MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2001-03
Internet solicitation of clients and sharing fees
You have asked for the Committee’s guidance concerning a proposal to form a company that would use the Internet to bring lawyers and potential clients together. As you have described it, lawyers would form the company which would own an Internet site. Prospective clients could access the Internet site to describe the pertinent facts about their case, either for free or for a modest charge. The information provided would be transmitted and stored in a secure environment by the web hosting company. Prospective clients would consent to an attorney accessing the information they have provided to determine whether to accept their case. The service will be marketed to “participating attorneys,” who will be enabled to access the information and to contact the prospective client in hopes of establishing an attorney-client relationship. The service will be extensively marketed to the public who might be expected to use the service.
The agreement between the company and participating attorney will require the participating attorney to pay the company a referral fee if an engagement is entered and will require that any engagement name both an attorney for the company and the participating attorney as the attorneys for the client. In addition the engagement agreement will provide that the client will agree to pay all fees to the attorney for the company, describe the division of fees between the attorneys, provide that all legal work will be performed by the participating attorney in consultation with the company attorney, and provide that any advance of expenses will be solely the responsibility of the participating attorney.
As the company is comprised of lawyers and is engaged in a law related business, the lawyers must comply with the Rules of Professional Conduct. This means that the company must comply with the Rules regulating lawyer advertising and communications. Without repeating them, those rules generally require that all advertising be truthful, i.e., not false or misleading; copies of advertising must be maintained for at least three years; include the name of the lawyer responsible for the advertising; and make the lawyers who participate with the company in its advertising personally responsible for compliance. Rules 7.1 and 7.2.
The arrangement you describe implicates a number of other restrictions in the Rules. Under the Rules, referral fees are prohibited in the context of the program you have described1.
Rule 1.5(e). Rule 5.4 prohibits arrangements that include sharing fees with non-lawyers and requires that lawyers maintain their professional independence of judgement. In Son v. Margolius, Mallios, Davis, Rider & Tomar, 349 Md. 441, 709 A.2d 112 (1998), the Court of Appeals discussed the prohibitions of Rule 5.4 while finding an arrangement between non-lawyers that had one procure legal services for the other for a fee to be acceptable2. (Also, see: Post v. Bregman, 349 Md. 142, 707 A.2d 806 (1998) for a discussion on how a court should analyze the defense of invalidity to a contract action based on a violation of Rule 1.5.)
While the proposed company will be composed of lawyers, usually a corporation is considered an independent entity, a person, distinct from its members or creators. Thus, unless the company is incorporated as a Professional Corporation or acts as a partnership of lawyers, the requirement that fees be shared between the participating attorney and “an attorney for the company” may violate this Rule if the payments to the company attorney are merely a sham intended to circumvent the Rule3. If the company is incorporated as a professional corporation, one would expect the attorney to be either a principal of the company or an employee, not an attorney for the company. Where the company is a professional corporation and the attorney is either a principal of the company or an employee, the company will be considered to be practicing law and the relationship between it and prospective clients will necessarily be different from what you have proposed. Each variation of the proposal seems to solve some problems of conflict with the Rules of Professional Conduct while raising others. A professional corporation would not have the same problem of fee sharing that a company might, but a company might argue that the reasoning of the Court in Son allows it to act as a broker of legal services4. Conversely, a company that is not practicing law could obtain the factual information from prospective clients and share it with the participating attorneys without having to worry about the conflict of interest issues that would deter a professional corporation.
Similarly, the participating attorney, by agreeing to consult with the company attorney, may be foregoing the participating attorney’s independence of judgement – this would be particularly true where the company attorney was unskilled in the area of substantive law involved5. While the required consultation may have been intended to avoid the prohibitions of fee sharing found in Rule 1.5(e), the requirement for consultation does not appear to be a joint responsibility agreement or a division of fees based on the proportion of services performed as required by that Rule. Indeed, the comments to the Rule suggest that a division of fees between lawyers is appropriate only when a referring lawyer determines that a client needs more specialized services that another lawyer can perform, or where additional lawyers are necessary, because one cannot serve the client’s interest alone. In your proposal, the company attorney is involved only because the company requires it and that lawyer’s involvement may be more an impediment than an enhancement. Perhaps, just as importantly, the proposal does not describe whether the company attorney shares fees with the company, or how the company will be paid beyond the improper referral fee.
