1 IS GROUPON FOR LAWYERS FRAUGHT WITH ETHICAL DANGER? WHY THE LEGAL COMMUNITY SHOULD EMBRACE INNOVATIVE INTERNET- MARKETING FOR LAWYERS Aaron J. Russ TABLE OF CONTENTS I. Introduction II. Background A. How It Works B. Groupons and Lawyers C. The Ethical Framework III. Analysis A. State Advisory Opinions Concluding that Deal-of-the-Day Websites Are Unethical for Lawyers Indiana Alabama B. State Advisory Opinions Permitting Attorney Marketing on Deal-of-the-Day Websites North Carolina South Carolina New York Nebraska Summarizing the Concerns of These States IV. Recommendation A. Technology and the Regulation of Legal Advertising B. Accepting Economic Realities and Supporting the Movement into Solo Practice and Smaller Firms J.D., University of Illinois College of Law, May Dual B.A., Economics and Political Science, University of Michigan, May I would like to thank Chris Tinsley for his guidance through the notewriting process as well as the entire JLTP editorial staff for its continued dedication and hard work. I would like to thank Theresa Reiss for her willingness to listen to my ideas and provide constructive feedback. Finally, I wish to thank my family for its love, support, and understanding throughout my entire law school career. 393
2 394 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol Lowering Start-Up Costs Providing Lower Fees to Clients Accessing a New Supply of Clients C. Dispelling the Concerns of the Indiana and Alabama Opinions: How to Ethically Advertise on Deal-of-the-Day Websites V. Conclusion I. INTRODUCTION The marketplace for legal services in America is undergoing a change commensurate with the shift in information technology. Rapid advances in Internet capabilities have widened the boundaries of our economy and increased the speed with which information is downloaded, processed, and retransmitted. 1 Legal work product can now be compartmentalized, segmented, and shipped overseas in order to take advantage of cheaper labor costs. 2 While big-law has been pressured by corporate clients to lower costs, 3 smaller-scale innovation has also developed in order to bring cost-savings to the average legal consumer. 4 Internet technology has been used to improve marketing, expand services, streamline document review, and even reduce rent costs. Websites, such as legalzoom.com, legalmatch.com, lawyers.com, and lawzam.com, have recently been launched to leverage the advances of Internet technology into savings for the individual legal consumer. 5 Mirroring the shift away from the classic brick-and-mortar retail stores, some law firms have even experimented with abandoning their workspace entirely for a fully online firm. 6 Thus, innovative 1. See WORLD INTELLECTUAL PROPERTY ORG., INTELLECTUAL PROPERTY ON THE INTERNET: A SURVEY OF ISSUES 42 (2002), available at pdf/survey.pdf (noting that the process of digitization allows the conversion of... materials into binary form, which can be transmitted across the Internet, and then re-distributed, copied and stored in perfect digital form ). 2. Id. 3. See Patrick G. Lee, Pricing Tactics Spook Lawyers, WALL ST. J. (Aug. 2, 2011), (detailing how large corporations have been using a reverse auction method to drive down the price of large-scale legal services). 4. CITIGROUP & HILDEBRANDT CONSULTING LLC, 2013 CLIENT ADVISORY 8 (2013) [hereinafter HILDEBRANDT], available at 2013ClientAdvisory.pdf (suggesting ways that firms can make small-scale structural changes to cut costs and increase demand). 5. See, e.g., LAWYERS.COM, (last visited Sept. 16, 2013) (allowing clients to search for attorneys online); LAWZAM, https://www.lawzam.com/ (last visited Sept. 16, 2013) (providing a virtual portal for clients and attorneys to consult and communicate via computer webcams); LEGALMATCH, (last visited Sept. 16, 2013) (helping clients match with attorneys based on location and service area); LEGALZOOM, (last visited Sept. 16, 2013) (providing simple legal tasks such as will drafting, business incorporation, and trademarks via an online transaction). 6. Carolyn Elefant, Virtual Law Firms Going Viral, LAW.COM LEGAL BLOG WATCH (June 26, 2009, 3:41 PM), (outlining recent advances in online virtual law firms); see also VIRTUAL L. PRAC., virtuallawpractice.org (last visited Sept. 16, 2013) (detailing one lawyer s experience with promoting her own virtual firm).
3 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 395 lawyers have been applying technology in creative ways to lower costs and improve productivity. The 2008 recession has hit all sectors of the economy the legal profession is no exception. Since 2008, the availability of legal jobs for young attorneys has plummeted. 7 The current employment outlook for new law school graduates is the worst it has been since The financial crash in 2008 slashed the heavy transactional work for financial institutions that had once driven the growth of larger law firms. 9 A 2013 report of the legal market demonstrates that the rapid growth of the leveraged law firm model in the 2000s was most likely an aberration. 10 The absence of this model creates a void in the demand for the legal labor market, resulting in an oversupply of young attorneys. 11 The price pressure attacking this leveraged model is coming from all angles. Clients are more closely scrutinizing bills; contract attorneys, technology, and alternative legal providers are competing with firms by delivering lower prices. 12 The compound aggregate growth rate of the legal market from 2008 to 2012 was a meager 0.4%. 13 The current excess capacity of law firms and the soft demand for legal services supports the prediction that 2013 will be another disappointing slow-growth year for the legal field as a whole. 14 Although statistics indicate that legal hiring slowed in all major areas private, government, judicial, and public interest 15 there was an increase from 2008 to 2009 in the number of new law graduates entering private practice as solo practitioners. 16 Opening one s own law firm carries with it a number of financial and reputational risks. 17 Taking this leap requires start-up capital, ingenuity, confidence, and clients. 18 However, the data indicate that when the traditional opportunities are scarce, new attorneys, to a larger degree, 7. See Press Release, NALP, Law School Grads Face Worst Job Market Yet Less than Half Find Jobs in Private Practice (June 7, 2012), available at Classof2011ERSSSelectedFindingsPressRelease.pdf (indicating that for the class of 2009, only 65.4% of new graduates with employment had full-time jobs that required bar passage). 8. See id. ( [T]he overall employment rate for new law graduates is, at 85.6%, the lowest it has been since ). 9. James G. Leipold, The Changing Legal Employment Market for New Law School Graduates, B. EXAMINER, Nov. 2010, at 6, HILDEBRANDT, supra note 4, at Id. at 3 ( To exacerbate the problem, associate ranks have shrunk in recent years, while the percentage of income partners has climbed. ). 12. Id. at Id. at 1. Compare this to the period, when the compound aggregate growth rate for the legal field was a healthy 3.7%. Id. 14. Id. at Leipold, supra note 9, at Id. at 8. For the class of 2009, the number of solo practitioners reported was well over 1,000 and represented more than 5% of law firm jobs reported, compared with 3.3% for the class of Id. A similar data trend was discovered during the recession in the 1990s. Id. 17. See Steven T. Taylor, Going Solo: Rising to the Challenge, L. PRAC., Jan. Feb. 2007, at 36, available at magazine_articles_v33_is1_an1.html (profiling one attorney who spent $100,000 and left a lucrative position as a partner in a large firm to start his own practice). 18. Id.
