Over the past couple of years many jurisdictions have issued opinions on whether flat fees can be non-refundable and the result of these opinions is a mixed bag of approaches. By my non-scientific count (ie, what I have seen and written about here), the most common approach seems to be that flat fees are not earned upon receipt, and therefore must be deposited in a trust account until earned. That means that the client owns the money until earned. The advantage of this approach is that it makes sense to say that if the lawyer does not complete the task the fee is supposed to pay for, the lawyer is obligated to refund the client the portion of the fee that was not earned.
Some jurisdictions, however, have taken a different approach which, quite frankly I don't understand. The Board of Professional Responsibility of Ohio just issued an opinion that illustrates this alternative approach.
The opinion (available here) concludes, first, that a lawyer is
required to deposit
flat fees paid in advance into an
IOLTA trust account,
unless designated as “earned upon receipt” and
only
may
withdraw
the fees as they are earned.
This is the generally accepted view I described above with the added caveat that the client may agree to say the fee is earned upon receipt. This is an important alternative for the attorney, because if the fee is earned upon receipt the attorney would be allowed to deposit the money in the attorney's general account. Since the fee has been earned, the money belongs to the lawyer and the lawyer can do with it as the lawyer pleases except leaving it in the trust account. Since the money belongs to the attorney - because it has been earned - leaving it in the trust account would mean the lawyer is commingling funds. The Board explains this in the opinion.
OK, so far, so good; but then the opinion goes on to say that "even if a
flat fee paid in advance of representation
is
deemed
“earned upon receipt,”
“nonrefundable
,”
or similarly,
Prof.Cond.R. 1.5 requires
a lawyer to return any unearned portion of the fee
if the lawyer does not complete the
representation for any reason."
Here is what I don't understand: How can the fee be earned and unearned at the same time? If the fee is deemed earned, then it is earned. No? Or is the Board saying that "designating" a fee as earned does not mean that it "is" earned? That doesn't make sense to me. What would be the purpose of "designating" a fee as earned if the lawyer could not handle the money as if it had been earned?
Which brings me to the question: how is a lawyer going to handle the money? According to the opinion itself, if the fee is deemed earned upon receipt then the attorney can't leave the funds in the trust account. Doing so would be a violation of the rules against commingling. But once the money is deposited in the general account, if there is a refund to pay, where is the refund going to come from? It has to be from the general account where the money was placed, right? And if that's the case, doesn't that mean that the attorney had been commingling client money (the unearned amount to be refunded) and attorney money in the same account?
Thus, the Board's conclusion inevitably results in a violation of the rules. If the fee is earned but some of it has to be refunded, it means that some part of the fee was in reality not earned and by placing the full amount in the general account the lawyer commingled. On the other hand, if the fee is earned but the lawyer leaves even part of the amount in the trust account just in case maybe a portion of the fee will have to refunded, the lawyer has also commingled.
I understand the Board is trying to protect the client, but the only way to do that and still make sense of the other rules at issue is to say that a fee paid in advance has to be kept in the trust account until it is earned. In other words, I would eliminate the possibility of allowing the fee to be "designated" as earned upon receipt. OR you could say that the flat fee can be deemed earned upon receipt, but that meant that it can be non refundable. But you can't do both.
Thanks to the Legal Profession blog for the link.
Sunday, February 28, 2016
Monday, February 22, 2016
ABA issues new ethics opinion on what to do when lawyers received a subpoena for client's documents
The ABA Standing Committee on Ethics and Professional Responsibility recently issued a new opinion which provides some guidance to lawyers receiving subpoenas for client documents or information. You can download Formal Opinion 473 here but do so soon because once the opinion goes into the "archive" it will be available for free only to members of the Center for Professional Responsibility.
For comments on the opinion go here and here.
For comments on the opinion go here and here.
Sunday, February 21, 2016
ABA abandons its partnership with Rocket Lawyer!
Lawyerist and The American Lawyer are reporting that the ABA has abandoned its partnership with Rocket Lawyer. This is an embarrassing turn of events for the ABA, but I have to say that I am not terribly surprised by it.
