Short Guide To Trust Accounting And Three-Way Reconciliation

 Above the Law has a very short reminder of the basis related to trust accounting here.  Go read it for a quick refresher course.

Two recent decisions reiterate the ABA's approach to flat fees paid in advance

 Last May I wrote a comment on an ABA Formal Ethics Opinion on flat fees which concluded that flat fees paid in advance should be considered client funds and, therefore, should be held in a trust account until earned.  In my comment I explained why I think this is the correct view even though there is some debate about it among some jurisdictions.  You can read my comment here. 

I am writing about this topic again today because of two interesting recent opinions, one from California and one from the District of Columbia.  

In In re Alexei, ___ A.3d ___ (D.C. Ct. of Appeals 2024), 2024 WL 3611154, (available here) the court held that flat fees paid in advance are unearned until the legal services they are supposed to pay for are completed.  As such, even though the attorney may have possession of the fees, the attorney does not have ownership and, thus, the fees property of the client until the fees are actually earned.  If an attorney removes the unearned fees from their trust account, the attorney may violate Rule 1.15(a).  The court also held that the fees are actually earned only upon completion of the entirety of the solicited services unless the fee agreement specifies otherwise.

Importantly, the court rejected the notion that a flat fee paid in advance should be considered earned upon payment because if a client consent could change when a fee is actually earned, it would not be true that a lawyer can’t earn a fee for doing nothing because a client could consent to an arrangement whereby the lawyer earns a fee upfront before actually performing any work for the client.  Also, allowing a lawyers and clients to “deem earned” fees that are not earned yet goes against the intent of the rules that mandate safekeeping of property.   

Having said that however, the court recognized that attorneys could depart from the default rule by either (1) specifying in the agreement for services when and how portions of the flat fee are earned or (2) obtaining informed consent from the client to treat unearned fees as their attorney property.

Notice how this second option contradicts the policy upon which the court based its decision to reject the notion that a flat fee paid in advance should be considered to be earned upon payment.  In fact, the court essentially says that the attorney can negotiate with the client to have the client agree to do something the court has decided could result in a violation of the rules.  This makes little sense, and I explore that topic in a forthcoming article called Advanced Magic in Illinois: Amendments to the Illinois Rules of Professional Conduct and the Confusion Over How to Handle Flat Fees Paid in Advance, 56 Loy. U. Chi. L.J. ___ (2024).

The second recent case addresses the question of whether a client’s creditor may seize funds held in trust pursuant to a flat fee agreement and concludes that, logically, the answer is yes if the fee held in trust has not been earned yet.  The case is Dickson v. Mann, Super Ct. No. 37-2021-00042299-PR-TR-CTL (July 16, 2024), available here.  

The court held, correctly, that “a flat fee paid by a client to a lawyer for future legal services does not belong to the lawyer until the fee is earned through the actual provision of legal services” and since the firm presented no evidence that it had performed any legal services yet the flat fee funds still belonged to the client at the time the creditor filed the notice of seizure. Accordingly, the court ordered the firm to produce the funds for seizure by the creditor.

ABA Issues new formal opinion on advance "non refundable" fees

Way back in 2016 the Board of Professional Conduct of the Ohio Supreme Court released an advisory ethics opinion on whether a lawyer may enter into an agreement requiring a client to pay a flat fee in advance of representation and on whether a lawyer must deposit such a fee into a trust account. See Board of Professional Conduct of the Supreme Court of Ohio, Opinion 2016-1 (February 12, 2016).  Upon reading it, I thought the opinion reflected a common problem among jurisdictions that results in a confusing inherent contradiction within the applicable rule.  So, I wrote an article for Ohio Lawyer magazine (available here) in which I argued why the Board should have corrected the deficient drafting and interpretation of the rule.  

In essence, I argued a few relatively simple principles: that it would be unethical to charge or collect a fee that was not earned and that, therefore, if the fee was paid in advance, it had to be kept in trust until earned.  And, I made very specific suggestions on how to amend the rule and its comment to reflect the correct doctrine and to help lawyers better apply it.

