MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2012-07
Lawyer Advertising on Daily Deal Websites
You requested a written opinion from this Committee, inquiring whether it is ethical for a lawyer to advertise their legal services through the use of “daily deal” websites1 that offer services and products at a significantly discounted rate. These websites offer users the option to purchase coupon vouchers through the website to be subsequently redeemed for a discounted product or service offered by a merchant. Typically, these websites offer discounts for restaurants, spa treatments, house cleaning services, museums, etc. The consumer pays for the coupon through the website and the daily deal website company retains a portion of the purchase price as their compensation for advertising the offer to the users of their website and, subsequently sends the remaining portion to the merchant offering the product or service. The consumer then has a specific time period in which to redeem the coupon for the discounted service or product.
You inquire whether a lawyer’s use of a daily deal website would result in a prohibited fee sharing with a non-attorney in violation of the ethical Rules; or, conversely, is the fee paid to the daily deal website an advertisement fee for advertising the legal service(s) to the general public? After an initial discussion by the Ethics Committee, we asked you for further clarification as to your proposed use of the daily deal website. In a telephone conversation with an Ethics Committee member, you state that you propose to use the daily deal website to advertise your legal services for the drafting of a basic will package at a discounted fee. So for example, if your normal fee for providing a basic will package for a client is $750, your fee for those that purchase your services through a daily deal website would be $250.
With the drastic change in technology and the advent of the internet, lawyers are presented with new ways to market their services as well as a host of ethical implications of such use. In addition to several social media websites such as LinkedIn, Facebook, and Twitter, lawyers are now looking to daily deal websites as a creative way to sell legal services. Several other jurisdictions have looked at this issue and some have answered in the affirmative that such advertising is permissible, so long as attorneys proceed with caution and contemplate special considerations, including Missouri,2 New York, North Carolina, Oregon, and South Carolina. Other jurisdictions like Pennsylvania, recently issued an opinion prohibiting its attorneys from utilizing Groupon-type websites because the lawyer would be engaged in impermissible fee splitting under Rule 5.4 (Professional Independence of a Lawyer), because the lawyer would be unable to “evaluate whether a conflict of interest existed with respect to the prospective client” and also because of the lack of direct communication with the client. Indiana recently issued an opinion stating that an attorney’s use of such daily deal websites to obtain new clients is “fraught with peril” and probably unethical. It is this Committee’s opinion that the use of such daily deal websites implicate several of the Maryland Lawyer’s Rules of Professional Conduct (“MRPC”), specifically, Rules 1.1, 1.5, 1.6, 1.7, 1.16(d), 1.15(a), 1.15(c), 1.18, 5.4(a), 7.1, and 7.2. We will now address each Rule in turn:
First, lawyers should recognize that internet based advertising is governed by the same rules which govern print or public media advertisements. Under MRPC 7.1 (Communications Concerning a Lawyer’s Services), a lawyer is prohibited from making any false or misleading statements regarding their services. Therefore, the daily deal advertisement must not be false or deceptive. MRPC 7.2 (Advertising) governs a lawyer’s use of a website for marketing and authorizes such use for advertisement purposes. Specifically, MRPC 7.2 (a) states, “[s]ubject to the requirements of Rules 7.1 and 7.3(b), a lawyer may advertise services through public media, such as a telephone directory, legal directory, newspaper or other periodical, outdoor, radio or television advertising, or through communications not involving in person contact.” Additionally, under this Rule, although a lawyer is prohibited from giving anything of value to a person who has recommended the lawyer’s services, that lawyer may pay the reasonable cost of advertising.3See MRPC 7.2(c) and 7.2(c)(1).
The question then becomes: Is the money retained by the coupon daily deal website payment for advertising, a referral fee,4 or an impermissible fee-split arrangement? We understand from the daily deal websites’ business model that they retain a portion of the purchase price paid by the consumer and remit the balance to the lawyer. While we cannot deem what is a reasonable cost for the service that they have provided, this Committee opines that the fee retained by the daily deal website company is a cost of the advertising and for the use of providing its online services. Based on our understanding of similar websites, we do not opine that the fee paid to the company represents a referral fee as the website does not take any particular action to refer a prospective client to a specific product or service, legal or otherwise, but rather, sends the information generally to its user database, leaving the choice of whether to purchase a product or service exclusively to the consumer. In this model, consumers elect to receive daily deal offers and announcements from such website companies, or, in searching for a discounted product or service, they sign up for the daily deal offered on the company’s website.
MRPC 5.4(a) (Professional Independence of a Lawyer) states, “[a] lawyer or law firm shall not share legal fees with a nonlawyer.” This Rule, viewed alone, prohibits a lawyer from splitting a fee with a non-lawyer. However, a reading of the remaining subsections of MRPC 5.4 provides additional guidance in our analysis. Specifically, MRPC 5.4(c) states, “[a] lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.” Additionally, Comment [1] to this Rule states, “[t]he provisions of this Rule express traditional limitations on sharing fees. These limitations are to protect the lawyer’s professional independence of judgment. Where someone other than the client pays the lawyer’s fees or salary, or recommends employment of the lawyer, that arrangement does not modify the lawyer’s obligation to the client. As stated in paragraph (c), such arrangements should not interfere with the lawyer’s professional judgment.” This is relevant to consider because this Rule was specifically drafted to address situations whereby the lawyer’s professional judgment would be affected by the process of payment for the lawyer’s services by a third party non-lawyer. In the scenario that you present, the transaction of the coupon discount website retaining a percentage of the fee paid by the prospective client may, upon first glance, look like a legal splitting arrangement, but this Committee believes that this arrangement is the cost of the advertising. Even though the website company collects the fees upfront and retains a percentage of the purchase price that each prospective client/consumer pays, the use of such a website does not violate Rule 5.4(a). Additionally, the website company does not interfere with the professional judgment of the lawyer. In the scenario you present, the daily deal website is not directing, regulating, or interfering with the lawyer’s professional judgment in rendering legal services to another.