4 396 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol are willing to accept these risks and take the plunge into solo practice. 19 If recent legal graduates and young attorneys are willing to seek out new opportunities to serve new markets, they will need to be creative in seeking such markets. One of the major challenges facing solo practitioners is finding and retaining new clients. 20 Due to the financial constraints, the limited marketing that young solo practitioners can afford must be cost-effective. A Pew Internet and American Life Survey estimated that by 2007 it was expected that seven million Americans would be searching for legal services online. 21 Lawyers can tap into this expanding market at relatively low costs. 22 Internet technology has the potential to help new start-up firms to break through this marketing barrier and reach these consumers with the cost-effective tools that are now available online. 23 Recently, the website Groupon.com (Groupon) has offered advertising arrangements for attorneys. Some attorneys have tried to use the website in order to attract new clients. 24 Others remain skeptical of its costs and its potential ethical violations. 25 As of the writing of this Note, six states bar associations have issued opinions on whether or not legal advertising on Groupon or other similar deal-of-the-day websites is a violation of the ABA Model Rules. 26 While some of these opinions concluded that this form of legal marketing can be Model Rule compliant, their conclusions are conditional and do not provide clear guidance for attorneys. 27 The other two opinions condemn this practice, offering no safe-harbor for lawyers wishing to use these websites. 28 Ultimately, if lawyers are careful to implement a certain structure while advertising on deal-of-the-day websites, they can avoid violating the principles underlying the ABA Model Rules. Furthermore, the benefits to legal consumers far outweigh the potential for Model Rule implications, which exist in the shadows of every attorney-client relationship, online or face-to-face. 19. Leipold, supra note 9, at See, e.g., GISELA B. BRADLEY, MARKETING YOUR PRACTICE 4 (2001) (advising new solo practitioners to have a plan to target an identified market that will demand the services offered by their new firm). 21. Geri I. Dreiling, Choosing Up Sides, A.B.A. J., May 2007, at Id. (describing services that allow attorneys to be matched with clients through the Internet in exchange for a nominal application fee and recurring subscription fees). 23. Id. 24. See, e.g., Debra Bruce, Did a Groupon Really Work for a Solo Lawyer?, SOLO PRAC. U. (Jan. 19, 2012), (explaining one attorney s experience with using a groupon to stimulate business). 25. Id. (commenting that many fellow attorneys had a negative reaction to this lawyer s Groupon deal). 26. Ala. State Bar Office of Gen. Counsel, Ethics Op ; Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012); State of Neb. Lawyer s Advisory Comm., Ethics Advisory Op. for Lawyers (2012); N.C. State Bar, Formal Op. 10 (2011); N.Y. State Bar Ass n Comm. on Prof l Ethics, Op. 897 (2011); S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011). 27. State of Neb. Lawyer s Advisory Comm., Ethics Advisory Op. for Lawyers (2012); N.Y. State Bar Ass n Comm. on Prof l Ethics, Op. 897 (2011); N.C. State Bar, Formal Op. 10 (2011); S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011). 28. Ala. State Bar Office of Gen. Counsel, Ethics Op (describing this practice as fraught with ethical landmines ); Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) (holding that advertising on these websites is fraught with peril ).
5 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 397 Jobs for new attorneys are scarce and young lawyers are driven, for better or worse, into solo practice. Current markets exist that are underserved by the legal industry. 29 Low-cost Internet marketing could be the tool that removes the friction between this abundant supply of young attorneys and the changing demands of the industry s clients. 30 The ABA Model Rules should not function as an impediment to the changing methods of legal advertising. While several other online marketing tools have been the subject of formal ethics scrutiny, 31 this Note will focus its analysis on deal-of-the-day style offers, popularized by Groupon. Part II of this Note will provide a background of how deal-of-the-day websites work, the ethical framework governing this advertising, and how lawyers can advertise with them. Part III will survey the state bar association opinions that have directly commented on this topic. Part IV will recommend how lawyers can avoid Model Rule violations while using deal-of-the-day sites and why states barring this practice should reconsider their positions. II. BACKGROUND Deal-of-the-day websites have enjoyed recent success and are expected to continue their unprecedented growth. 32 According to a BIA/Kelsey study, revenues for these websites will continue to grow from $873 million in 2010 to $3.9 billion in This dizzying rate of growth is attributed to reaching new markets and increasing the number of users. 34 The two major players in this market are Groupon and LivingSocial; however, competition continues to expand as over two hundred rival websites have launched. 35 As of 2011, these websites reached an estimated 102 million people in the United States. 36 When shares of Groupon (GRPN) were offered to the public in November of 2011, $700 million of new investment poured into the company. 37 With this influx of new capital, the untested three-year-old online website became the largest IPO by a U.S. Internet company since Google. 38 Although the stock s 29. See Kendall Coffey, Underserved Middle Class Could Sustain Underemployed Law Graduates, LAW.COM (Aug. 22, 2012) (noting that the middle class could provide a new market for young lawyers offering a competitive price point). 30. Id. (explaining how advances in technology can facilitate new firms with lower hourly rates). 31. See Ethics FAQ, LEGALMATCH, (last visited Sept. 16, 2013) (listing the six states that have issued ethics opinions specifically regarding for-profit legal matching websites). 32. Press Release, BIA/Kelsey, Consumer Spending on Deal-a-Day Offers Likely to Reach $3.9B in U.S. by 2015, According to BIA/Kelsey (Mar. 3, 2011), available at Press-Releases/ Consumer-Spending-on-Deal-a-Day-Offers-Likely-to-Reach-$3.9B-in-U.S.-by asp. 33. Id. 34. Id. 35. Id. 36. Id. 37. Alistair Barr & Clare Baldwin, Groupon s IPO Biggest by U.S. Web Company Since Google, REUTERS (Nov. 4, 2011, 12:55 PM), 38. Id.