The problem with the Ohio opinion, which is not uncommon among a number jurisdictions, is that it concluded it would be fine for lawyers to “deem earned” fees that had not been earned yet in order to allow the lawyers to place the money in their general accounts rather than in their trust accounts, while, at the same time, assuring clients that if the money was not earned eventually, they would be guaranteed a refund of the unearned portion of the fee.  

In my article, I argued this resulted in making the fees both earned and unearned at the same time, and inevitably lead to commingling regardless of where the money was placed.  It also prioritized the lawyers’ interests in getting their hands on the money at the expense of clients who were placed at risk of losing their money.  Thus, I suggested specific changes to the Ohio rules to fix the contradiction and to balance the interests of lawyers and clients.

But no one listens to me, and nothing changed.

So why am I writing about this today?  Because last week the ABA’s Standing Committee on Ethics and Professional Responsibility issued a new Formal Opinion (No. 505, available here), in which it adopts the views I argued for way back then.  I guess it took a long time, but finally we have a good opinion on the subject and hopefully jurisdictions will take notice.

Opinion 505 frames the issue from a slightly different perspective, but in the end addresses the same questions.  The opinion focuses on the question of whether lawyers can label advance fees as “non refundable” but in the process talks about the same practice I discussed years ago – the practice of saying that fees are “deemed earned” when in reality they are not.  On this point, the opinion is very clear: 

“The Model Rules of Professional Conduct do not allow a lawyer to sidestep the ethical obligation to safeguard client funds with an act of legerdemain: characterizing an advance as “nonrefundable” and/or “earned upon receipt.” This approach does not withstand even superficial scrutiny. A lawyer may not charge an unreasonable fee.”  Thus, as the opinion points out, “[t]his approach departs from the safekeeping policy of the Model Rules described herein and creates unnecessary risks for the client.”

“Legerdemain,” by the way, means a skillful hiding of the truth in order to trick people.  Hiding of the truth to trick people.  That sounds bad.  You wouldn’t want to be known as a lawyer who hides the truth to trick people, would you?

Interestingly, the ABA Opinion has generated some criticism from some that say that lawyers and clients should be free to contract in any way they see fit.  Yet, this view forgets that rules of professional conduct interfere with lawyers’ “rights” all the time, for many reasons and on many topics because there are other interests at stake.  In response to that, some then argue that there is no valid interest at stake on the topic of fees paid in advance.  Yet, there is.  As the opinion argues, the interest is client protection.  The rules are there to protect clients and they do so by making sure that the lawyers abide by the rules related to safekeeping of money and the rules that mandate refunds of unearned fees.  

Some have argued that lawyers who might steal money from clients will take the money from trust accounts anyway, so mandating which account must be used to keep fees paid in advance makes no difference.  But this forgets that the idea behind mandating the use of trust accounts is not only to protect clients from the lawyer, but, more importantly, from the lawyer’s creditors.  

Finally, I’ve also heard some cite a case from Michigan called Grievance Administrator v. Cooper, 757 N.W. 2d 867 (Mich. 2008), in support of the position that it would be fine for a lawyer to charge a non-refundable flat fee paid in advance.  Unfortunately, this analysis is wrong for a basic reason: the case was wrongly decided since it did not involve a flat fee paid in advance.  It involved a security retainer, which, by definition, would be unreasonable if it were non-refundable.

One last point: the ABA Opinion refers to circumstances in which a lawyer does not have consent from a client.  An interesting question is whether a lawyer should be allowed to place an unearned fee in the lawyer’s operating account if the client gives consent.  In the District of Columbia, for example, that is allowed.  See In Re Mance 980 A. 2d 1197 (D.C. 2009).  

So, in conclusion, I think we can agree that when fees are paid in advance, they raise some ethical concerns.  One way to address these concerns is to ban lawyers from asking clients to pay in advance.  Another solution might be to stop requiring that lawyers use client trust accounts.  See, here and here, for example.   Yet, many reasons justify allowing the practice of asking for payment in advance and of requiring lawyers to keep separate trust accounts.  