The lawyer, of course, is still responsible for the content of the advertisement as well as the necessary disclosures that need to be made to the prospective client before an attorney-client relationship can be established. The lawyer must spell out that the “daily deal” offered is subject to certain conditions. Specifically, the lawyer has a duty to consult with the prospective client to review their matter and determine the best course of action for that client pursuant to MRPC 1.1 (Competence). The lawyer also has duties to the prospective client as outlined in MRPC 1.18 (Duties to Prospective Client) and if the prospective client reveals confidential information (MRPC 1.6) to the lawyer, the lawyer cannot use or reveal that information even if an attorney-client relationship is not formed.5 If after a consultation with the prospective client, the lawyer determines that the prospective client does not need the legal service, the lawyer cannot provide the service, either due to a conflict of interest (MRPC 1.7) or for any reason, the lawyer has a duty pursuant to MRPC 1.16 (Declining or Terminating Representation) to decline or terminate the representation and specifically, under MRPC 1.16 (d) to refund the prospective client’s entire advanced fee, including the amount retained by the website company. If the prospective client waits until after the expiration of the coupon period to engage the lawyer’s services, or never actually engages the lawyer’s services, the lawyer still has the responsibility to refund those fees to the prospective client. If, after consultation, an attorney-client relationship is established, the lawyer should provide the client with a written fee agreement which sets forth the rate or basis of the fee as well as the scope of the representation, pursuant to MRPC 1.5 (Fees), as advertised by the lawyer on the website.
The remaining ethical issue involves the lawyer’s role as fiduciary to the client. At the point and time that the lawyer collects payment for the legal services advertised, the lawyer must deposit entrusted funds into an attorney trust account pursuant to MRPC 1.15(a) (Safekeeping Property). The payments received by the lawyer from the daily deal 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 the legal services. Maryland’s “default” position is that unearned fees belong in trust, absent informed consent, confirmed in writing by the client, to a different arrangement. See MRPC 1.15(c). Although the lawyer may charge a flat fee for services to be rendered in the future, that fee is deemed unearned and property of the client until such time that the attorney has performed the legal service. Lawyers must take care not to confuse this arrangement with an engagement retainer which is a fee for the purpose of ensuring the attorney’s availability to the client, usually for a specific period of time, which is earned upon receipt. See Ethics Opinion 1993-24. Here, in the scenario that you present, the client has paid a pre-determined flat fee for a specific legal service to be done in the future.6
Lastly, the lawyer will be responsible for keeping and maintaining complete accounting records for each prospective and actual client gained through the use of such daily deal websites pursuant to MRPC 1.15(a). At any given time, a lawyer should be able to demonstrate whose funds that they are in possession of.
Because the issue of lawyer advertising on daily deal websites is relatively new, this Committee warns that this Opinion does not address every scenario that could arise from such advertisement but rather focused on the proposed use of advertising a flat fee paid in advance for a basic will package as presented.
Thank you for contacting this Committee.
1 The Committee will not provide an advisory opinion on a specific company or marketing program. The opinion will be based on how the inquirer states that the program will work and will not be an opinion on the actual marketing program.
2 An attorney in a St. Louis law firm used the Groupon website to offer a will and durable power of attorney for $99, which was 87% percent off the firm’s customary $750 flat fee.
3 This Committee is not privy to the percentage of the fee that is attributed to the advertising cost that the coupon website retains but assumes that it is line with other forms of attorney advertising.
4See Ethics Docket 2012-02 (where this Committee opined that a for-profit corporation established to refer potential clients to attorneys for a fee violates MRPC 7.2).
5 MRPC 1.18 (c), and 1.18(d) also provides that an a lawyer cannot represent a client with interests that are materially adverse to those of a prospective client in the same or substantially similar matter that the lawyer received information on unless both the affected client and the prospective client have given informed consent in writing.
6 “Although the Maryland Court of Appeals has not specifically enjoined the use of the phrase “non-refundable” when applied to advance fee payments, inferences that can be drawn from several cases lead to the conclusion that if faced with the question directly, it likely would follow [the Supreme Court of] Colorado…” in the attorney disciplinary matter of In Re Sather, 3 P.3rd 403, 413 (2000), where the Colorado court held that attorneys are prohibited from entering into non-refundable agreements. Attorney Grievance Commission article, Non-Refundable Fees?, Maryland Bar Journal, Glenn Grossman, March 2011, Volume XLIV, Number 2. See also, Atty. Griev. Comm’n v. Lawson, 401 Md. 536, 578, 933 A.2d 842, 867 (2007) (holding that flat fee paid in advance was required to be held in escrow and refunded to the client if not earned despite the lawyer’s contention that the fee was “non-refundable.”)