But first here is the background in case you don't know what it is this is all about. Last October, to much fanfare, the ABA announced the creation of a pilot program that provides on-demand legal advice for small businesses called ABA Law Connect. The program was part of the ABA's efforts to improve access to legal services, but also to respond to criticism that it has been slow to allow "innovation" in the legal market. (In 2015, the ABA held a Summit on Innovation and one of the most reported sessions during the meeting of the House of Delegates was a speech by Avvo's CEO in which he called for the elimination of rules regarding unauthorized practice of law in the name of innovation to open the legal market to innovators like, you guessed it, Avvo, of course.)
Yet, as I have argued here before, "innovation" has become a buzzword and we shouldn't rush to try to be innovative at the risk of creating other problems. There is no point in being innovative for innovation's sake. It reminds me of the Direct TV commercial in which a group of executives are meeting to discuss "new ideas." One of the executives throws shrimp on the conference table at breakfast and the CEO says "... not the way I would have gone, but it is innovative. And that's what we want around here..."
When I first wrote about the RocketLawyer program here, I pointed out a few concerns I had. I have also written about my concerns regarding Avvo. And, well, I hate to say it, but ... there you have it. As BB King would say, "the thrill is gone."
To be clear, I don't know exactly why the ABA decided to back out -- probably a combination of reasons-- but whatever the reason was, ABA Connect is no more. And as Lawyerist writes, "this may be . . . another example of innovation getting ahead of regulation. The ABA did try to innovate boldly, but it got ahead of its own regulations in doing so." Just what I have been saying all along...
Now the more interesting question becomes, if the regulation is not ready to support the innovators, are the lawyers who are signed up with RocketLawyer, ABA Connect and Avvo in violation of the rules?... Stay tuned...
But first here is the background in case you don't know what it is this is all about. Last October, to much fanfare, the ABA announced the creation of a pilot program that provides on-demand legal advice for small businesses called ABA Law Connect. The program was part of the ABA's efforts to improve access to legal services, but also to respond to criticism that it has been slow to allow "innovation" in the legal market. (In 2015, the ABA held a Summit on Innovation and one of the most reported sessions during the meeting of the House of Delegates was a speech by Avvo's CEO in which he called for the elimination of rules regarding unauthorized practice of law in the name of innovation to open the legal market to innovators like, you guessed it, Avvo, of course.)
Yet, as I have argued here before, "innovation" has become a buzzword and we shouldn't rush to try to be innovative at the risk of creating other problems. There is no point in being innovative for innovation's sake. It reminds me of the Direct TV commercial in which a group of executives are meeting to discuss "new ideas." One of the executives throws shrimp on the conference table at breakfast and the CEO says "... not the way I would have gone, but it is innovative. And that's what we want around here..."
When I first wrote about the RocketLawyer program here, I pointed out a few concerns I had. I have also written about my concerns regarding Avvo. And, well, I hate to say it, but ... there you have it. As BB King would say, "the thrill is gone."
To be clear, I don't know exactly why the ABA decided to back out -- probably a combination of reasons-- but whatever the reason was, ABA Connect is no more. And as Lawyerist writes, "this may be . . . another example of innovation getting ahead of regulation. The ABA did try to innovate boldly, but it got ahead of its own regulations in doing so." Just what I have been saying all along...
Now the more interesting question becomes, if the regulation is not ready to support the innovators, are the lawyers who are signed up with RocketLawyer, ABA Connect and Avvo in violation of the rules?... Stay tuned...
Is an attorney's LinkedIn profile an advertisement?
Legal Ethics in Motion is reporting that the
Association of the Bar of the City of New York Committee on Professional
Ethics' Formal Opinion 2015-7 concludes that if the primary purpose of an attorney’s LinkedIn profile is not to attract new clients, it is not advertising. I understand the idea, but I am not sure I understand how it applies in reality. If the profile is about a lawyer and his or her practice, is there really any other purpose for having a profile in LinkedIn?