The concerns can be addressed without having to go that far.  A better alternative is to eliminate the “legal fiction” of “deeming” a fee as “earned” when it is just a way to pretend that the amount of the fee belongs to the lawyer even though the work it is supposed to pay for has not been performed.  Instead of allowing this, lawyers and clients should agree on how (or when) portions of the fee are actually earned so that ownership of that portion of the money can be transferred to the attorney.  This way, the fee amount paid in advance is kept in the trust account, but the attorney can withdraw funds as they are earned before the end of the representation. 

Is it OK to deposit "lawyer money" into client trust account to prevent account from being closed for inactivity?

On October 29, 2019, the New York State Bar Association Committee on Professional Ethics issued an advisory opinion, Opinion 1176, which addresses whether a lawyer may “make a nominal deposit of the lawyer’s own funds to avoid having the lawyer’s trust or escrow account closed for inactivity or failure to maintain a minimum balance.” 

Given that most states allow lawyers to use their own money to pay for trust account fees and transactions (see Model Rule 1.15(b)), not surprisingly, the answer to the question is that it is acceptable for a lawyer to use firm money to keep the trust account alive.  You can read the opinion here.

NJ Supreme Court rejects request to review opinion on Avvo legal services -- UPDATED

About year ago, the Advisory Committee on Professional Ethics, the Committee on Attorney Advertising, and the Committee on the Unauthorized Practice of Law of the Supreme Court of New Jersey issued an opinion holding, among other things, that it would be unethical for New Jersey lawyers to participate in Avvo Legal Services.

In response, Consumers for a Responsive Legal System, an organization that represents Avvo and other online companies providing lawyer referrals, petitioned the NJ Supreme Court to review the order.  But earlier this month, the court denied the petition.

Responsive Law executive director Tom Gordon said in a statement that, “by summarily declining to review the decision … [the court] has abrogated its responsibility to engage in active supervision of the bar’s anti-competitive conduct.”

This statement is, of course, a reference to the holding of the U.S. Supreme Court's decision in North Carolina State Board of Dental Examiners v. Federal Trade Commision, in which the Court found regulation of a profession is subject to antitrust regulation if it is exercised by market participants unless there is active supervision by a government agency.  In other words, the organization (and Avvo) are gearing up to argue that the system of self regulation used by the legal profession violates antitrust principles.

On the other hand, the NJ State Bar Association issued a statement stating, in part, that “The court’s decision to let stand the joint opinion is an important . . . provides clarity for New Jersey lawyers and protects consumers" and that “[t]he association has increasingly grown concerned about the number of organizations that have sought to open the door to fee sharing, which could interfere with a lawyer’s independent professional judgement, and with the concept of organizations providing legal services when they are not bound by the same ethics rules that guide attorneys.”

I am not sure that both statements are entirely accurate.  The fact that the court denied the petition does not mean it did not exercise supervision.  If it reviewed the petition, it exercised supervision.  Avvo just doesn't like the result.  That does not make the review insufficient; it just makes it unfavorable to its position.

On the other hand, the statement by the Bar Association, is not entirely convincing either.  It suggests that Avvo is "providing legal services," which it does not do.

For more on the court's denial of the petition, go here.

UPDATE 7/6/18:  Lawyer Ethics Alert Blogs has an update here.

Bitcoin and the Legal Ethics of Lawyers

"Bitcoin and the Legal Ethics of Lawyers," Prof. Ron Rotunda's most recent column, is now available here.

Utah State Bar has issued yet another ethics opinion stating that participating in Avvo Legal Services would be unethical

As long time readers of this blog know, I have been following the developments related to Avvo Legal Services for a while.  You can read all my comments by going here and scrolling down. 

Not too long ago, I commented on the fact that ethics committees in Ohio, Pennsylvania, South Carolina, New Jersey and New York had issued opinions holding that it would be unethical to participate in Avvo Legal Services.

Now comes news that about three weeks ago the Utah State Bar Association issued a similar opinion.  Although it does not mention Avvo by name, it concludes that participating in a program whose description is just like Avvo Legal Services would violate Utah’s Professional Conduct Rule 5.4 which bans splitting fees with a non-lawyer and Rule 7.2 which regulates restrictions on payment for recommending a lawyer’s services.  