6 398 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol performance at the one-year anniversary was a disappointment, 39 the company is currently predicting revenues between $625 million and $675 million in the fourth quarter of A. How It Works Daily deal websites such as Groupon provide a way for customers to enjoy the best businesses, products, and services in their city by leveraging the framework of collective buying. 41 Users sign up for free on Groupon.com with their address and zip code. 42 They then receive daily deals, known as groupons, which are essentially time-sensitive vouchers allowing the purchaser to redeem anything from pet grooming and pizzerias to puppeteers at a deep discount from the merchant. 43 The merchant honors these discounts similarly to a traditional coupon. According to its website, Groupon touts a massive reach, currently over 38 million customers. 44 Based on internal data, Groupon has helped more than 250,000 businesses and generated over $2 billion in sales for these companies. 45 Groupon s method of collective buying, means that a deal only becomes valid once a certain number of consumers purchase the voucher. This number is known as the tipping point. 46 As long as enough of the groupons are purchased for a given product or service within the allotted time, they may be redeemed for the discounted goods or services. 47 Once the groupon is purchased, the fee is split between the merchant and Groupon. 48 This deal is mutually beneficial; Groupon provides its vast network of customers and receives a fee for each groupon if they reach the tipping point, which also generates enough new business for the merchant to make the arrangement worthwhile. 49 Merchants are also able to generate additional revenues from Groupon users who purchase complementary goods at redemption, and the 39. Morgan Korn, Groupon Stock Plummets After Poor Q3 Earnings: Has It Hit a Wall?, YAHOO! FIN. (Nov. 9, 2012, 11:03 AM), earnings-hit-wall html ( The stock has plunged 85% during its time on the market as investors have grown increasingly worried about the vitality of the company s business model. ). 40. Id. 41. GROUPON, (last visited Sept. 17, 2013). 42. Id. (prompting new users to enter an address in order to access local Groupon deals). 43. GROUPONWORKS, https://www.grouponworks.com (last visited Sept. 17, 2013). 44. Id. 45. Id. 46. Ish Bhanu, Group + Coupon = Groupon, Groupon.com: The Power of Collective Buying 3 4 (Dec. 2, 2010) (unpublished manuscript), available at ( Once [the tipping point] had been reached... the deal became active and those who had committed earlier were charged.... ). 47. GROUPONWORKS, supra note Bhanu, supra note 46, at 4 ( Through heavy negotiating a Groupon representative would hammer out a contract, which was typically just barely above marginal cost for the business in which the Groupon company would take 30%-50% of money paid for the Groupon and the business would take the remainder. ). The merchant s portion of the Groupon fee is usually dispersed in three installments within sixty days of the promotion. Id. at Id. at 2.
7 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 399 arrangement can create repeat clientele. 50 Consumers can enjoy substantial discounts on these services, typically between fifty and ninety percent. 51 B. Groupons and Lawyers Groupon discounts are offered in countless industries. The website caters to a wide range of businesses: restaurants, beauty salons, ticket sales, services, shopping, and travel, among several others. 52 The website boasts that ninetyone percent of its users already returned or plan to return to the merchant again for repeat business. 53 If a lawyer wishes to expand his business as a Groupon merchant, he or she will make an arrangement with a member of the Groupon sales team, providing a discount for a specified legal service. The common examples are completed on a flat-fee arrangement and do not involve billable hours. 54 Since lawyers commonly charge per hour, deal-of-the-day arrangements are only feasible for less complicated legal services that can be provided for a set price. A commonly cited example is drafting a will. If an attorney can estimate the amount of hours of work involved in drafting a will, he or she can price the groupon accordingly. In one example, an attorney advertised his services on Groupon to prepare a will for ninety-nine dollars. 55 The rest of the transaction is identical to any other groupon issued to consumers. 56 If enough consumers purchase the groupon, it goes live and all purchasers may enjoy the discount. 57 Groupon takes a cut of the purchase price, distributes the other share to the attorney, and the purchasers decide when to redeem the services from the attorney. 58 Potentially, the attorney or any other merchant runs the risk of mispricing the groupon. If the costs of the groupon do not cover the true costs, then the merchant takes a loss on the arrangement. 59 This is analogous to the alternative billing structure that many corporate clients are demanding from big law firms. 60 The corporate client attempts to minimize the inefficiencies 50. Id. at Id. 52. GROUPONWORKS, supra note Id. 54. See, e.g., Bruce, supra note 24 (in the context of a will); see also GROUPONWORKS, supra note 43 (showing examples of how Groupon for services work, generally charging for the job and not by the hour). 55. Bruce, supra note 24. Mr. Redler s typical will package was $750. Id. He admits that this wasn t necessarily done to create a surge in profits, but rather he was a fan of Groupon.com and wanted to experiment with one of his own. Id. 56. GROUPONWORKS, supra note Bhanu, supra note 46, at Id. 59. See Bruce, supra note 24 (noting that in some cases, Mr. Redler s Groupon clients actually wanted something more complicated than a simple will, in which case he gave the clients a $750 credit his base price for preparing a simple will). 60. See generally Rachel M. Zahorsky, Facing the Alternative: How Does a Flat Fee System Generally Work?, A.B.A. J., March 2012, at 41 (noting one example of Tyco International opening up its entire litigation defense work for alternative fee arrangement bidding in 2004). Corporate clients push for these arrangements because they can pay one flat fee for a law firm to handle all of a certain type of legal work. Id. The law firm has to balance two competing goals: it must price the work competitively in order to win the bid, but it almost
8 400 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol inherent in paying for legal services by the hour, and this structure allows that client to budget accordingly for its future legal work. 61 However, firms want to avoid pricing complex legal work on a flat-fee basis due to the uncertainty of how many hours and attorneys it will require to complete the job. 62 Although law firms have been able to amass large amounts of success based on the billable hour, it is clear that these new alternative fee arrangements favor the client, and the demand for them will continue to grow. 63 It may be the case that this billing model is spreading to smaller firms and solo practitioners. 64 C. The Ethical Framework Lawyers are governed by a set of ethical rules, which are adopted by the highest court of each state after consultation with the state bar association. 65 Almost every state has enacted one version of the ABA Model Rules. 66 These rules govern how lawyers can practice their trade within the state. 67 The highest court of each state is also in charge of the enforcement of these rules; it will typically delegate the task to a separate disciplinary agency, run by attorneys. 68 Penalties for violating these rules can include public censure, monetary fines, license suspension, and even disbarment. 69 When the Model Rules do not clearly resolve ethical issues facing lawyers, the state bar associations will issue opinions which reflect their position on the issue. 70 While these opinions are not legally binding, courts are increasingly relying on these advisory opinions in their decisions. 71 III. ANALYSIS Advisory opinions attempt to apply the Model Rules to new situations, but these rules are generally outdated, particularly in the realm of Internet technology. 72 The ABA recently realized that the Model Rules need to keep must charge enough money to cover its own costs and maintain profitability. Id. This can be challenging considering that the amount of work involved in litigating any case is unpredictable. Id. 61. Id. 62. See id. (noting that traditional billing and tracking models are not good for predicting how a future issue should be priced). 63. See HILDEBRANDT, supra note 4, at 7 (indicating that the trend toward alternative fee arrangements is increasing). 64. See id. (discussing the successful small firm business models and strategies). 65. LISA G. LERMAN & PHILIP G. SCHRAG, ETHICAL PROBLEMS IN THE PRACTICE OF LAW 20 (2d ed. 2008). 66. See State Adoption of the ABA Model Rules of Professional Conduct, A.B.A., model_rules_of_professional_ conduct/alpha_list_state_adopting_model_rules.html (last visited Sept. 17, 2013) (indicating that every state except for California has adopted the ABA Model Rules of Professional Conduct). 67. Preface to MODEL RULES OF PROF L CONDUCT (2013). 68. LERMAN & SCHRAG, supra note 65, at Id. at Id. at Peter A. Joy, Making Ethics Opinions Meaningful: Toward More Effective Regulation of Lawyers Conduct, 15 GEO. J. LEG. ETHICS 313, 319 (2002). 72. AM. BAR ASS N, COMMISSION ON ETHICS 20/20 INTRODUCTION AND OVERVIEW 1 2 (2012)