Sunday, February 14, 2016
Iowa Supreme Court rejects notion that malpractice plaintiff has to show actual innocence in order to support claim against former criminal defense lawyer
In a many jurisdictions, a convicted criminal defendant who wants to recover for malpractice against his or her former lawyer has to obtain post conviction relief and prove that he or she was actually innocent of the crime for which they were convicted. This view has been criticized but still appears to be the majority view. Yet, I have read recent cases where a few courts have abandoned this view in favor of the minority approach which does not require the convicted defendant (plaintiff in the malpractice claim) to show actual innocence. The most recent court to so hold was the Kansas Supreme Court, something I reported about a month ago here.
Now comes news (via the Legal Profession blog) that the Iowa Supreme Court has taken the same step. Actual innocence is no longer required as an element of the cause of action. The case is called Barker v Capotosto, and it is available here.
UPDATE (7/21/16): The Chicago Legal Malpractice Blog has a story on the case here.
Now comes news (via the Legal Profession blog) that the Iowa Supreme Court has taken the same step. Actual innocence is no longer required as an element of the cause of action. The case is called Barker v Capotosto, and it is available here.
UPDATE (7/21/16): The Chicago Legal Malpractice Blog has a story on the case here.
Friday, February 12, 2016
Another comment on lack of accountability for prosecutorial misconduct
Long time readers of this blog know I often complain about the fact that courts do not seem to take prosecutorial misconduct too seriously. You can go to the prosecutors tag and scroll down for lots of stories, and links on the topic. Here is the latest from the blog a public defender.
Wednesday, February 10, 2016
ABA Adopts Regulatory Objectives Resolution
Back in December I reported that the ABA Commission on the Future of Legal Services had issued its final Resolution and Report on Regulatory Objectives and that I found it essentially bland and neither innovative nor controversial.
Yet, something happened between then and now, and two days ago the ABA House of Delegates adopted a revised and amended version of the Regulatory Objectives Resolution which is more interesting. You can find it here.
But first a bit of background. As I have said many times recently, the big buzzword in Professional Responsibility these days is "innovation." Although the word has been used to refer to many different things, they all have in common the notion that we should be open to the idea of fundamentally changing the way we think about the legal services marketplace. This also ties in with the idea that we should think of how to change the existing regulatory schemes to allow for the innovation in the marketplace of legal services.
Some of this type of thinking has been traced back to the events that resulted in the adoption of the 2007 Legal Services Act, which fundamentally changed the legal marketplace in the UK. Since then, many in the US have been discussing whether it would be a good idea to follow their example. And one big first step in that direction is to reflect on why it is that we regulate, how we regulate and whether our regulatory system works well to uphold the goals we meant to achieve by enacting the regulation in the first place.
It is never a bad thing to reflect on how we do our jobs and on ways we could do it better etc. I do it all the time as it relates to my teaching. But, obviously, there is more to it that that at issue here.
The underlying issue is the question of whether it would be a good idea to open the legal services market to non-lawyers, to change the rules that ban non-lawyers from owning law firms or sharing fees with non-lawyers, among other things. In other words, all the types of things we usually refer to under the umbrella of "innovation."
We know some states are already moving in that direction by allowing non lawyers to provide limited legal services; we know non lawyers want states to open the legal services market so they can share in the profits, etc.
Yet, it wasn't clear whether the ABA would welcome this type of change. And, interestingly, the resolution approved last Monday does not provide a clear answer.
In one paragraph it states that "the American Bar Association urges that [all jurisdictions] be guided by the ABA Model Regulatory Objectives for the Provision of Legal Services when they assess the ... existing regulatory framework and any other regulations they may choose to develop concerning non-traditional legal service providers."
But in the next paragraph, the Resolution makes clear that it does not endorse that much innovation by stating that "nothing contained in this Resolution abrogates in any manner existing ABA policy prohibiting non lawyer ownership of law firms or the core values adopted by the House of Delegates."
So, if the idea was to open the door to the type of innovation that resulted in fundamental changes in the UK, the exercise failed.