In addition, it finds that the fee paid by the lawyer does not appear to be a fee for the reasonable costs of advertising and discusses how participating in the service may violate a number of other rules related to client confidentiality, lawyer independence, and safekeeping of client property.  Finally, the opinion states that participating in the program raises serious concerns about a lawyer’s ability to comply with Rule 1.15 since “[i]t is difficult to see how a lawyer can protect client funds “with the care required of a professional fiduciary” when trust fund account information is provided to a third party over which the lawyer has no control.”

As I have stated before, given the current regulatory structure, I am not surprised.  You can read the full opinion here.

Florida Bar to consider whether it is ethical to participate in Avvo Legal Services

A few days ago, I reported that the NY state bar association issued an opinion holding it would be unethical to participate in Avvo Legal Services. See here.  Now comes news that the Florida Bar’s Board of Governors has decided to prepare an advisory opinion on whether lawyers could participate with a private lawyer referral service which charges a different set fee depending upon the type of case referred.  Without mentioning it, of course, this description refers to the Avvo Legal Services scheme which has now been rejected in every ethics opinion that has considered the question. 

The Florida Bar has in the past attempted to change the state rules to allow lawyers to participate in private referral services, but the Florida Supreme Court rejected the idea.  In fact, it published an opinion on September 24, 2015 which instructed the Bar to draft rules that “preclude Florida lawyers from accepting referrals from any lawyer referral service that is not owned or operated by a member of the Bar.”  Given this background it will be interesting to see if the Board of Governors attempts to revise its position or follows the lead of the Court.  For more on the news from Florida go here.

For some of my previous posts on Avvo go here and scroll down.

NY State Bar Association issues opinion holding participating in Avvo Legal Services is unethical

The New York State Bar Association’s Committee on Professional Ethics has issued a new opinion holding that participating in Avvo Legal Services violates the state’s rules of professional conduct.  In particular, the opinion holds that a lawyer paying Avvo’s current marketing fee for Avvo Legal Services is the equivalent of making an improper payment for a recommendation in violation of Rule 7.2(a). 

As long time readers of this blog know, the opinion is similar to opinions in Ohio, Pennsylvania, South Carolina and New Jersey.  And, as I have argued many times, no one should be surprised by the conclusions reached in these opinions because the analysis is consistent with the text of the rules.  You can read my article on the subject here, which was published just after the first couple of those opinions were issued. 

In that article, I pointed out that because the comment to rule 7.2 states that lawyers are banned from paying a lead generator “if the lead generator states, implies, or creates a reasonable impression that it is recommending the lawyer,”  lawyers paying Avvo should be concerned with the possibility that their state disciplinary authority might argue that by providing Avvo’s own “ratings,” as opposed to client ratings, Avvo creates the impression that Avvo is recommending some lawyers more than others. 

That question had not been approached back when I wrote that.  Now it has.  While the other opinions have mostly emphasized the issue of whether paying Avvo’s fees constitutes sharing fees with a non-lawyer, the NYSBA opinion focuses on that precise point.  You can read the full opinion of the New York State Bar Association’s Committee (Opinion 1132 (8/8/17))  here. 

As the Committee explains “[i]f the lawyer is paying [Avvo’s] fee solely to obtain advertising and marketing services from Avvo, then the lawyer is not giving Avvo something “of value” to recommend the lawyer, but is instead paying Avvo for marketing services, which does not violate Rule 7.2(a).  If, however, the marketing fee also includes a payment to Avvo for recommending the lawyer, then the payment constitutes giving something “of value” for a recommendation, which does violate Rule 7.2(a).”

After discussing Avvo’s business model, the Committee concluded that Avvo does seem be recommending lawyers and, thus, lawyers who pay Avvo’s fee would be in violation of the rule.  This is so, according to the opinion, because Avvo does more than merely list lawyers, their profiles, and their contact information. Avvo also gives each lawyer an Avvo rating, on a scale from 1 to 10 in a way that suggests mathematical precision.  Also, some of Avvo’s ads expressly state that the Avvo Rating enables a potential client to find “the right” lawyer or “the right lawyer for their needs.”

