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   Dear Fellow Members:

    Below you will find a link to an online copy of the Maryland Rules of Professional Conduct. We have provided this link in hopes of making your search for answers to your legal ethics questions easier. As always, if you need additional guidance, please do not hesitate to call the Legal Ethics Committee hotline at the number listed in the current issue of your bar newsletter.



         MD Rules of Professional Conduct
Legal Ethics Hotline Volunteers -- January

David Shapiro...301-968-1644...dshapiro@paleyrothman.com
Allen Katz...301-840-8007...ajkatzesq@aol.com

Legal Ethics Hotline Volunteers -- February
David Briglia ... 301-648-4987 ... dbriglia@briglialawfirm.com
Rick Dodd ... 301-637-3626 ... richard@dodd-legal.com

 

Matchmaker, Matchmaker, Make Me A Disciplinary Referral
The Ethical Pitfalls of Participating in On-Line Legal Referral Services

 

The Internet has evolved into a powerful tool for matchmaking, and not just the romantic variety. Attorney-client relationships are being formed every day on the Internet through for-profit lawyer referral sites.

On-line legal matchmaking sites are almost as old as the Internet itself.  LegalMatch, for one, has been operating for more than 16 years.  Sites such as Upwork (the result of a merger of Elance and oDesk), Freelancer and Guru, where freelance service providers of all kinds (including lawyers) can bid for work from prospective clients, have been around since the turn of the century.

But a new crop of venture capital-backed legal matchmaking services— with names like UpCounsel, Priori Legal, LawTrades and LawDingo—are aiming to bring an end-to-end, Uber-like experience to legal service delivery, functioning much like virtual, big law firms. These sites purport to match individuals and entities in need of legal services with a qualified attorney—or a small, select panel of attorneys—who can meet the client’s specific needs.

The for-profit companies that operate these sites promote the fact that they pre-screen the participating attorneys much like a law firm recruits new hires. Priori Legal (founded in 2012) advertises that all of its lawyers “are vetted through our rigorous process to join our exclusive network. Lawyers go through an online application, face-to-face interview and reference checks, resulting in less than a 20% admissions rate.”1 The rise of these services coincides with the decline in professional staffing at big law firms over the last several years. (In the case of UpCounsel, fully a fifth of its participating attorneys at the time of the site’s inception in 2012 were lawyers who had been laid off.2)

For clients, the advertised advantages in using these services include the ease of locating appropriate counsel to address a particular problem, transparency and predictability of fees (as many of the services brokered through these sites are project-based and compensated on a flat-fee basis), and fees which are downright cheap compared to those offered by traditional—especially big—law firms. Next-generation matchmaking sites also provide invoicing and payment services, and collaboration tools for document exchange and other attorney-client communications. LawTrades says using its site is “like having access to a firm with an endless supply of on-demand legal services, minus the massive overhead that would cost you an arm and a leg.”3 Priori Legal says that its services “makes retaining highly skilled attorneys at a fair price as easy as shopping on Amazon. Just imagine feeling joy and relief after opening an invoice from your lawyer.”4

And while some of these new services are limited to business-related matters such as contract review and patent and trademark filings, others purport to cover a broad array of legal issues. For example, Avvo Advisor, a new service offered by the popular attorney review site Avvo, offers to match individuals with a “highly-rated” attorney for a 15 minute telephone consultation regarding such consumer matters as criminal defense, family law, divorce and real estate, for just $39. According to Avvo, with its Advisor service “consumers no longer have to spend days and dollars finding an experienced lawyer to help with everyday legal situations.”5

For attorneys, the advertised advantages of participating in a legal matchmaking site include the prospect of enough work to make a low fee structure lucrative, without the effort and added expense of traditional law practice marketing, billing and collection. “We greet the client, learn about their legal need, and if they are a good fit for you, we’ll introduce them,” says LawDingo.6 In the words of one apparently satisfied UpCounsel attorney: “UpCounsel’s platform allows me to focus my time on things I care about (my clients, my family) instead of worrying about things like marketing and billing. I love that I can exchange messages with a prospective client on my phone while I walk my dog.”7

ETHICAL CONSIDERATIONS AND CONCERNS

The ethical barriers for Maryland attorneys hoping to participate in an on-line legal matchmaking services are considerable. This article focuses on two of them: the prohibition against splitting fees with a non-lawyers under Rule 5.4(a) of the Maryland Lawyers’ Rules of Professional Conduct, and the general prohibition against the payment of referral fees under Rule 7.2(c).