On the other hand, if it was just an exercise in reiterating the core values of the profession and the public policies upon which its regulation are based, then the Resolution is useful.
It seems the ABA is accepting the fact that some innovative change is coming (in fact, some of it is already in place), but it is urging that this change be regulated and that it be regulated according to the traditional principles upon which we have always based the regulation of the profession.
The irony is that some of those principles are, precisely, what may prevent the most innovative ideas from getting implemented. ... So, the debate continues.
For more on the adoption of the resolution go to the Legal Ethics Forum, Lawyer's Ethics Alert Blog, Professional Responsibility, A Contemporary Approach, Lawyerist.
For a critical view of the notion of innovation in general and the ABA's approach in particular go to Simple Justice.
Yet, something happened between then and now, and two days ago the ABA House of Delegates adopted a revised and amended version of the Regulatory Objectives Resolution which is more interesting. You can find it here.
But first a bit of background. As I have said many times recently, the big buzzword in Professional Responsibility these days is "innovation." Although the word has been used to refer to many different things, they all have in common the notion that we should be open to the idea of fundamentally changing the way we think about the legal services marketplace. This also ties in with the idea that we should think of how to change the existing regulatory schemes to allow for the innovation in the marketplace of legal services.
Some of this type of thinking has been traced back to the events that resulted in the adoption of the 2007 Legal Services Act, which fundamentally changed the legal marketplace in the UK. Since then, many in the US have been discussing whether it would be a good idea to follow their example. And one big first step in that direction is to reflect on why it is that we regulate, how we regulate and whether our regulatory system works well to uphold the goals we meant to achieve by enacting the regulation in the first place.
It is never a bad thing to reflect on how we do our jobs and on ways we could do it better etc. I do it all the time as it relates to my teaching. But, obviously, there is more to it that that at issue here.
The underlying issue is the question of whether it would be a good idea to open the legal services market to non-lawyers, to change the rules that ban non-lawyers from owning law firms or sharing fees with non-lawyers, among other things. In other words, all the types of things we usually refer to under the umbrella of "innovation."
We know some states are already moving in that direction by allowing non lawyers to provide limited legal services; we know non lawyers want states to open the legal services market so they can share in the profits, etc.
Yet, it wasn't clear whether the ABA would welcome this type of change. And, interestingly, the resolution approved last Monday does not provide a clear answer.
In one paragraph it states that "the American Bar Association urges that [all jurisdictions] be guided by the ABA Model Regulatory Objectives for the Provision of Legal Services when they assess the ... existing regulatory framework and any other regulations they may choose to develop concerning non-traditional legal service providers."
But in the next paragraph, the Resolution makes clear that it does not endorse that much innovation by stating that "nothing contained in this Resolution abrogates in any manner existing ABA policy prohibiting non lawyer ownership of law firms or the core values adopted by the House of Delegates."
So, if the idea was to open the door to the type of innovation that resulted in fundamental changes in the UK, the exercise failed.
On the other hand, if it was just an exercise in reiterating the core values of the profession and the public policies upon which its regulation are based, then the Resolution is useful.
It seems the ABA is accepting the fact that some innovative change is coming (in fact, some of it is already in place), but it is urging that this change be regulated and that it be regulated according to the traditional principles upon which we have always based the regulation of the profession.
The irony is that some of those principles are, precisely, what may prevent the most innovative ideas from getting implemented. ... So, the debate continues.
For more on the adoption of the resolution go to the Legal Ethics Forum, Lawyer's Ethics Alert Blog, Professional Responsibility, A Contemporary Approach, Lawyerist.
For a critical view of the notion of innovation in general and the ABA's approach in particular go to Simple Justice.
D.C. District Court Proposes New Rules on Prosecutors Disclosure Obligations
The United States District Court for the District of Columbia has released a proposed rule which would codify the government’s discovery obligation set out by the Supreme Court. Most significantly, it imposes specific timelines on prosecutors. The Legal Profession Blog has more details (and the text of the proposed rule) here.