Based on this, the committee found that “[t]hrough these statements and through Avvo’s description of its rating system, Avvo is giving potential clients the impression that a lawyer with a rating of “10” is “superb,” and is thus a better lawyer for the client’s matter than a lawyer with a lower rating.”  Thus, the opinion concludes that “the way Avvo describes in its advertising material the ratings of participating lawyers either expressly states or at least implies or creates the reasonable impression that Avvo is “recommending” those lawyers.”

In addition, the opinion pointed out (but did not resolve) more issues raised by participation in Avvo Legal Services, including:

(1) the fact that Avvo sets the amount of the legal fee for each service raises questions about whether a participating lawyer can deliver competent legal services for Avvo’s chosen price and whether a lawyer is allowing Avvo to interfere in the lawyer’s independent professional judgment regarding how much time to spend on a matter.

(2) the marketing fee raises questions about whether lawyers who participate in Avvo Legal Services are improperly sharing legal fees with a nonlawyer.

(3) Avvo’s satisfaction guarantee raises questions about confidentiality. If clients call Avvo to complain, does the “documentation” that Avvo asks for or receives include “confidential information” within the meaning of Rule 1.6(a)?

As in the past, Avvo’s chief legal officer, has posted a short response to the opinion, but, also as in the past, it is weak and again bases part of the argument on the wrong the constitutional standard.

Yet, Avvo can count one small "victory" in the NYSBA opinion.  Avvo always refers to its fee as "marketing fee" -- not as just "fee" -- perhaps thinking that if you repeat something enough times people will begin to believe it.  And it works.  While other opinions have held that merely because Avvo says the fee is for "marketing" (by which they really mean "advertising"), it does not make it so, the NYSBA opinion states explicitly that Avvo’s website is an “advertisement.”  According to the opinion, "[t]he Avvo website is a public communication on behalf of each participating lawyer, about that lawyer, for the primary purpose of helping the participating lawyers obtain employment by potential clients who use the Avvo website."

Avvo responds to NJ Opinion

Last month I reported (here) that three committees of the New Jersey Supreme Court issued a joint opinion concluding that it would be unethical to participate in Avvo Legal Services.  A few days ago, Avvo's Chief Legal Officer posted a reply to the opinion in the blog Socially Awkward.  The reply is short and, in my opinion, weak.  All it does is repeat some of the arguments the opinion rejected.  It also gets the constitutional standard that applies to the commercial speech doctrine wrong (as I have pointed out in the past).

For some of my previous posts on Avvo go here, here, here, here, here, here, here, here, here, and here.

Three committees of the New Jersey Supreme Court issue opinion holding that it is unethical to participate in Avvo Legal Services; also affects Legal Zoom and Rocket Lawyer but for different reasons

The Advisory Committee on Professional Ethics, the Committee on Attorney Advertising, and the Committee on the Unauthorized Practice of Law of the Supreme Court of New Jersey recently issued an opinion holding, among other things, that it would be unethical to participate in Avvo Legal Services.  You can read the opinion here.

This comes as no surprise to me since I have argued both here and in a law review article (available here), that under the current regulatory system, Avvo Legal Services puts lawyers in positions to violate a number of rules and that Avvo's arguments to the contrary are not convincing.  All the opinions addressing the question so far have reached the same conclusion.  See here.

The opinion from the New Jersey committees is short and well written and addresses most, if not all, the arguments I have been discussing regarding Avvo's claims.  And it reaches pretty much the same conclusions I reached in my article, concluding that New Jersey lawyers may not participate in Avvo legal service programs because the programs improperly require the lawyer to share a legal fee with a non-lawyer in violation of Rule of Professional Conduct 5.4(a), and to pay an impermissible referral fee in violation of Rule of Professional Conduct 7.2(c) and 7.3(d).