9 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 401 pace with social change and the evolution of law practice. 73 Specifically, the ABA noted that [t]echnology is changing the way that clients find lawyers. 74 Thus, the ABA seeks to provide more guidance to lawyers on the issue of online legal marketing but realizes the benefits of technology. 75 While proposing to amend the rules with respect to online marketing, the ABA recommends that three principles must undergird these modifications: preventing false and misleading advertising, protecting the public from the undue influence of solicitations, and safeguarding the confidences of prospective clients. 76 Newer forms of Internet marketing cannot become a free-for-all; the Model Rules must continue to protect prospective clients. However, these rules must be flexible enough to take advantage of the benefits of technology. Adhering to the principles outlined by the ABA will ensure that these two concerns are properly balanced. 77 Several states have attempted to provide guidance on whether or not lawyers advertising on deal-of-the-day websites is ethically appropriate. 78 Currently, six state opinions tackle head-on the issue of attorney advertising on deal-of-the-day websites such as Groupon. 79 While these opinions come to different conclusions, the separate analyses concern the same ABA Model Rules: Rule 1.5 Fees, Rule 1.15 Safe-keeping Property, Rule 1.16 Declining or Terminating Relationship, Rule 2.1 Advisor, Rule 5.4 Professional Independence of a Lawyer, and Rule 7.1 Communication Concerning a Lawyer s Services. 80 Indiana and Alabama have declared that using deal-of-the-day websites is unethical. 81 Conversely, North Carolina, South Carolina, New York, and Nebraska have concluded that if certain criteria are met, deal-of-the-day marketing arrangements may be ethically permissible. 82 [hereinafter ABA INTRODUCTION AND OVERVIEW], available at administrative/ethics_2020/ _ethics_20_20_final_hod_introdution_and_overview_report.authcheckda m.pdf (advocating for changes in the Model Rules, which reflect changes in Internet technology). 73. Id. at Id. at Id. at 4 (explaining that technology offers lower cost and convenience for clients). 76. Id. at Id. at See opinions cited supra note See opinions cited supra note See opinions cited supra note See Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) (stating the use of group coupons for Indiana attorneys is likely not permitted ). See also Ala. State Bar Office of Gen. Counsel, Ethics Op ( The use of daily deal websites, such as Groupon, violates or potentially violates a number of rules of professional conduct. ). 82. State of Neb. Lawyer s Advisory Comm., Ethics Advisory Op. for Lawyers (2012); N.Y. State Bar Ass n Comm. on Prof l Ethics, Op. 897 (2011); N.C. State Bar, Formal Op. 10 (2011); S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011).
10 402 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol Indiana A. State Advisory Opinions Concluding that Deal-of-the-Day Websites Are Unethical for Lawyers The Indiana Bar Association Legal Ethics Committee provides a dire warning for lawyers using deal-of-the-day legal advertising, stating that it is fraught with peril and likely not permitted in its current form under the Indiana Rules of Professional Conduct. 83 The Committee finds several issues regarding the lawyer-client relationship, safekeeping of property, duties to prospective clients, and fee-splitting. 84 The Committee s first issue is regarding the attorney-client relationship, and the belief that the duty to determine whether or not to initiate that relationship rests with the lawyer. 85 Instead of the lawyer ultimately determining whether or not to accept a client, the opinion claims that this decision is made either by the deal-of-the-day website or the customer. 86 Based on Indiana Rules of Professional Conduct 9.3(a), the duty to create an attorney-client relationship cannot be delegated to anyone else. 87 Further, assuming that the customer in the Groupon deal is the party that ultimately creates the attorney-client relationship, the lawyer cannot comply with Rule 2.1, which states that [i]n representing a client, a lawyer shall exercise independent professional judgment According to the Indiana Ethics Committee, [t]his standard is difficult to meet if the decision to represent the client is not the lawyer s decision, but is the potential client s choice, made by the decision to purchase a coupon provided by a lawyer the client may have never met. 89 Additionally, the fact that the consumer ultimately decides to initiate the attorney-client relationship leads the Committee to conclude that the lawyer may not properly run a conflicts-of-interest check. 90 However, the Committee only considers this hypothetically and presumes that the lawyer neglects to run a conflicts check. 91 The opinion makes no statements regarding whether 83. Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012). However, the opinion considers the future possibility for this advertising, noting that the [B]ar is advised to conduct rigorous research before entering into such an advertising arrangement, and any lawyers contemplating such action would be well served to employ competent, private counsel to guide the lawyer through the dangers inherent in such marketing, including discussion of alternative courses of action that may comply with the Rules. Id. 84. Id. 85. Id. 86. Id. 87. INDIANA RULES OF PROF L CONDUCT R. 9.3(a) (2013) ( A lawyer may not delegate to a non-lawyer assistant: (a) responsibility for establishing an attorney-client relationship.... ). This Rule is unique to the Indiana Rules for Professional Responsibility and does not appear in the ABA Model Rules. See generally MODEL CODE OF PROF L CONDUCT (2013). 88. INDIANA RULES OF PROF L CONDUCT R. 2.1 (2013). 89. Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012). 90. Id. 91. Id. Although the Committee does not say this is explicitly violated by the coupon purchase, the court hypothetically considers that this could violate Rules 1.7 (conflicts checks) and 1.16 (terminating the attorney-client relationship) if the lawyer does not properly run the conflicts check. If a lawyer neglects to
11 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 403 accepting a coupon from a client would absolutely foreclose the possibility of complying with conflicts-check rules. 92 The nature of this potential violation is speculative, at best. According to the Committee s interpretation, the purchase of a deal-ofthe-day coupon for legal services initiates an attorney-client relationship. 93 As a result, the lawyer cannot exercise independent judgment and could fail to pre-screen the prospective client for a conflicts of interest check. 94 The Committee does not consider in its opinion the possibility that the Groupon purchase does not initiate the attorney-client relationship. 95 Hypothetically, if the lawyer or the website could structure the arrangement so that the coupon is contingent upon a conflicts-of-interest check, then the concerns of the Indiana Committee become moot. 96 If the lawyer retains the right to cancel the groupon and refunds the client s money, then he or she can exercise independent professional judgment, can determine whether or not to initiate the attorney-client relationship, and can run a conflicts-of-interest check. Considering that Groupon offers to process refunds for the merchant, there is no reason that the transaction cannot be structured in this way. 97 The second major concern raised by the Indiana Ethics Committee is the issue with safekeeping client funds. 98 The Committee cites Indiana Rule 1.15(c), which states that [a] lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred. 99 The problem arises because of the way Groupon and other deal-of-the-day websites charge advertisers. 100 When the consumer purchases a coupon on the website, a portion of the purchase price is kept by the company and the other portion is passed along to the attorney. 101 The portion that the lawyer receives, and quite comply with a Rule 1.7 conflicts check, this would be a Rule 1.7 violation on its own and not necessarily the fault of the Groupon arrangement. Thus, a Rule 1.7 violation does not have a logically causal relationship with the Groupon deal. 92. See id. ( [T]he lawyer is responsible to assure that there are no conflicts of interests between the interests of the potential client and the interests of existing clients of the lawyer or law firm. ). The Committee later concludes that if a conflict of interest is not... resolved by the lawyer prior to the beginning of the engagement, then the lawyer has the responsibility to decline or terminate the representation.... Id. 93. Id. 94. Id. 95. But see id. ( [W]hen a company solicits clients and takes advance payments of legal fees, and then remits only a portion of the fees to the lawyer, we find that this arrangement likely violates the Rules regarding lawyer-client relationship formation and safekeeping a client s property. ). 96. Id. (noting that the lawyer is the one to determine that there are no personal interests of the lawyer or members of the law firm that are affected prior to entering an attorney-client engagement with the potential client.... ). 97. See Merchant Terms and Conditions, GROUPONWORKS, https://www.groupon-works.com/ merchant-terms-and-conditions (last visited Sept. 17, 2013) (permitting merchant to refund Groupon purchase). 98. Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012). 99. INDIANA RULES OF PROF L CONDUCT R. 1.15(c) (2013). This is the exact rule found in the ABA Model Rules 1.15(c) See Bhanu, supra note 46, at 4 ( [T]he Groupon company would take 30%-50% of money paid for the Groupon and the business would take the remainder. ) Id.
