Friday, August 12, 2016

South Carolina ethics advisory opinion finds that participating in programs like Avvo Legal Services is unethical

South Carolina's Ethics Advisory Committee has issued an opinion holding that participating in a program like Avvo's Legal Services is unethical. You can read the Opinion here.  

This comes as no surprise to me, or, I suspect, to readers of this blog since I have been saying that for quite some time.  (See here, here and here.  I also wrote a law review article on the subject which will be published by Georgetown Law Journal.  I will post a link when it comes out.)

Although the opinion does not mention Avvo specifically, it is clear from the description of the program it is commenting on that that is what is at issue here.  After describing the terms of the service, the opinion concludes that participating in it would violate the ban on sharing fees with non-lawyers:
In the situation described above, the service collects the entire fee and transmits it to the attorney at the conclusion of the case. In a separate transaction, the service receives a fee for its efforts, which is apparently directly related to the amount of the fee earned in the case. The fact that there is a separate transaction in which the service is paid does not mean that the arrangement is not fee splitting as described in the Rules of Professional Conduct.

A lawyer cannot do indirectly what would be prohibited if done directly. Allowing the service to indirectly take a portion of the attorney’s fee by disguising it in two separate transactions does not negate the fact that the service is claiming a certain portion of the fee earned by the lawyer as its “per service marketing fee.”
As I have argued before, the key to Avvo's problem is that the fee it charges is essentially a percentage of the lawyer's fee.  I have read Avvo's arguments to the contrary and they simply can't get around this fact. You can read their response to the South Carolina opinion here, and you will see they don't address this issue.  And that's because they don't have an argument. 

The opinion also states that marketing fees must represent the reasonable cost of the service, and these fees do not meet that criteria because the fees vary depending on the amount of the fees.  In other words, as stated above, the fees are essentially a percentage of the fees charged, as opposed to a set fee for advertising as Avvo claims.   As the opinion points out,
“Presumably, it does not cost the service any more to advertise online for a family law matter than for the preparation of corporate documents. There does not seem to be any rational basis for charging the attorney more for the advertising services of one type of case versus another.”

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

Again, as I have argued in the past, I think this is correct. 

Interestingly, the opinion does not address another, perhaps worse, problem with Avvo's system:  the fact that Avvo retains the fee paid by the client until the work is performed, which I would argue violates the attorney's duty to safeguard that money by placing it in a trust account.

In any case, that is the third opinion this summer holding that for one reason or another participating in a program like Avvo's would be unethical.  See here (Ohio) and here (Florida).

Even so, though, according to the ABA Journal, Avvo is signing up lawyers in South Carolina and plans to launch there soon based on its stance that the opinion "is advisory and Avvo disagrees with the conclusions."  As Avvo's chief legal officer has stated “We’ve looked at the rules. We have our own interpretation of the rules."  That's cute.  Just like Avvo has stated elsewhere that it "believes" its fee arrangement system does not constitute fee sharing.

Of course Avvo will say it has a different interpretation of the rules.  Avvo wants to lure lawyers who need work into paying it for "leads."  But it is the the lawyers who take the risk of getting disciplined.  Remember that the rules don't apply to Avvo; they only apply to the lawyers who sign up with Avvo. 

For that reason, I would not advise a lawyer to sign up with Avvo in Ohio, Florida or South Carolina before the rules are amended unless he or she is willing to be disciplined in order to challenge the rules in court.

If that is a risk you are willing to take, my advise is for you to read up on Avvo's arguments in support of its "own interpretation of the rules."  Those are the arguments you would be trying to use in your defense against a disciplinary charge.  Just because Avvo claims it ‘believes’ that participating in its services does not place lawyers at risk of violating the rules of professional conduct does not make it so. Relying on Avvo’s claims is not a good substitute your own careful judgment.

For another comment critical of Avvo (other than my own) go here.

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