Marketing Legal Services with Group Coupons
LACBA Update, June/July 2012
By Richard D. Hoang, associate, McCurdy & Leibl, LLP; assistant professor of law, Irvine University College of Law, Cerritos, California; and member, LACBA Professional Responsibility and Ethics Committee. He can be reached at firstname.lastname@example.org. The opinions expressed are his own.
In difficult economic times, people look for discounts and other ways to save when purchasing things they need. When you go to the grocery store, you may take out a coupon or a supermarket club card to purchase items at a reduced price. A variation on the coupon is the group coupon. With the group coupon, a merchant/seller enters into an agreement with the group coupon company whereby the group coupon company markets the coupons (through vehicles such as e-mail, a Web site, and deals of the day) and accepts payment from the consumer for the coupon. The group coupon company then distributes a percentage of the group coupon sales to the merchant/seller.
Attorneys may also choose to advertise their services through group coupons, though not all legal services are suitable for group coupons. An American Bar Association article recently discussed how several other states have approached the issue of attorneys advertising through group coupons.1 However, most other states follow a version of the ABA’s Model Rules of Professional Conduct, while California does not. The Indiana State Bar issued an opinion that took a negative view with regard to marketing legal services through a group coupon company.2 However, New York,3 North Carolina,4 and South Carolina5 took more positive views, allowing attorneys to participate in group coupon arrangements provided that certain precautions were taken. Aside from the rules on advertising that attorneys must follow,6 California attorneys who wish to market their legal services through a group coupon company face numerous issues, including 1) evaluating conflicts of interest, 2) sharing legal fees with a nonattorney, and 3) accounting for advance fees.
Rule 3-310(C) of the California Rules of Professional Conduct requires informed written consent from clients where there is an actual or potential conflict of interest. When attorneys market legal services through a group coupon company, and a consumer purchases the coupon for the legal services, the consumer is entitled to those legal services upon redemption of the coupon. Does purchase of a group coupon establish an attorney-client relationship? California law provides that payment of attorney's fees in itself does not establish an attorney-client relationship.7 However, consumers are not likely to be aware of this or the attorney’s need to conduct a conflicts check prior to representation.8 To prevent any misunderstanding between attorneys and their potential client, attorneys who wish to market their legal services through a group coupon company should adopt a mechanism similar to that recommended by the New York State Bar Association Committee on Professional Ethics:
To avoid the premature and improper formation of a lawyer-client relationship, the lawyer’s advertisement on a “deal of the day” website [or group coupon] must make clear that the offer made on the website is subject to a number of conditions. These would include that before such a relationship is formed, the lawyer will check for conflicts and determine that the lawyer is competent to provide legal services that are appropriate to the consumer. If the lawyer determines that the lawyer-client relationship is untenable for these reasons, the lawyer must give the coupon buyer a full refund.9
Another issue that arises with attorneys marketing legal services through a group coupon company is the splitting of legal fees with a nonlawyer if the group coupon company takes a percentage of the coupon sales. Rule 1-320(A) of the California Rules of Professional Conduct states that “[n]either a member nor a law firm shall directly or indirectly share legal fees with a person who is not a lawyer….” The California Standing Committee on Professional Responsibility and Conduct issued an opinion where it found that an attorney preparing living trust documents at the direction of a nonattorney marketer who was advertising and conducting seminars on living trusts was an impermissible fee sharing arrangement under Rule 1-320 of the California Rules of Professional Conduct.10
However, Rule 1-320 does not prevent an attorney from paying for advertising.11 The Los Angeles County Bar Association Professional Responsibility and Ethics Committee issued an opinion that is instructive on this issue.12 The opinion considered a situation where a property manager provided an attorney with an office and related services at no charge. The attorney did work for the property manager’s clients on an hourly basis, and the property manager charged its clients a portion of the attorney’s office and overhead expenses in proportion to the attorney’s hourly billings to the clients. The arrangement was not a violation of Rule 1-320 because the fees charged to the property manager’s clients were only a portion of the attorney’s overhead expenses. Applying the property manager and attorney scenario considered in the Los Angeles County Bar Association opinion above, an attorney marketing through a group coupon does not violate Rule 1-320 if the percentage retained by the group coupon company is a reasonable payment for the advertising.13
Consumers purchasing a group coupon for legal services are essentially paying their legal fees in advance. Issues arise because the entire payment from the consumer is usually taken by the group coupon company and then disbursed to the attorney. “All funds received or held for the benefits of clients by a member or law firm, including advances for costs and expenses, shall be deposited in one or more identifiable bank accounts labelled [sic] ‘Trust Account,’ ‘Client Funds Account’ or words of similar import…”14 Yet, as the courts have construed Rule 4-100, an attorney is ethically permitted but not required to deposit fees not yet earned into a client trust account.15
However, in an article reviewing two civil cases requiring attorneys to place advance fees in a client trust account, former State Bar Court Judge Ellen R. Peck concluded: “In view of the potential civil liability and potential disciplinary liability for failure to return unearned fees upon termination of the lawyer-client relationship, the safer practice is to place all advance fees in a client trust account and withdraw funds as they are earned.”16
Likewise, in an abundance of caution, attorneys marketing through a group coupon should ensure that they receive the portion of the fees for legal services (after deduction for any reasonable advertising/marketing fees charged by the group coupon company) and place that portion into a client trust account and draw from the funds as they are earned. If there are funds remaining after conclusion of the matter, attorneys should refund the remainder to the client pursuant to Rule 3-700(D)(2) of the Rules of Professional Conduct.17
Innovations in technology will bring new ways for attorneys to market their legal services. Attorneys should ensure that their advertisements—and the means in which they advertise—do not run afoul of any ethical or statutory obligations.