Interestingly, Avvo was able to respond to the inquiry addressed by the committees before the opinion was issued and it seems it made the same arguments it has been making elsewhere and that I have discussed before.  The opinion rejects them all for pretty much the same reasons I described in my article.

For example, Avvo argued that its fee scheme does not constitute sharing fees with a non-lawyer because it is a "marketing fee."  About this, the opinion concludes that the fact that Avvo refers to its fee as a “marketing fee” does not determine the purpose of the fee or negate the fact that paying it constitutes sharing a fee with a non-lawyer.

Similarly, I have argued that the fact that Avvo’s fee varies depending on the value of the legal fee creates the impression that  the  lawyer  is  paying  Avvo  a  percentage  of  the  legal  fee,  which  is precisely what the ban on sharing fees with a non lawyer prohibits.

On this, the New Jersey opinion concludes that the fee lawyers pay to Avvo is not for marketing because "it is a fee that varies with the cost of the legal service provided by the lawyer, and is paid only after the lawyer has completed rendering legal services to a client who was referred to the lawyer by Avvo."   Further, it states:

Avvo claimed that the “marketing fee” is not a referral fee but an advertising cost, and because the “marketing fee” is a separate transaction, there is no improper fee sharing. The label and timing of the fee does not transform it into an advertising cost. This fee varies depending on the cost of the legal service provided, which is inconsistent with the essential elements of an advertising cost. Avvo defended the varying amounts of its “marketing fees” by stating that in the online market, bigger-ticket services should have bigger-ticket fees. It stated that it spends more to advertise the range of services and takes a bigger payment processing risk for more expensive services. The Committees are not convinced that the sliding scale of fees for legal services rendered bear any relation to marketing.

Moreover, as I pointed out in my article, according to the drafters of the Comment to Model Rule 7.2, a fee paid to a non lawyer for a client lead should not be contingent on a person’s use of the lawyer’s service because “[s]uch a fee would constitute an  impermissible  sharing  of  fees  with  non lawyers  under  Model  Rule 5.4(a).”  Since a lawyer does not have to pay a fee to Avvo unless a client chooses the lawyer, the fee seems to be “contingent on a person’s use of the lawyer’s  service.”  Thus,  paying  the  fee  to  Avvo arguably constitutes  a violation of the ban on fee sharing and, as a consequence, of Model Rule 7.2.

Once again, the New Jersey opinion agrees with my analysis when it concludes that "[w]hen the lawyers pay a fee to the company based on the retention of the lawyer by the client or the establishment of an attorney-client relationship, the answer to the inquiry is simple: the company operates an impermissible referral service."

Finally, the opinion addressed Avvo's contention that fee sharing with non-lawyers is not inherently unethical.  According to this argument it is unethical only if it results in an interference with the lawyer's independent professional judgment.

In my article I explained that Avvo's argument is wrong because, at least as far as the text of the Model Rule is concerned, unless allowed by one of the specific exceptions, splitting fees with a non lawyer is inherently unethical. The rule does not say that sharing a fee with a non lawyer is unethical only if it interferes with the attorney’s independent professional judgment; it says sharing a fee is unethical because it is a threat to an attorney’s independent professional  judgment. Clearly,  part  of  the  policy  behind  the  rule  is  to protect the attorney’s independent professional judgment, but that does not mean that the interference needs to be shown in order for the rule to apply.

And, again, the New Jersey opinion agrees:

Avvo further asserted that fee sharing is only unethical if it compromises the lawyer’s professional judgment. The Committees acknowledge that concerns about independent professional judgment undergird the prohibition on sharing legal fees with nonlawyers. But the precedent in New Jersey, in case law, opinions, and the language of the Rule of Professional Conduct itself, do not restrict the prohibition to situations where there is a clear connection between the fee sharing and the lawyer’s professional judgment. . . .  Sharing fees with a nonlawyer is prohibited, without qualification.

The opinion also addressed certain services offered by LegalZoom and Rocket Lawyer.  It found they also violate the rules, but for other, easy to address, reasons.  The opinion held that these programs are different than Avvo's because they operate as legal service plans and that, therefore, New Jersey lawyers may not participate in the plans until they are registered with the Administrative Office of the Courts.  This is a setback for LegalZoom and Rocket Lawyer, but one that should be easy to solve by registering the programs accordingly.