12 404 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol possibly the portion kept by the company, will be considered an advance payment of legal fees. 102 As the opinion points out, this problem is exacerbated when the lawyer, for any reason, determines that he cannot provide the services and must refund the client s advance payment pursuant to Rule 1.15(d). 103 In this situation, the Committee believes that the lawyer could not comply with Rule 1.15(d) because the lawyer could only refund a portion of the client s coupon price, since the company has already extracted its fee. 104 Additionally, since the fees may not be immediately disbursed from the deal-of-the-day website to the lawyer, the lawyer could presumably violate other rules because he would only be able to pay back the client s money from other clients trust accounts, an obvious violation. 105 The Committee assumes that the attorney must pay back the deficiency of a refund from the other clients funds, but it does not consider that the attorney could capitalize the account with his own funds to remain compliant. 106 Although this puts the attorney s own money at risk, this could represent a necessary cost of doing business in order to take advantage of the arrangement. Further, attorneys would be deterred from offering these deals unless they had a reasonable basis for believing they could handle all the work. The final issue raised by the Indiana Ethics Committee involves the costs of the actual advertisement. 107 Specifically, the Committee is concerned with fee-splitting and the reasonable costs of advertising. 108 Although fee-splitting with a non-lawyer is generally allowed for advertising purposes, 109 this only applies to advertising that is appropriate under Rule The opinion finds that this is not ethical advertising under the Indiana Rules because: (1) it 102. Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012); INDIANA RULES OF PROF L CONDUCT R. 1.15(c) (2013) Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012); INDIANA RULES OF PROF L CONDUCT R. 1.15(d) (2013) ( Upon receiving funds or other property in which the client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property. ) Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012). The Committee then backtracks, stating [it] believes that this type of arrangement would not violate the Rules in situations where the client directly pays the lawyer and the client paid a nominal fee for this coupon, in line with the reasonable costs of the marketing. Id See Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) ( If the lawyer gave a refund to [the prospective client with the coupon] the lawyer does not have [the client s] money to return to her. If the lawyer gave a refund to [the prospective client] out of his Trust Account, this would violate the Rules, because he would be paying [the prospective client] with his other client s funds. ). See generally INDIANA RULES OF PROF L CONDUCT R. 1.15(a), (c) (2013) (explaining that advanced payments for legal fees must be placed in a separate trust account for that client and can only be withdrawn when these funds are earned) Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012); see also infra Parts III.B.3 4 (discussing abilities of attorney to issue refunds in different states) Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) Id Id. ( Advertising normally would not be a violation of fee sharing. ) See INDIANA RULES OF PROF L CONDUCT R. 7.2 cmt. 4 (2013) (allowing a lawyer to pay for advertising and communications permitted by this Rule ).
13 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 405 amounts to illegal channeling of professional legal work 111 and (2) the costs of the coupon are not reasonable. 112 Considering that many of the online coupon companies will charge up to fifty percent 113 of the coupon price for their own fees, the Committee does not find this to be a reasonable cost of advertising. 114 The Committee fails to determine what represents a reasonable cost of advertising; therefore, any further attempt to comply with this opinion would be uncertain at best. In summary, Indiana finds three fundamental issues with the deal-of-theday coupon, which implicate various Ethical Rules. First, the purchaser initiates the attorney-client relationship at the time the coupon is bought, stripping the attorney of his independent judgment and preemptive conflictchecking abilities. 115 Second, the fact that the company will take some of the purchase price completely precludes the lawyer from fully refunding the client s money in certain situations when the lawyer cannot ethically complete the work. 116 Third, since the company is retaining half of the purchase price and channeling work to a specific attorney, this amounts to unreasonable advertising costs and violates the fee-splitting rule Alabama Similar to Indiana, the Alabama Disciplinary Commission concludes that advertising with deal-of-the-day websites violates or potentially violates a number of rules of professional conduct. 118 This decision rests primarily on the nature of the company s percentage fee of the coupon, the inability of the lawyer to fully refund a client s money if necessary, and a general concern with the failure to effectively manage the clients he or she retains via this advertising. 119 Many of the concerns posited by the Indiana Ethics Committee are reiterated in the Alabama opinion. 120 The Commission first rejects the argument that this is simply a form of advertising rather than fee-sharing 111. Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012); see INDIANA RULES OF PROFESSIONAL CONDUCT R. 7.2 cmt. 4 (2013) ( Lawyers are not permitted to pay others for channeling professional work. ) Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012); see also INDIANA RULES OF PROF L CONDUCT R. 7.2(b)(1) (2013) (permitting only the reasonable costs of advertisements or communications ) See Bhanu, supra note 46, at 4 (noting that the website usually takes between thirty percent and fifty percent of the customer s total payment) Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) ( [T]he business models employed by many of the online coupon providers do not ask the attorney to pay reasonable costs. Rather, some of the Companies ask for half of the fees collected.... [S]uch an arrangement violates Rule 7.2(b)(1), because the fees being kept by the Company are not tied to the reasonable cost of the advertisements. ) Id Id Id Ala. State Bar Office of Gen. Counsel, Ethics Op ; accord Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) (holding that deal-of-the-day legal marketing is fraught with peril and is likely not permitted ) Ala. State Bar Office of Gen. Counsel, Ethics Op Id.; accord Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012).