1 See Peter H. Geraghty, State Bar Ethics Opinions Address Lawyers Marketing Legal Services on Group-Coupon Websites, Your ABA—Eye On Ethics Column (April 2012), available at http://www.americanbar.org/newsletter/publications/youraba/201204article11.html.
2 Indiana State Bar Association Legal Ethics Committee, Op. No. 1, 2012.
3 New York State Bar Association Committee on Professional Ethics, Op. 897 (2011).
4 North Carolina State Bar, Formal Ethics Op. 10 (2011).
5 South Carolina State Bar Association, Ethics Advisory Op. 11-05 (2011).
6 See Robert K. Sall, Promoting Business Under the Advertising Rules, LACBA County Bar Update (December 2009), available at https://www.lacba.org/news-and-publications/lacba-update/past-ethics-articles/2009-dec-ethics-sall (overview of attorney advertising).
7 Lasky, Haas, Cohler & Munter v. Superior Court, 172 Cal. App. 3d. 264, 285 (1985) (218 Cal. Rptr. 205) (“Payment is but one indicia; the contractual intent and conduct of the parties are critical to formation of such relationship. (Citation.)”).
8 See Proposed California Rules of Prof'l Conduct R. 1.7, Comment 3, which provides that attorneys should adopt reasonable procedures for checking conflicts, appropriate for the size and type of firm and practice, and that ignorance resulting from a failure to institute such procedures will not excuse a violation of the rules.
9 New York State Bar Association Committee on Professional Ethics, Op. 897 (2011), ¶ 21.
10 State Bar of California, Standing Committee on Professional Responsibility and Conduct, Formal Op. No. 1997-148.
11 See Discussion on California Rules of Prof'l Conduct R. 1-320, providing that “Rule 1-320(C) is not intended to preclude compensation to the communications media for advertising the member’s or law firm’s availability for professional employment.”
12 See Los Angeles County Bar Association, Professional Responsibility and Ethics Committee, Formal Op. No. 461 (1991).
13 See Proposed California Rules of Prof'l Conduct R. 7.2(b), allowing for the payment of reasonable costs of advertising.
14 California Rules of Prof'l Conduct R. 4-100(A).
15 State Bar of California, Standing Committee on Professional Responsibility and Conduct, Formal Op. No. 2007-172, fn. 11. See Baranowski v. State Bar, 24 Cal. 3d. 153, 164 (1979) (154 Cal. Rptr. 752). The proposed revision to the California Rules of Professional Conduct states that an attorney “may, but is not required to, deposit an advance for fees in a trust account." See Proposed California Rules of Prof'l Conduct R. 1.15(d). Though the proposed revision does not require deposit of an advance for fees in a trust account, the attorney must still be able to account for the advanced fees. Proposed California Rules of Prof'l Conduct R. 1.15, Comment 10.
16 Ellen R. Peck, 2 civil court rulings affect advance fees, Cal. St. B.J. (December 1996), available at http://archive.calbar.ca.gov/calbar/2cbj/96dec/3ad1.htm.
17 This article does not address the propriety of expiration dates on group coupons or group coupons for legal services. However, in the event a consumer fails to redeem a group coupon for legal services before the expiration date, any fees that were received by the attorney would be unearned fees and should be refunded to the consumer if no work was performed. See Dixon v. State Bar, 39 Cal. 3d. 335, 339-40 (1985) (216 Cal. Rptr. 432) (Supreme court adopted the recommendation of the hearing department disbarring an attorney who attempted to charge an unconscionable fee in violation of Rule 4-200(A) (former Rule 2-107) and failed to refund fees not expended on the client’s behalf.).