Avvo expands its Legal Services program to 18 states; Should attorneys be concerned? (part 2)
A few days ago, I posted a long comment expressing my concern over the new Avvo Legal Services, which it describes as an online legal
services marketplace now offering fixed-fee, limited-scope legal
services through a network of attorneys. Many others have raised similar concerns. See, among many others, Solo Practice University; Simple Justice and the comments to stories in the ABA Journal.com here, here and here.
Coincidentally, yesterday Avvo announced it has now expanded the service to 18 states, covering about 70 percent of the US population. I first read the story in Law Sites, which describes the news and the service and quotes Avvo's general counsel and CEO. I left a comment expressing my opinion about one of their claims and asking for an explanation, and the General Counsel for Avvo was kind enough to reply. You can read our exchange in the comments below the story here and judge for yourself as to whether Avvo's explanation makes sense to you.
I find it interesting that when challenged on whether lawyers paying for the service could be found to be in violation of the rule against sharing fees with non-lawyers, Avvo's GC claimed the rule is unconstitutional as applied under the First Amendment. (Is Avvo arguing that because it calls the fee a "marketing fee," paying the fee makes it advertising? I don't know.) This means that in the last couple of days I have read of Avvo claiming that the transaction is not fee sharing because it is a separate transaction, that the transaction is not fee sharing because it is paying for advertising, that if the transaction is fee sharing, it is allowed by the rules, and that if it is not allowed by the rule, the rule in unconstitutional.
Also, I don't understand why Avvo doesn't instead argue that it is covered by comment [5] to Rule 7.2 which says 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 Rules 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)."
This is an interesting relatively new comment that I have not seen interpreted in any cases. (If you know of one, please send it my way - I'd like to see it.) My sense is that this comment was adopted precisely to be more lenient with respect to the ban to pay others for referring clients, by opening the door to online services that connect clients with lawyers -- which is precisely what Avvo does. The problem is that there are a few things in the comment that have not been tested (at least to my knowledge). What is a "client lead"? Does that refer to information or to an actual client? If the intent is to allow payment for information but not for an actual client, then the comment won't help Avvo. Again, I have not done the research to know how "leads" has been interpreted (or is meant to be interpreted).
Also, and more importantly, what does it mean when it says that the payment won't violate Rule 7.2 as long as it is "consistent with" Rules 1.5 and 5.4. Is "consistent with" the same as "complies with" or is there a difference? If it means that in order for the payment not to violate 7.2 the lawyer also has to comply with 1.5(e) and 5.4, that means that payment to a non-lawyer will be in violation of 7.2 because sharing a fee with a non lawyer is by definition a violation of 5.4 and irrelevant to 1.5(e) which is about sharing fees with other lawyers. Since internet "lead generators" are not likely to be lawyers, I think that "consistent with" means something other than "complies with."
Viewed that way, the question becomes whether allowing payment to a non-lawyer for finding and sending a client to the lawyer threatens the policies and concerns for which we decided to adopt the requirements in 1.5(e) and the ban in 5.4. And I think Avvo can make a case that allowing this type of payment does not. I don't know how convincing the argument will be before the authorities, but you can make the argument. Which is why I don't understand why not go for this argument rather than the strange argument based on the First Amendment (which appears to be based on a forced interpretation of what the speech in question is and an incorrect reading of the constitutional standard that applies (note that Avvo's GC argues the state has to show harm, an argument the Supreme Court dismissed in Ohralik).
Having said all that, it seems Avvo is here to stay and that at least for now states are tolerating it. However, it will be interesting to see what happens in the near future. It will be interesting to see if attorneys ask their local Ethics Commissions to issue opinions on whether sharing fees with Avvo is ethical. Hopefully some will and we will begin to see the responses in different states.
It will also be interesting to see if states will then create regulations to apply to the non lawyers in the legal marketplace. The ABA just adopted a resolution urging jurisdictions to regulate the non lawyers in the legal services marketplace according to the policies and values of the legal profession. Ironically, this may lead to a finding that it is not a good idea to abandon the ban related to sharing fees with a non-lawyer.