Simple Justice has a comment on the New Jersey opinion here.  (He agrees with me.)
My Shingle has a comment here.  (She does not.)
Above the Law comments here.
The Law for Lawyers today comments here.

Now back to the issues related to Avvo Legal Services, I want to reiterate something else I have stated in the past.  Saying that participating in Avvo Legal Services would violate the rules is not the end of the debate.  The more interesting question is whether the rules should be changed to accommodate what Avvo wants to do.  That is not addressed by the New Jersey opinion.  As I reported recently, though, it is under review in North Carolina and, perhaps in Oregon.

In other words, I think Avvo is going at this all wrong.  It should not be arguing that participating in its services does not constitute a violation of the rules.  Given the current rules, that argument is weak.  What it should be doing is arguing that the rules should be changed to allow it to do what it wants to do and to allow lawyers to participate.  That is a better approach, which may yield better results for Avvo.  What happens in North Carolina will tell.

My article on Avvo is now available

During the spring and summer I wrote an article on ethical issues related to joining Avvo Legal Services.  I started writing the article soon after Avvo announced the new service, and finished it before the recent ethics opinions from Ohio, South Carolina, and Pennsylvania.  Georgetown agreed to publish the original article, but because it took them a long time to get around to it I had the chance to update the draft a little bit based on the recent opinions.  Now the article is finally available.  You can go to the Georgetown website and read it or download it here. 

Pennsylvania Opinion finds participating in program like Avvo Legal Services to be unethical

For the third time in four months, a state bar ethics committee has warned attorneys that participating in an Avvo like client referral program would be unethical.  Similar to opinions in Ohio and South Carolina, and to rules revisions in Florida, the Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility issued Formal Op. 2016-200 holding that attorneys risk violating several ethics rules if they participate in a program like Avvo Legal Services.

I have not been able to find a copy of the opinion yet, but an article in the BNA/ABA Lawyers’ Manual on Professional Conduct reports that it finds a number of problems with the way the program is set up an implemented. For example, it finds that what Avvo claims is a marketing or advertising fee does “not correspond to any traditional model of compensation for advertising,” that the program improperly “delegates to a non-lawyer several critical decisions and functions that fall within the exclusive domain of the practice of law,” that it interferes with attorneys’ duty to exercise independent professional judgment, that it hampers a lawyer's ability to comply with Rule 1.16(d), which requires lawyers to refund any fees that have not been earned at the end of a representation, that the management of the fees constitutes commingling and a violation of the duty to safeguard client property and that it threatens the confidentiality of information related to the representation.

This comes as no surprise to me, or to longtime readers of this blog.  I have argued both here and in an upcoming article, that under the current regulatory system, Avvo Legal Services puts lawyers in positions to violate a number of rules and that Avvo's arguments to the contrary are not convincing.  See here, here and here for example.

However, saying that participating in Avvo Legal Services would violate the rules is not the end of the issue.  The question then becomes whether the rules should be changed to accommodate what Avvo wants to do. Interestingly, I don't think this is what Avvo has been arguing in response to the opinions around the country.  Instead of saying that the rules should be changed, Avvo typically argues that the rules don't apply or should not be followed.

Others, on the other hand, have been making more thoughtful arguments.  For example, solo attorney-blogger Carolyn Elefant has published an interesting post in My Shingle in which she argues why the rules should be changed to allow services like Avvo Legal Services to operate the way they want to.  Among other things, she argues that rules should not require lawyers to use trust accounts at all, which I imagine will be controversial.

Also, Professor Milan Markovic (Texas A&M) criticizes the approach of some of the opinions on Avvo as mechanistic.  You can read his comment here.

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.

Ohio Board of Professional Conduct issues opinion on flat fees

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.

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. 

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 Journal.com 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.

Quick review of the basics of handling money

IPethics&Insights has a short post reviewing the basics on handling clients' money, firm bank accounts and the like, here.

