to get Avvo to connect them with clients, and the rules in most, if not all, jurisdictions say it is unethical to pay a third party for recommendations or referrals except under certain circumstances.  Thus, ABA Model Rule 7.2(b), which has been adopted in the vast majority of jurisdictions, states that “[a] lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may . . . 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. . . .”  Avvo is a for profit business.  Whether it is "a qualified referral service" depends on the law of each jurisdiction.

But, as long as you are willing to take Avvo's word for it, the is question moot anyway because Avvo clearly states in its website that it is not a referral service.  So, there.

This brings us to the issues that arise when we start to look at how money is exchanged and what the money pays for. 

Here is what Avvo itself says about this in the FAQ section of its website:
"Should I be concerned about fee-splitting?  No. Avvo always sends you 100% of the client’s payment. As a completely separate transaction, you will pay a per-service marketing fee. We know this issue is extremely important to participating attorneys. Here’s what ethics expert and Avvo General Counsel Josh King says on the matter, "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. We believe that Avvo Legal Services fees, like credit card fees, would involve the sort of technical fee split that would not create such a potential for compromise. Nonetheless, we have tried to keep things simple and clear by making the per-service marketing fee a separate charge."
. . . . Does this count as fee splitting?  No. As mentioned in the ethics section of this FAQ, Avvo always sends you the entire legal fee paid by the client. The per-service marketing fee is a completely separate transaction. We know this is extremely important to participating attorneys. Here’s what ethics expert and Avvo General Counsel Josh King says on the matter, "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. We believe that Avvo Legal Services fees, like credit card fees, would involve the sort of technical fee split that would not create such a potential for compromise. Nonetheless, we have tried to keep things simple and clear by making the per-service marketing fee a separate charge.”

Of course, I am sure that Avvo believes its service does not violate the rules of professional conduct, but the fact they believe it, by itself, does not make it so.  Do your own research before you commit to something that might become a problem.

Start by taking a look at what Avvo says about fee splitting:  "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."

That statement is, at best, confusing.  Let’s start with the basics.  Model Rule 5.4, which has been adopted in pretty much every jurisdiction, states clearly that a it is misconduct to share a fee with a non-lawyer except under one of four enumerated circumstances and, at least the way I read it, the agreement described by Avvo does not fall within any of them.  Of course, however, it is possible that a particular jurisdiction has different language that would recognize the validity of this type of agreement, and some jurisdictions have ethical opinions that have concluded it would be OK to share a fee with a non professional under certain circumstances.

Thus, at least as far as the Model Rule is concerned, unless allowed by one of the specific exceptions, splitting fees with a non lawyer is unethical, inherently or otherwise.  It just is. Why?  Because the rules say so, period.  Because the rules take the view that splitting fees with a non lawyer inherently creates a situation that may compromise a lawyer's professional independent judgment.  In other words, according to the Model Rules, splitting fees with non-lawyers is inherently unethical.

If you are going to argue the specific agreement does not violate the rule, you are going to have to develop some sort of analysis to show the agreement is not an example of splitting a fee.

Avvo wants it both ways.  They claim, without analysis, that their program does not constitute splitting fees, but, just in case, they also claim that even if it is, splitting fees is not unethical unless there is a conflict of interest.  Problem is there is no analysis to support the first part of this conclusion and the second part is contrary to the state of the law.  

As an aside, I am assuming here, of course, that Avvo does not want to be considered a law firm.  If it is a law firm, then the applicable rule is 1.5(e), which allows the splitting of fees among lawyers in different firms.  Yet, Avvo would not want that rule to apply because this is allowed only if the requirements in that rule are strictly met, which is not the case in the Avvo type business relationship with the lawyer. 

So, this brings us back to the question of whether the Avvo-Lawyer agreement does or does not constitute splitting of a legal fee with a non-lawyer (which, as stated above would be a clear violation of the rules).

According to Avvo, here is how the service works: A customer selects a lawyer for a particular legal need through the Avvo website and pays for the service the full flat fee assigned for that service up-front.  Avvo retains that money until after the service is performed.  Then, on the 7th of the month, Avvo will send the lawyer the full fee, and in a separate transaction will deduct a “per-service marketing fee” for each completed legal service. The amount of this fee depends on the service, and ranges from a $40 marketing fee for a $149 service to a $400 marketing fee for a $2995 service.  Avvo specifically says the withdrawal of the service fee is a separate transaction “to avoid any fee-splitting concerns.”