Although the Committee does not comment on legal matters, in the context of this proposal, the Committee suggests that the arrangement may implicate matters of privilege. If the client discloses facts to the company, those facts might well be discoverable. Certainly, the participating attorney and the company attorney would fail any client were they to countenance allowing the client to waive privilege for them to obtain an engagement. Simply, participating in the program you describe if a client’s privilege is thereby waived violates the lawyer’s duties to the client. Competent representation requires more.
Because the company intends to solicit business broadly, the Committee can imagine potential conflicts of interest between prospective clients6. Your proposal does not address how these conflicts might be handled. Would one company attorney handle and split fees with the participating attorney of the husband and another company attorney handle and split fees with the participating attorney for the wife? What if it were an employment case, with the company handling both employer and employee? Needless to say, these issues require substantial program design to avoid potential conflicts of interest. That design is not apparent in the proposal and a program intended to address potential conflicts of interest seems difficult to reconcile with the terms of the proposal.
As the profession changes to adapt to the Internet and with the anticipated changes that multi-disciplinary practices may bring, your proposal may fit within future Rules of Professional Conduct. Indeed, expanding the availability of legal services to greater numbers of people is the goal of our profession. The Rules as they exist today, however, prohibit the program that you have described.
1 The comments in REST 3d LGOVL § 47 (1998 Main Vol.), FEE-SPLITTING BETWEEN LAWYERS NOT IN THE SAME FIRM provide: “b. Rationale. The traditional prohibition of fee-splitting among lawyers is justified primarily as preventing one lawyer from recommending another to a client on the basis of the referral fee that the recommended lawyer will pay, rather than that lawyer’s qualifications. The prohibition has also been defended as preventing overcharging that may otherwise result when a client pays two lawyers and only one performs services. Beyond that, the prohibition reflects a general hostility to commercial methods of obtaining clients.” At page 449.
2 “Section l0-604(a)(2) also prohibits a lawyer from employing or compensating a person to solicit clients for the lawyer.” Son, at p. 460.
3 “A lawyer may, of course, if properly authorized, pay money otherwise due to the client from a judgment or settlement to a third person on the client’s behalf. The settlement sheet in this case shows many such payments. What a lawyer may not do under Rule 5.4(a), unless one of the three exceptions applies, is share part of his or her own fee with a non-lawyer.”
Son, p. 462.
4 The posture of the case in Son, could have prevented the Court from discussing whether a person can be a broker of legal services in Maryland. Thus, the Committee is uncertain if the Court intended to authorize legal brokers or simply side-stepped that issue while addressing the issues of barratry and invalidity of a contract for violation of Rule 1.5. Whether a person may act as a broker of legal services in Maryland involves a legal issue upon which the Committee ought not reach a conclusion.
5 See footnote #1, where this issue is discussed.
6 3d LGOVL § 15(1998 Main Vol.), A LAWYER’S DUTIES TO A PROSPECTIVE CLIENT provides in its comments to Section 15: “a. Scope and cross-references. This Section summarizes the duties of a lawyer to a person seeking legal services. Duties attach even when no client-lawyer relationship ensues. On application of the attorney-client privilege to communications with a prospective client, see § 72. Application of rules parallel to those of § 132(2) on former-client conflicts of interest and those of §~123-124 on imputation of conflicts is considered in Comment c hereto. Whether a person who consults a lawyer forms a client-lawyer relationship is determined under § 14. On duties owed by a lawyer to nonclients, see §~51 and 56.” At page 199.
REFERENCES:
Rule 1.5
Rule 5.4
Rules 7.1 and 7.2
Son v. Margolius, Mallios, Davis, Rider & Tomar, 349 Md. 441,
709 A.2d 112 (1998)
Post v. Breg~nan, 349 Md. 142, 707 A.2d 806 (1998)
REST 3d LGOVL § 47(1998 Main Vol.), FEE-SPLITTING BETWEEN LAWYERS NOT IN THE SAME FIRM
REST 3d LGOVL § 15(1998 Main Vol.), A LAWYER’S DUTIES TO A PROSPECTIVE CLIENT
Md. Code Annot., Business Occupations and Professions Article, Section 1 0-604(a)(2)