14 406 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol prohibited by Rule 5.4(a). 121 The Commission reviews Alabama precedent set forth in Alabama State Bar Ass n v. R.W. Lynch Co., which held that lawyers pooling resources to create a referral-based Injury Helpline was a permissible form of advertising. 122 The dispositive fact in the Lynch decision was the flat-fee nature of the advertising according to the Alabama Commission. 123 Conversely, the Commission finds that the deal-of-the-day company s typical fifty percent splitting fee with the attorney is enough to depart from a traditional flat-fee advertising arrangement and render the cost a fee-sharing agreement rather than an advertising cost. 124 Since deal-of-the-day coupon advertising cannot be classified as an advertising expense, the Alabama Commission concludes that engaging in this type of marketing would violate Rule 5.4 as illegal fee-splitting with a non-attorney. 125 The Commission s opinion then draws a seemingly arbitrary line between contingent-based and flat advertising fees. However, this is a distinction based on form and not substance. According to the Alabama Commission s reasoning, an attorney could, hypothetically, pay well over half of what the advertising produces, but it is deemed reasonable as long as it is a flat fee. 126 It may be the case that the advertising does not draw in any business; thus, the cost of the arrangement is far greater than the benefit. A contingency-based structure removes this up-front risk for the attorney; it ensures that the advertising cost will only become a liability if, and only if, it produces an increase in business. Second, the Alabama Commission believes that the fee structure established by deal-of-the-day websites also violates several professional ethics rules because the attorney is unable to refund one hundred percent of the client s money, if necessary. 127 If the lawyer had to terminate the attorneyclient relationship after the coupon was purchased, but prior to initiating the work, the lawyer would only be able to refund the portion received after the company s deduction. 128 Thus, the Alabama Commission concludes that the attorney would retain half of the customer s fee for not completing any work, a 121. Ala. State Bar Office of Gen. Counsel, Ethics Op ; ALABAMA RULES OF PROF L CONDUCT 5.4(a) (2013) ( A lawyer or a law firm shall not share legal fees with a nonlawyer.... ) Ala. State Bar Office of Gen. Counsel, Ethics Op ; see Alabama State Bar Ass n v. R.W. Lynch Co., 655 So. 2d 982, 984 (Ala. 1995) ( [T]he Injury Helpline is a form of group advertising rather than a lawyer referral service. ) Ala. State Bar Office of Gen. Counsel, Ethics Op ( In reaching its decision, the Court noted that lawyers who participate in the helpline pay a flat-rate fee for the advertising, regardless of the number of calls forwarded to them. (citing Lynch, 655 So. 2d at 984 (Ala. 1995))) Id Id See id. (relying solely on the flat-fee structure noted in Lynch for concluding that the Groupon fee is unreasonable) Id.; but see infra Part IV.C (proposing a plan for attorneys to provide a full refund to clients) Ala. State Bar Office of Gen. Counsel, Ethics Op ( [I]f the purchaser were to demand a refund prior to any services being performed by the lawyer, the purchaser would be entitled to a complete refund, regardless of the fact that half of the fees were claimed by Groupon. Failure to make a full refund would be considered charging a clearly excessive fee in violation of Rule 1.5(a) [Fees] and/or failing to return the client s property as mandated by Rule 1.16(d) [Declining or Terminating Representation]. ).
15 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 407 clearly excessive fee in violation of Rule 1.5(a), or would fail to return all the client s property as mandated by Rule 1.16(d). 129 Again, there is no consideration of the possibility that the lawyer simply may pay out-of-pocket to reimburse these clients. 130 Third, the Alabama Commission speculates that this marketing arrangement could violate Rules 1.1 and 1.3, pertaining to competence and diligence of the lawyer. 131 It reaches this conclusion based on a concern that this marketing arrangement could generate too much work for the lawyer, thus rendering him unable to effectively manage all of the new clients. 132 Since the lawyer will likely receive a rapid increase in the amount of clients and will be unable to ethically turn down these clients, he or she will not be able to diligently and competently manage the increased workload. 133 First, the Commission ignores the reality of Groupon.com. The lawyer can structure the Groupon sale so that it is limited to a pre-determined amount of sales. 134 The lawyer can simply establish up-front the maximum amount of vouchers that are sold, thus minimizing the risk that he cannot handle the influx of new work. Second, if the lawyer does in fact capitalize the client s escrow account with his own funds, it would be irrational for attorneys to jump head first into this arrangement without doing their due diligence. It is in the attorney s best interest to determine the exact amount of new work he can handle, because if he is forced to refund a large number of clients vouchers, the entire arrangement will result in a sizeable loss. B. State Advisory Opinions Permitting Attorney Marketing on Deal-of-the-Day Websites 1. North Carolina North Carolina s State Bar Association released a 2011 Ethics Opinion that raises potential concerns with the deal-of-the-day marketing arrangement, but ultimately concludes that a lawyer may ethically engage in this business Id See infra Part IV.C (explaining how an attorney can provide a full refund) Ala. State Bar Office of Gen. Counsel, Ethics Op ; ALABAMA RULES OF PROF L CONDUCT 1.1, 1.3 (2013) Ala. State Bar Office of Gen. Counsel, Ethics Op The Commission finds that this would jeopardize attorney competence rules [b]ecause there is no meaningful consultation prior to the payment of legal fees, the purchaser may be retaining a layer [sic] that does not possess the requisite skills or knowledge necessary to completely represent the purchaser. Id. Furthermore, the lawyer may not be able to diligently represent clients if there is an influx of new work because the lawyer may find that his caseload becomes unmanageable. Id.; see Bruce, supra note 24 (noting that in these arrangements there is a possibility that a sudden throng of new clients puts pressure on the ability to service existing full pay clients, and could harm long term business relationships, if not handled well ) Ala. State Bar Office of Gen. Counsel, Ethics Op See Groupon FAQs, GROUPONWORKS, https://www.grouponworks.com/merchant-resources/ FAQs (last visited Oct. 1, 2013) (explaining that Groupon provides specialized calculators and a knowledgeable staff to help limit the amount of Groupon vouchers to be sold) N.C. State Bar, Formal Op. 10 (2011).