Fee Sharing

Rule 5.4(a) of the Rules provides that a “lawyer . . . shall not share fees with a non-lawyer,” except under certain circumstances that are not relevant to on-line matchmaking. Some matchmaking services charge a percentage of fees earned through their sites. This fee is assessed on a project basis, and is deducted through payments processed through the site. Some services present this as a fee that the client pays. This approach is common among general freelance platforms such as Upwork, which makes money by charging a percentage of fees billed. But you will also find it among referral services specific to law. Upcounsel, for example, charges clients a 10% “service fee” on work purchased through the site. Priori Legal charges its participating attorneys a fixed percentage (10%) of their earnings, which it claims is a “management fee.” Similarly, Avvo Advisor charges attorneys a fee per service—described as a “marketing fee”—which can vary based on the amount which the participating attorney charges the client. 

These models present a problem under Rule 5.4(a), as would any model where the fee paid to the service is contingent upon the client retaining the attorney. In Ethics Docket 2004-21, the MSBA’s Committee on Ethics considered a proposal from an on-line legal directory that would support itself by charging its participating lawyers a “case acceptance” fee of $250 whenever they a accepted a case through the service. This fee was to be paid from the participating attorney’s operating account, not by the client. The Committee found that because this fee was contingent upon the client retaining the lawyer, the fee was directly tied to the fee earned by the lawyer, and therefore amounted to a sharing of the fee in violation of Rule 5.4(a).

Sites that charge a fixed monthly or annual subscription fee to the attorney, the client, or both, to participate in a referral service wouldn’t appear to violate Rule 5.4’s prohibition on fee sharing. In fact, in Ethics Opinion No. 2007-1, the Committee found that, where the annual fee to be paid by a lawyer to participate in a proposed internet-based listing service was not tied to payment by the client, the arrangement would not violate Rule 5.4. That is not to say, however, that arrangements such as these comply with Rule 7.2(c)’s general prohibition on the payment of referral fees by attorneys.

Referral Fees

Rule 7.2(c) of the Maryland Lawyers’ Rules of Professional Conduct provides that a lawyer “shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may . . . (2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service.”

In Ethics Docket 95-11, the MSBA’s Committee on Ethics concluded that for-profit, private lawyer referral services are generally impermissible under Rule 7.2(c). In Ethics Docket 95-35, the Committee found that an "advertising fee" charged by a for-profit referral service to an attorney for each client obtained through the service was a prohibited referral fee under Rule 7.2(c). Prior to these opinions, in Ethics Docket 87-41, the Committee concluded that the payment of a flat "monthly fee" to an organization that advertised an "injury help line" which referred callers to a local subscribing attorney violated Rule 7.2(c).

These opinions would appear to prevent Maryland lawyers from participating in a service like LawDingo, which charges participating attorneys a monthly fee on a sliding scale, where the more an attorney pays, the more client leads LawDingo will send his or her way. It would also appear to prevent an attorney from paying the “marketing fee” that Avvo charges on a per-engagement basis to attorneys to participate in its “Advisor” service.

But what about a referral service where the client that pays the fee?

The MSBA Committee on Ethics addressed this very question in Ethics Docket No. 2012-02, in response to an inquiry relating to a proposed for-profit, on-line legal matchmaking service. According to the inquirer, a prospective client of this service would access the company’s Internet site and describe the facts he or she considers relevant to his or her legal problem. The company would then refer the matter to an appropriate attorney not employed by the company. The client would then pay the company a “reasonable fee” for the legal services. The company would then pay the attorney to whom it referred the matter a “reasonable hourly or flat fee.” (The inquirer didn’t explain how the “reasonable fee,” as required by Rule 1.5, would be negotiated on either end).