What do you have to do to get disbarred in Wisconsin?! Court rejects request to disbar attorney who misappropriated money from a client with diminished capacity while serving as guardian

Misappropriation of clients' funds is often considered to be one of the worst types of misconduct and usually results in disbarment.  In fact, it should result in disbarment.  If you steal money from your client, you should be disbarred.  Period; end of story.  That's always been my position and, typically, courts agree with it.  But every now and then there are exceptions.  Recently I wrote about an Illinois Review Board decision that suggested an attorney should not be disbarred for stealing client's money because the client did not know the lawyer had stolen the money and because the attorney had a good reason to steal the money.  As I said in my original post, that's absurd.

Not to be outdone, now comes an opinion by the Wisconsin Supreme Court rejecting the Office of Lawyer Regulation's recommendation to disbar an attorney who misappropriated almost $50,000 from a client with diminished capacity while serving as a guardian.  

One big problem in this case was that the attorney did not set a separate account to manage the money in guardianship.  He simply deposited the money in his trust account, which is a problem in and of itself.  Then, on top of that, as in many of these cases, the attorney claimed he had poor accounting or record keeping, and thus that he did not keep good records of the money going in and coming out of his trust account.

The attorney's claims are designed to suggest that he was merely negligent and that the fact he ended up misappropriating client money was not intentional.  Making the distinction between negligence and intent can be critical to avoid disbarment, of course; and here the court apparently bought the lawyer's argument.

I guess I understand there can be a distinction between negligence and intent, but at some point we have to decide how serious we are about misappropriation.  For me, the distinction is irrelevant.  If an attorney is so negligent that he or she can't figure out they are stealing client money, they should not be allowed to represent clients.  

The Wisconsin case is even worse because the attorney had been disciplined in the past for trust account violations.  So here we are dealing with an attorney who claims he was negligent when, in fact, he had been disciplined in the past.  I don't buy it.  Although I tend to be a hard-liner on this issue, I will not discard the possibility that I can be convinced to not disbar an attorney for a first offense if I am convinced the problem was caused by pure negligence.  But here we are dealing with an attorney who knew, or should have known, what he was supposed to do and decided not to change his practices.  I agree with the OLR's recommendation.  The attorney should have been disbarred.

UPDATE on the proposed amendments to the Florida rules

Earlier today I posted a comment about proposed changes to the rules in Florida.  See here.  I just received the proposed new text and here are my comments.

First, the rule will use the following definitions:

(A) Retainer. A retainer is a sum of money paid to a lawyer to guarantee the lawyer's future availability. A retainer is not payment for past legal services and is not payment for future services. 

(B) Flat Fee. A flat fee is a sum of money paid to a lawyer for all legal services to be provided in the representation. A flat fee may be termed "non-refundable."  

(C) Advance Fee. An advanced fee is a sum of money paid to the lawyer against which the lawyer will bill the client as legal services are provided.

The choice of words is interesting.  The proposal is using the word "retainer" to mean what other jurisdictions call a "classic retainer" while it is using the words "advance fee" to define what others call a "security retainer."

The Comment to the rule explains the analysis related to the issue of whether a fee can be non refundable:

     A lawyer may require advance payment of a fee but is obliged to return any unearned portion. . . . A lawyer is not, however, required to return retainers that, pursuant to an agreement with a client, are not refundable. A nonrefundable retainer or nonrefundable flat fee is the property of the lawyer and should not be held in trust. If a client gives the lawyer a negotiable instrument that represents both an advance on costs plus either a nonrefundable retainer or a nonrefundable flat fee, the entire amount should be deposited into the lawyer's trust account, then the portion representing the earned nonrefundable retainer or nonrefundable flat fee should be withdrawn within a reasonable time. An advance fee must be held in trust until it is earned. Nonrefundable fees are, as all fees, subject to the prohibition against excessive fees.

Although I am not totally convinced the language used in the definitions is the best, as I said in my previous post, I think the analysis this proposal is much better than the one offered in many of the cases that have been decided on this issue.