16 408 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol The opinion addresses and dispels several concerns raised by this practice. 136 The opinion states that a lawyer may advertise on these websites, but must provide certain disclosures, place the client s funds in a trust account, and consider the client s prospective at the time of purchase. 137 The North Carolina opinion considers the issue of a Rule 5.4 fee-splitting violation, but looks to the comments section to bolster its conclusion. 138 The opinion reasons that comment one demonstrates that the purpose of Rule 5.4 is only to prevent interference with the independent judgment of the lawyer. 139 The linchpin of the decision is that there is no interaction between the website company and the lawyer relative to the legal representation of purchasers at any time after the fee is paid on-line other than the transfer of the proceeds of the daily deal to the lawyer. 140 The arrangement does not implicate the independent professional judgment of the lawyer and, thus, does not frustrate the intent of Rule 5.4 and cannot be considered an illegal fee-splitting arrangement. 141 The opinion instructs that certain disclosures must be provided prior to purchasing the groupon in order to avoid a Rule 7.1 misleading advertising violation. 142 First, the attorney must have a stated price for the service such that the discount is not illusory. 143 Second, the voucher must explain that the decision to hire a lawyer should be made after investigation into the lawyer s credentials, the relationship is contingent upon a conflicts check, and that money will be refunded if a conflict of interest is ultimately discovered. 144 Third, the client s proceeds shall be considered advanced payment of legal fees and placed in a trust account, either to be drawn upon as work is completed or refunded if necessary. 145 The opinion also binds the lawyer to several conditions if a refund is 136. Id Id See id. ( The purpose for the fee-splitting prohibition is not confounded by this arrangement. ) Id. ( [T]he traditional limitations on sharing fees prevent interference in the independent professional judgment of a lawyer by a nonlawyer. ). See also MODEL RULES OF PROF L CONDUCT R. 5.4 cmt. 1 (2013) ( These limitations are to protect the lawyer s professional independence of judgment. Where someone other than the client pays the lawyer s fee or salary, or recommends employment of the lawyer, that arrangement does not modify the lawyer s obligation to the client. ) N.C. State Bar, Formal Op. 10 (2011) See id. ( The purpose for the fee-splitting prohibition is not confounded by this arrangement. ) Id.; see MODEL RULES OF PROF L CONDUCT R. 7.1 (2013) ( A lawyer shall not make a false or misleading communication about the lawyer or the lawyer s services. ) N.C. State Bar, Formal Op. 10 (2011) Id. The advertisement must explain that the decision to hire a lawyer is an important one that should be considered carefully and made only after investigation into the lawyer s credentials. In addition, the advertisement must state that a conflict of interest or a determination by the lawyer that the legal service being offered is not appropriate for a particular purchaser may prevent the lawyer from providing the service and, if so, the purchaser s money will be refunded.... Id. Until the lawyer is able to perform a conflicts of interest check, the purchaser must be considered a prospective client entitled to the protections afforded to prospective clients under Rule Id Id. ( The payments received by the lawyer from the website company are advance payments of legal fees that must be deposited in the lawyer s trust account and may not be paid to the lawyer or transferred to the law firm operating account until earned by the provision of legal services. ).
17 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 409 necessary. 146 If the voucher expires then the lawyer must still provide the work or refund the future advance payment. 147 If the lawyer does not properly price the coupon and it requires more work than anticipated to complete the task, then the lawyer is still bound to the stated price. 148 Arguably, the most burdensome requirement is that if a refund is necessary, the attorney must return the client s money from the trust account and the money received by the deal-of-the-day website. 149 Thus, in the case of a fifty-fifty split with the website company, the lawyer will accept a two-to-one risk that the lawyer can ethically complete the purchaser s transaction without having to terminate the relationship. 150 Provided that the attorney complies with these requirements and is willing to internalize the risk of a conflict of interest, then the North Carolina Ethics Committee concludes that this marketing arrangement is acceptable under the Model Rules South Carolina The South Carolina Bar Ethics Opinion also grants approval of attorney marketing on daily deal websites, but cautions against certain ethical problems that may arise if the attorney does not properly plan for them. 152 This opinion reflects the notion that the attorney is in the best position to determine how and when to address ethical issues that may arise with this advertising. 153 This opinion, like North Carolina s, finds that the marketing arrangement does not violate Rule 5.4 with regard to fee-splitting and reaches this conclusion with two alternative explanations. 154 In the first, the Committee 146. Id Otherwise, the lawyer receives a windfall upon the expiration date and receives a fee for not completing any work, which is an inherently excessive fee. Id. However, upon expiration the lawyer may charge his actual rate at the time the service is provided but must give the prospective client credit for the advance payment on deposit in the trust account. Id Id. (holding that the lawyer must complete all work despite unforeseen overages in time without additional charge ) Id. ( [T]he lawyer must refund the prospective client s entire advance payment, including the amount retained by the website company, to make the prospective client whole. ) In the case of a $250 coupon, the lawyer would split the fee with the website. Id. Assuming that the website will not return its share of the fee in this instance, if the attorney discovers a conflict of interest and must return the full $250 to make the client full, he will return the $125 in the client s trust account and have to dip into his own pocket to cover the website s $125 take. See id. ( Similarly, if upon consulting with a prospective client the lawyer determines that the prospective client does not need the legal service or that a conflict of interest prohibits the representation, the lawyer must refund the prospective client s entire advance payment, including the amount retained by the website company, to make the prospective client whole. ) Id S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011) (cautioning lawyers to watch out for logistical issues and maintain compliance with Rules 7.1 and 7.2) This characterization of South Carolina s approach is converse to Indiana and Alabama s; in those two states the opinions reflect the notion that since ethical issues may arise out of the use of daily deal website marketing, the attorney must not be allowed to even venture down this path. Ala. State Bar Office of Gen. Counsel, Ethics Op (opining that the marketing arrangement is unethical because it potentially violates a number of rules of professional conduct ); Ind. State Bar Ass n Legal Ethics Comm., Op. 1 (2012) (concluding that this arrangement likely violates the ethical rules because it is fraught with peril ) S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011) ( The use of services as
18 410 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol concludes that this arrangement constitutes an exception to Rule 5.4 since the fee is only a reasonable cost of advertising. 155 The nature of the payment does not change the substance of the transaction. 156 Alternatively, the Committee concludes that it is technically fee-splitting with a non-lawyer, but it does not violate Rule 5.4 because it does not frustrate the independent judgment of the attorney. 157 Relying on comment one of Rule 5.4, the Committee concludes that the Rule is only violated when the feesplitting violates the independent judgment of the attorney. 158 The Committee then proceeds to describe potential issues with this marketing practice because of concerns with Rules 7.1 and 7.2, which relate to advertising. 159 Although the Committee reiterates that advertising effectiveness and taste... are matters of speculation and subjective judgment, 160 the coupon must comply with Rule 7.1, and the communication must not contain any false, misleading, deceptive or unfair information about the lawyer or her services. 161 Assuming that the lawyer also complies with other standard practices, such as placing the advance fees in a client trust account and performing a conflicts check, 162 then the deal-of-the-day website marketing arrangement is permissible according to the South Carolina Ethics Advisory Committee New York The New York Ethics Committee believes that daily deal marketing websites present four main issues: Whether the arrangement is an improper referral payment, whether the fee may be excessive, whether the advertising may be false or misleading, and whether there is a premature formation of the described in the facts does not violate Rule 5.4(a) prohibiting the splitting of a fee with a non-lawyer. ) Id. ( The fee charged for use of its service... constitutes the payment of the reasonable cost of advertisements or communications permitted under Rule 7.2(c)(1).... ) Id. ( The fact that the charge for this form of advertising service is deducted up front by the company rather than invoiced and then paid from the lawyer s operating account does not transform the transaction from the payment of advertising costs into an improper fee split. ) Id. (holding that the arrangement is not a prohibited fee-splitting arrangement with a non-lawyer when the site does not exercise control over the services provided by the attorney); see also N.C. State Bar, Formal Op. 10 (2011) ( The purpose for the fee-splitting prohibition is not confounded by this arrangement. ) S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011); see also MODEL RULES OF PROF L CONDUCT R. 5.4 cmt. 1 (2013) ( These limitations are to protect the lawyer s professional independence of judgment. Where someone other than the client pays the lawyer s fee or salary, or recommends employment of the lawyer, that arrangement does not modify the lawyer s obligation to the client. ) S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011) ( [T]he lawyer is cautioned that the use of daily deal websites must be in compliance with Rules 7.1 and 7.2. ) Id. (quoting MODEL RULES OF PROF L CONDUCT R. 7.2 cmt. 3 (2013)) Id.; MODEL RULES OF PROF L CONDUCT R. 7.1 (2013) S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011) ( [T]he lawyer must ensure that she is in compliance with Rule 1.15(c) which requires unearned fees to be deposited into a client trust account.... [and] must address the logistical issue of how she will handle conflict of interest situations that may arise under Rules 1.7 and 1.9. ) S.C. Bar Ethics Advisory Comm., Ethics Advisory Op (2011).