Coincidentally, yesterday Avvo announced it has now expanded the service to 18 states, covering about 70 percent of the US population. I first read the story in Law Sites, which describes the news and the service and quotes Avvo's general counsel and CEO. I left a comment expressing my opinion about one of their claims and asking for an explanation, and the General Counsel for Avvo was kind enough to reply. You can read our exchange in the comments below the story here and judge for yourself as to whether Avvo's explanation makes sense to you.
I find it interesting that when challenged on whether lawyers paying for the service could be found to be in violation of the rule against sharing fees with non-lawyers, Avvo's GC claimed the rule is unconstitutional as applied under the First Amendment. (Is Avvo arguing that because it calls the fee a "marketing fee," paying the fee makes it advertising? I don't know.) This means that in the last couple of days I have read of Avvo claiming that the transaction is not fee sharing because it is a separate transaction, that the transaction is not fee sharing because it is paying for advertising, that if the transaction is fee sharing, it is allowed by the rules, and that if it is not allowed by the rule, the rule in unconstitutional.
Also, I don't understand why Avvo doesn't instead argue that it is covered by comment [5] to Rule 7.2 which says 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 Rules 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)."
This is an interesting relatively new comment that I have not seen interpreted in any cases. (If you know of one, please send it my way - I'd like to see it.) My sense is that this comment was adopted precisely to be more lenient with respect to the ban to pay others for referring clients, by opening the door to online services that connect clients with lawyers -- which is precisely what Avvo does. The problem is that there are a few things in the comment that have not been tested (at least to my knowledge). What is a "client lead"? Does that refer to information or to an actual client? If the intent is to allow payment for information but not for an actual client, then the comment won't help Avvo. Again, I have not done the research to know how "leads" has been interpreted (or is meant to be interpreted).
Also, and more importantly, what does it mean when it says that the payment won't violate Rule 7.2 as long as it is "consistent with" Rules 1.5 and 5.4. Is "consistent with" the same as "complies with" or is there a difference? If it means that in order for the payment not to violate 7.2 the lawyer also has to comply with 1.5(e) and 5.4, that means that payment to a non-lawyer will be in violation of 7.2 because sharing a fee with a non lawyer is by definition a violation of 5.4 and irrelevant to 1.5(e) which is about sharing fees with other lawyers. Since internet "lead generators" are not likely to be lawyers, I think that "consistent with" means something other than "complies with."
Viewed that way, the question becomes whether allowing payment to a non-lawyer for finding and sending a client to the lawyer threatens the policies and concerns for which we decided to adopt the requirements in 1.5(e) and the ban in 5.4. And I think Avvo can make a case that allowing this type of payment does not. I don't know how convincing the argument will be before the authorities, but you can make the argument. Which is why I don't understand why not go for this argument rather than the strange argument based on the First Amendment (which appears to be based on a forced interpretation of what the speech in question is and an incorrect reading of the constitutional standard that applies (note that Avvo's GC argues the state has to show harm, an argument the Supreme Court dismissed in Ohralik).
Having said all that, it seems Avvo is here to stay and that at least for now states are tolerating it. However, it will be interesting to see what happens in the near future. It will be interesting to see if attorneys ask their local Ethics Commissions to issue opinions on whether sharing fees with Avvo is ethical. Hopefully some will and we will begin to see the responses in different states.
It will also be interesting to see if states will then create regulations to apply to the non lawyers in the legal marketplace. The ABA just adopted a resolution urging jurisdictions to regulate the non lawyers in the legal services marketplace according to the policies and values of the legal profession. Ironically, this may lead to a finding that it is not a good idea to abandon the ban related to sharing fees with a non-lawyer.
Monday, February 8, 2016
Is it ethical to finance your law practice through "crowdfunding"? Opinions from New York and now Philadelphia address the issue -- UPDATED
I am updating this story with a new note (with links) about a recent opinion from Philadelphia at the end.
