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New ethics opinion: Lawyers’ use of deal-of-the-day marketing programs
By Peter Geraghty
ABA Center for Professional Responsibility
This month, the ABA Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 465, Lawyers’ Use of Deal-of-the-Day Marketing Programs.
At the outset of the opinion, the committee noted that group coupon marketing strategies have become widespread and that businesses of all types have used them in various types of media to promote themselves. Under the typical scenario, a business in conjunction with a group coupon marketing company will market itself offering a discounted price for goods and services and will share a portion of the receipts with the marketing company.
Coupon or prepaid?
For the purposes of the opinion, the committee analyzed the ethics issues implicated under two different types of group coupon arrangements that it characterized as either "coupon" or "prepaid." Under the coupon-type arrangement, the buyer would purchase a coupon that would entitle him to receive future services from the lawyer at a discounted rate. For example, he could purchase for $25 the right to receive five hours of a lawyer’s time at a reduced rate. Under the prepaid arrangement, the purchaser would pay the full cost of the discounted services upfront. For example, if the lawyer were offering 50 percent off his hourly rate of $200 for up to five hours, the purchaser would pay the full $500 in advance.
The committee concluded that while a lawyer could structure a coupon deal that would comply with the Model Rules, it was "less than certain" that a lawyer could do so with the prepaid type.
Sharing legal fees with nonlawyers?
The committee considered a number of the ethics issues implicated in the group coupon context, the first being the extent to which participating in such programs could constitute fee sharing with nonlawyers in violation of Model Rule 5.4, Professional Independence of a Lawyer. The committee concluded that so long as the percentage paid to the marketing company represented a reasonable cost of advertising as envisioned under Rule 7.2(b)(1), Advertising, this would not amount to fee sharing.
Avoid false or misleading statements
The committee stated that lawyers must take care to avoid false or misleading statements in any group coupon arrangement and must properly supervise the marketing company to ensure that it makes no statements in the coupon offer that might be construed as misleading. The advertisement should also clearly define the scope of the services offered and must explain the circumstances under which the purchase price may be refunded.
The committee noted further that the purchaser of a coupon is not a current or prospective client under Rule 1.18, Duties to Prospective Client, and that the lawyer should make it clear in the coupon offer that no lawyer-client relationship exists until there is a consultation and that one may never arise if the lawyer discovers a conflict of interest, the lawyer is not competent to handle the matter or otherwise has to decline the representation. The committee also suggested that the lawyer should consider whether the service offered can be transferable and voiced concerns that deals of the "prepaid" type may not be.
The committee advised that the lawyer should limit the services offered to those he is competent to handle (See, Rule 1.1, Competence) and should clearly state in the coupon offer any limitations on the types of matters he handles. He should also explain that the matter covered by the coupon may be turn out to be more complicated than originally thought and may exceed the number of hours that the coupon covers. In the event that the matter will require more time than is offered under the coupon agreement, the lawyer must state how long the matter will take and at what hourly rate. Lawyers should also be careful to limit the number of deals to be sold, so as to avoid being in a situation where they cannot handle the matters promptly, diligently (See Rule 1.3, Diligence) and competently.
Advance legal fees?
Depending on the nature of the deal, payments to group coupon marketing companies may be considered to be advance legal fees. In the committee’s view, payments made under the prepaid variety should be treated as advance legal fees and must be deposited into a trust account, triggering all of the obligations a lawyer has toward a client under Rule 1.15, Safekeeping Property. These obligations may be difficult to meet in the group coupon context since the lawyer must be able to identify and keep track of all funds received from each purchaser.
This same rule would not apply to the coupon deal variety because in the view of the committee the purchase price of the coupon is not a legal fee but is rather a payment for the right to secure future legal services at a discounted price and may be deposited into the lawyer’s operating account. The lawyer may, therefore, keep the purchase price of the coupon and need not return it if the client fails to use it. Of course, if the lawyer chooses to do so, he may agree to refund the coupon purchase price less the amount retained by the marketing company so long as there is a clear disclosure of this intention in the purchase agreement.
Prepaid or coupon: Lawyer must return entire amount if unable to perform legal services
If, for any reason, the lawyer is unable to complete the prepaid or coupon deal as advertised through no fault of the purchaser, for example, due to a conflict of interest, the lawyer is obligated to return the full amount to the purchaser, including the amount retained by the marketing company. The committee stated that the lawyer may not avoid this obligation by agreement because keeping the amounts paid under the circumstances would be unreasonable:
… In those instances in which a lawyer must refund money from the purchase of a deal, e.g., the lawyer has a conflict and cannot render legal services, the lawyer must refund the entire amount paid, regardless of whether the lawyer is entitled to recoup that portion of the amount that was retained as an advertising fee by the marketing organization. The Committee bases this opinion 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. The lawyer cannot avoid this obligation to make a full refund by providing otherwise in the offer. On the other hand, if a lawyer is not obligated to give a refund but chooses to do so, e.g., a coupon purchaser has failed to use a coupon deal before it has expired, then the lawyer may choose to refund only the portion of the payment the lawyer received, provided this limitation has been clearly disclosed at the time of purchase. — Formal Opinion 465.
For these reasons, the committee concluded, it may be possible to structure coupon-type deal-of-the-day arrangements that comply with the Model Rules, but it is less certain that prepaid deals can be due primarily to the ethical obligations surrounding the handling of advance legal fees.
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