19 No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 411 attorney-client relationship. 164 Provided that certain criteria are met, the New York Committee concludes that a lawyer may market on these types of websites. 165 New York follows the approach of South Carolina, concluding that the fees paid to the website are a reasonable form of advertising, which is protected by Rule This determination hinges upon the hands-off approach of the website within these arrangements. 167 The website is simply acting as an advertising outlet to potential subscribers, not attempting to channel purchasers to a particular attorney. 168 Thus, according to the New York Committee the arrangement is a reasonable cost of advertising. 169 In order to avoid violating Rule 1.5 for an excessive fee, the New York Committee explains that a lawyer must return a full refund if the lawyer or client terminates the attorney-client relationship. 170 However, if the voucher expires or the purchaser never redeems it, the Committee believes that the attorney may retain the advance payment as a form of a retainer. 171 The premature formation of the attorney-client relationship has been a troubling scenario in most of the advisory committee opinions regarding this advertising arrangement. 172 The New York Opinion follows the South Carolina conclusion and believes that this problem can be avoided with proper logistical arrangements and disclosures. 173 Proper disclosures on the coupon website must indicate that the attorney-client relationship is contingent upon: a conflicts of interest check, a determination that the lawyer is competent to handle the desired services, and that a full refund will be provided if these invalidate the coupon. 174 Therefore, assuming that the lawyer s advertisement provides these disclosures and is not false or misleading, 175 then the attorney can manage this marketing arrangement without violating ethical considerations according to 164. N.Y. State Bar Ass n Comm. on Prof l Ethics, Op. 897 (2011) Id Id.; see also MODEL RULES OF PROF L CONDUCT R. 7.2(a)(1) (2013) ( [A] lawyer may... pay the reasonable costs of advertisements or communications.... ) N.Y. State Bar Ass n Comm. on Prof l Ethics, Op. 897 (2011) ( The website has not taken any action to refer a potential client to a particular lawyer instead it has carried a particular lawyer s advertising message to interested consumers and has charged a fee for that service. ) Id Id. However, the Committee does not discuss the amount of the fee arrangement and whether or not that is a reasonable amount. Id. It qualifies this conclusion by explaining that it rests upon the assumption that it is a reasonable payment for this form of advertising.... Different arrangements between the lawyer and the website could lead to the opposite conclusion.... Id Id. (noting that in circumstances such as a discovered conflict of interest, the Committee requires the lawyer to give a full refund, subject to any quantum meruit claim for services rendered prior to the termination of the representation ) Id See, e.g., id. (describing the danger of creating a lawyer-client relationship prior to a conflict check) Id Id. ( This arrangement should be disclosed as part of the coupon offer on the website, along with any other information needed to avoid making the offer misleading in any way. ) Id. ( Like all lawyer advertising, the daily deal advertisement must not be false, deceptive or misleading, Rule 7.1(a)(1). ).
20 412 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol the New York Bar. 4. Nebraska Nebraska s Advisory Committee similarly concludes that the use of dealof-the-day website marketing is permissible for attorneys, provided that they comply with five explicit conditions. 176 These restrictions replicate some, or all, of the conditions provided in the ethics committee opinions in New York, North Carolina, and South Carolina. 177 The committee states that in order for a lawyer to engage in this marketing arrangement: (1) the Groupon must clearly identify the service being offered and cannot be false, deceptive, or misleading; (2) the Groupon must clearly disclose that no lawyer-client relationship is established until after a conflicts check has been performed; (3) the Groupon must state that it is advertising material; (4) payment received from Groupon must be placed in the attorney s trust account until earned; (5) if the services cannot be performed due to conflicts, or if the customer later decides not to utilize the service, the entire fee paid by the customer must be refunded. 178 In accordance with the other opinions, the Nebraska Committee dispels the notion that Groupon advertising is an illegal sharing of fees with nonlawyers. 179 In its opinion, this rule is only implicated if the advertising company exerts an undue influence on the attorney, and the Committee determines that Groupon does not. 180 The Committee views this arrangement as an advertisement rather than a referral. 181 As an advertisement, the Nebraska Committee concludes that the groupon must comply with Rules 7.2 and However, the committee does not determine what a reasonable percentage fee for advertising is. 183 Considering that Groupon charges a fee of fifty percent, a court could easily find this unreasonable. 184 The Committee explicitly states that the burden is on the attorney to assure that the fee is reasonable. 185 This ultimately adds another 176. State of Neb. Lawyer s Advisory Comm., Ethics Advisory Op. for Lawyers (2012) (allowing the use of groupons, but only if five ethical safeguards [are] taken ) Id Id Id Id Id Id. (holding that the advertisement must not be false or misleading and must also be reasonable) Id Id. (refusing to make a recommendation as to the level of percentage change that would be appropriate in any given case) Id. Although the opinion allows the marketing arrangement, the industry standard fifty percent fee could easily fall outside of the realm of reasonable. Id. Considering that the committee places the burden on the attorney to ensure this reasonableness, but does not suggest what a reasonable percentage is, there is still some uncertainty involved in this advertising. Id.
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