Back in March of last year I wrote about the differences of opinion as to whether it would ethical to finance the practice of law through "crowdfunding". See here. But there are different types of crowdfunding. In one type, the person seeking funds essentially is asking others to contribute out of the goodness of their hearts and promises nothing in return, other than the feeling of satisfaction they would get from contributing to a good cause. In the other, the person seeking funds raises capital in exchange for a portion of future income. In other words, through this type of crowdfunding websites, you can ask people to give you money and then promise to give them a share of your earnings.
The first type of crowdfunding is no different than asking a relative to give you money to start your practice; only instead of the relative you are asking strangers. In the second type of case, you would be sharing earnings with a stranger. And that would be a problem.
One of the most debated questions in Professional Responsibility circles today is whether to relax or eliminate the rules that ban lawyers from forming partnerships with non-lawyers or from sharing fees with non lawyers.
Because of these rules, it is not too surprising that the New York State Bar Association has decided that crowdfunding would be allowed only in instances where the result of the crowdfunding does not include sharing of fees with non lawyers. According to the opinion, available here,
UPDATE 8/20/15: Professional Liability Matters just posted a comment on the issue here.
UPDATE 2/8/16: Legal Ethics in Motion has a short comment on a recent Philadelphia Bar Association opinion on the same subject here. The opinion itself is available here. It raises a few interesting questions but I don't think it addresses the key issue: whether the people contribute to the fund acquire an interest in the litigation. The opinion seems to assume that the people who will fund the litigation do so out of the generosity of their hearts and will expect nothing in return. This is the type of crowdfunding that the NY opinion would allow because it does not involve any type of fee sharing. Thus, the Philadelphia Opinion does address a few important issues about that type of agreement, including whether the fund can be non-refundable, and whether it has to be kept in a trust account until earned.
Back in March of last year I wrote about the differences of opinion as to whether it would ethical to finance the practice of law through "crowdfunding". See here. But there are different types of crowdfunding. In one type, the person seeking funds essentially is asking others to contribute out of the goodness of their hearts and promises nothing in return, other than the feeling of satisfaction they would get from contributing to a good cause. In the other, the person seeking funds raises capital in exchange for a portion of future income. In other words, through this type of crowdfunding websites, you can ask people to give you money and then promise to give them a share of your earnings.
The first type of crowdfunding is no different than asking a relative to give you money to start your practice; only instead of the relative you are asking strangers. In the second type of case, you would be sharing earnings with a stranger. And that would be a problem.
One of the most debated questions in Professional Responsibility circles today is whether to relax or eliminate the rules that ban lawyers from forming partnerships with non-lawyers or from sharing fees with non lawyers.
Because of these rules, it is not too surprising that the New York State Bar Association has decided that crowdfunding would be allowed only in instances where the result of the crowdfunding does not include sharing of fees with non lawyers. According to the opinion, available here,
A law firm may engage in certain types of crowdfunding but not others. Any form of fundraising that gives the investor an interest in a law firm or a share of its revenue would be prohibited. However, in some circumstances a law firm may give the funding source some kind of reward. For example, a law firm may send a funder non-confidential memoranda discussing legal issues (provided the law firm complies with any applicable advertising rules), or may agree that the law firm will provide pro bono legal services to certain charitable organizations, provided that the lawyer complies with Rule 1.1 regarding competence and the representation does not involve conflicts in violation of Rule 1.7 or Rule 1.9.For a more detailed discussion of the opinion go here.
UPDATE 8/20/15: Professional Liability Matters just posted a comment on the issue here.
UPDATE 2/8/16: Legal Ethics in Motion has a short comment on a recent Philadelphia Bar Association opinion on the same subject here. The opinion itself is available here. It raises a few interesting questions but I don't think it addresses the key issue: whether the people contribute to the fund acquire an interest in the litigation. The opinion seems to assume that the people who will fund the litigation do so out of the generosity of their hearts and will expect nothing in return. This is the type of crowdfunding that the NY opinion would allow because it does not involve any type of fee sharing. Thus, the Philadelphia Opinion does address a few important issues about that type of agreement, including whether the fund can be non-refundable, and whether it has to be kept in a trust account until earned.
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