[By the way, note that Avvo pays the attorney on the 7th of the month, not when the work is completed, so God forbid you finish the work on the 8th or you’ll have to wait a month for your check...  But I digress.]

What could go wrong?  Let’s review. 

Let’s start with the fact that when a client pays for services up-front, a lawyer has an ethical obligation to keep a client’s money in a separate trust account, which in many jurisdictions has to be an interest bearing account (IOLTA) account.  Since most jurisdictions have held that flat fees are not earned upon payment, by definition (at least in those jurisdictions) they fall in the category of fees that need to be in a trust account.  According to the Avvo plan, however, the lawyer is allowing Avvo to handle those fees with (to my knowledge) no assurance that the fee will be held in a trust account, much less an IOLTA account, with the interest paid to the appropriate state agency.  That could be a problem.

Then let’s think about the second transaction.  The first thing to notice is that the amount of the so-called marketing fee varies depending on the amount of the flat fee.  Unless I am missing something, this sounds to me like the marketing fee is really a percentage of the attorney’s fee.  You’d have to do the math to determine the amount of the percentage, but since both fees are pre-determined, it shouldn’t be difficult.  So, what is really happening here is that Avvo is collecting a percentage of the fee the client pays the attorney.  The fact it does it separately, in a second transaction, does not change that fact.  Does that sound to you like splitting a fee with a non-lawyer?

Next, does anyone see anything wrong with a lawyer giving Avvo direct access to a lawyer’s (or the firm’s) bank account so Avvo can make withdrawals directly?  I see two issues here.  You can see the problem if the attorney gives Avvo access to the firm's trust account, right?  First, giving anyone (other than the bank) access to that account in and of itself is a problem.  Second, when Avvo takes money out of that account to pay for the marketing fee, the lawyer is by definition using client money to pay for operating expenses.  That's, at least, commingling.

Maybe these problems can be avoided by giving Avvo access to the firm's operating or general account.  I suppose that would be OK in terms of ethical issues, but I wonder whether it is a good idea.  This is a personal decision, but I wouldn't feel comfortable giving others the ability to take money out of my bank account directly... but that's just me...  I would want assurances on the security measures taken to protect my bank account information.  I don't want my account to be vulnerable if the other company gets hacked and my information is stolen or misplaced or something... Maybe, the best option is for the lawyer to open an account to be used only for transactions with Avvo.  That could work, if that is something Avvo would agree to.   None of this has to do with the rules of professional conduct or ethics, though... So let's get back to that discussion.

So after all this, what is Avvo and what is it doing?  If Avvo is not a referral service, and it doesn't want to be considered to be a provider of legal services (a law firm) either, we are forced to go back to the issue of splitting fees with a non-lawyer.

When it talks to consumers Avvo says it "offers legal services" but when it talks to lawyers and its regulators it says we offer "a platform" for "marketing" of legal services.  If Avvo is offering legal services then it should be subject to the same regulations that all legal services providers are subject to.  If it isn't then the lawyers it serves need to make sure that by entering into agreements with it, the lawyers don't violate the rules the lawyers are subject to.  

Maybe I am missing something here.  Please explain it to me if I am.

Now, having said all that, I want to be clear that what I am saying here is simply that I have some concerns over whether agreeing to participate in the system designed by Avvo would violate the rules.  I am not saying that it is necessarily a bad idea to find a way to make it work.  Maybe it is a good idea for potential clients to have access to legal services through platforms like Avvo, RocketLawyer or LegalZoom.  That is a different question.  If it is, then we need to work to change the current rules.  I have no problem with that.

For more on this go here.

UPDATE (2-10-16):  Part II of my comment on Avvo Legal Services.

UPDATE (4-9-16):  Avvo now offers legal forms.  My comments here.

UPDATE (6-19-16):  Ohio opinion suggests participating in Avvo Legal Services might be unethical

UPDATE (8-1-16):  Florida adopts rules that make it unethical to participate in program like Avvo Legal Services

UPDATE (8-12-16):  South Carolina opinion finds participating in program like Avvo Legal services unethical

UPDATE (10-10-16):  Pennsylvania issues opinion finding participating in program like Avvo Legal Services is unethical.

1 comment:

  1. Thanks for this, I just read it very carefully because I'm exploring the same issue here in Texas re: Avvo Advisor. My angle is not that I am interested in taking down Avvo. I am interested in finding out where the line has been moved. Because if the rules have changed because our state doesn't want to take on a difficult opponent on an difficult issue in a changing industry, then I want to play too.