Lawyers who wish to obtain new clients by offering deals on popular coupon websites like Groupon, Living Social, and Google Offers will not violate ethics rules, according to a recent ABA ethics opinion, so long as those deals are carefully structured. Lawyers must exercise great care to ensure that the offer and resulting representation comply with the applicable rules of professional conduct, including the rules governing fee sharing, advertising, competence, diligence, and the proper handling of legal fees.
What is Groupon-style Marketing?
In Formal Opinion 465, the ABA Standing Committee on Ethics and Professional Responsibility does not specifically mention any specific daily offer or coupon services by name, but they do describe a typical arrangement: A web service advertises daily deals, and anyone interested in receiving deal notifications may subscribe to the website’s emails. After a threshold of consumers purchase a deal, the service and the business share the proceeds. The consumer then gets a code, coupon, or voucher.
The ABA panel distinguishes between two types of deals. First, there is a coupon deal, where a coupon gives the buyer a right to a discounted price. For example, a lawyer might sell a $25 coupon for the right to a 50% discount on up to five hours of legal services. Until an attorney-client relationship has formed and the lawyer has started working on the matter, there are no legal fees involved in such an arrangement. Thus, the ABA says that coupon deals can meet the requirements of the Model Rules.
Second, there is a prepaid deal, where the discounted charge is collected up front. For instance, a lawyer can charge $500 for up to five hours of legal service at a value of $1,000. The coupon company receives a share of the money, and then sends the rest of the lawyer. Because this arrangement looks like fee splitting with non-lawyers, the ABA finds prepaid deals particularly troubling. The opinion states that, “[t]he committee has identified numerous difficult issues associated with prepaid deals, especially how to properly manage payment of advance legal fees, and is less certain that prepaid deals can be structured to comply with all the ethical and professional obligations under the Model Rules.”
If a Lawyer Wants to Provide an Online Discounted Deal, Then What Rules Must Be Followed?
- The statements made in the offer must not be false or misleading. First-time or unsophisticated purchasers may not fully comprehend what legal services they require or what legal services are provided in the offer. As a result, the offer must clearly spell out the scope of services offered; what, if any, expenses are excluded; and under what circumstances may the offer be refunded.
- A lawyer must clearly communicate that the mere purchase of a deal does not make the buyer a prospective or current client. Before an attorney-client relationship can exist, the lawyer must first determine (a) whether any conflict of interest exists and (b) whether the lawyer can competently handle the particular matter. The offer, therefore, must explain that until a consultation takes place, no attorney-client relationship exists and that such a relationship may never exist if the lawyer determines that there is a conflict of interest or the lawyer is incompetent to handle the matter.
- Lawyers offering deals should limit the legal services offered to only those practice areas that the lawyer is competent. Such a restriction helps consumers make an informed decision of whether to purchase the deal. The lawyer can later decide upon the initial consultation whether a particular client’s legal needs are within his or her competence.
- If the lawyer offers a prepaid deal, the money collected amounts to advance legal fees. Thus, the money collected must clearly identify who the purchaser is and deposit it into the lawyer’s trust account. Unlike coupon deals where there are no legal fees involved and the money can be deposited into a lawyer’s general account, the lawyer must take extra precautions using a prepaid deal. A lawyer offering a prepaid deal must work with the coupon company to obtain the necessary information to keep the lawyer’s trust account in order. To avoid improper handling of trust funds and fee sharing, the ABA suggests that “a lawyer should be sure than any prepaid deal explains to the buyer what percentage is not a legal fee and will be retained by the marketing organization.”
- If a deal is purchased and never used, then the lawyer may retain the proceeds so long as it is a coupon deal and the deal explicitly states that there are no refunds. If it is a prepaid deal, however, the money collected likely must be refunded. The Model Rules prohibits lawyers from charging unreasonable fees. It is likely that the prepaid deal option could amount to an unreasonable fee. Nevertheless, a refund for a prepaid deal is not required in all circumstances. The ABA provides the example of a reduced flat rate fee for an initial consultation. If the fee is modest, and the offer clearly states there are no refunds except for situations of conflict of interest or lawyer unavailability, it would not be an unreasonable fee and a refund would not be required.
- If a lawyer cannot perform the legal services because of a conflict of interest or other ethical impediment, a full refund is required. This applies for both coupon and prepaid deals. In such instances, the lawyer must refund the full amount paid, including the fee retained by the coupon company. The ABA supports this decision on the fact that “it would be unreasonable to withhold any portion of the amount paid by the purchaser if the lawyer is precluded from providing the proffered services through no fault of the purchaser.”
Before a lawyer wishes to market his or her services through a deal-of-the-day or group-coupon marketing program, he or she must ensure such a program complies with ethical and professional obligations, and each state has its own rules and interpretation of those rules. Under ABA Model Rules, coupon deals can be structured to comply with these obligations, so long as certain disclosures are made. However, prepaid deals present greater difficulties and must be structured carefully so that a buyer knows which percentage of the deal is not a legal fee, and that the lawyer retains sufficient information to properly handle the trust account. The full ABA opinion can be read here.