Because the arrangement didn’t involve any direct payment to the for-profit corporation by the lawyer in exchange for the referral of clients, it might have appeared to avoid the Rule 7.2(c)’s prohibition on referral payments. But the Committee found the identity of the person making the payment immaterial, because the result would be the same: a referral source would be compensated for making a referral to an attorney who is subject to Rule 7.2(c).

The Committee concluded that a for-profit corporation whose income is “solely based upon the difference between the total amount the client paid the referral source for legal representation and the amount the attorney actually received for the work performed” is not an arrangement in which an attorney may participate under Rule 7.2(c). Thus, a referral fee to a for-profit operation is an impermissible fee under the Rule regardless of whether the attorney or the client pays it.

But what about a service like Priori Legal, which does not match a particular attorney to a particular client, but rather “handpicks” up to five lawyers for each matter, and leaves it up to the client to select which of them is appropriate? Notwithstanding Priori’s representation that it is a “curated marketplace” rather than a lawyer referral service, does such an arrangement avoid the referral fee prohibition by not constituting a referral service at all? That is a question which neither the MSBA Committee on Ethics nor the Court of Appeals has yet to answer.

Rule 7.2 would not appear to prohibit an attorney from paying a fixed fee to be listed through an on-line service that does nothing more than provide a forum for attorneys to advertise their availability to perform legal services. Rule 7.2(c) permits attorneys to pay the reasonable cost of advertising otherwise permitted by the Rule 7.2. However, compliance with Rule 7.1 (communications concerning a lawyer’s services) will be a challenge in view the glowing client testimonials and other unsubstantiated representations that legal matchmaking sites commonly make about the quality of the services that can be obtained through them. (See the Indian Supreme Court’s decision in In re Anonymous, 6 N.E.3d 903 (2014),8 for a recent case where a legal matchmaking site’s comparative statements and statements regarding past results obtained by its participating attorneys gave rise to a disciplinary action for one of those attorneys.)  Complying with Rule 7.2(d) will be a challenge as well: The author is not aware of any matchmaking site that complies with that Rule’s requirement that any attorney advertisement include the name of at least one lawyer responsible for its content.

A Maryland attorney entertaining the idea of participating in an on-line legal referral service first must understand that service’s business model. In the author’s opinion, the some models in use today do not comply with Rule 5.4 and Rule 7.2(c).



1 https://www.priorilegal.com/how-it-works

2 Zak Stone, “UpCounsel Lets Lawyers (And Clients) Escape Life At The Law Firm,” Fast Company, August 12, 2013, available at http://www.fastcoexist.com/1682730/upcounsel-lets-lawyers-and-clients-escape-life-at-the-law-firm

3 http://www.lawtrades.com/

4 https://www.priorilegal.com/about-priori/testimonials

5 “Avvo Launches Avvo Advisor,” October 23, 2014, available at http://press.avvo.com/release/avvo-launches-avvo-advisor.

6 https://www.lawdingo.com

7 https://www.upcounsel.com/for-lawyers

8 The court’s opinion is available at http://www.in.gov/judiciary/opinions/pdf/04111401per.pdf.


David Briglia, Committee Member
Allen J. Katz, Co-Chair
Daniel L. Shea, Co-Chair
Samuel M. Shapiro, Co-Chair


                                                                                                                              

Co-Chairs

Allen J. Katz
Samuel M. Shapiro
Daniel L. Shea

 

Committee Meetings

February 18, 20156
March 17, 2016
April 21, 2016
May 19, 2016

Meetings will be held at 4:30 p.m. on the 3rd Thursday of the month in the upstairs conference room of the Bar Association building, unless otherwise noted.