March 22, 2019

Ethics Tip - July 2017

Peter Geraghty, Director, ETHICSearch

On June 21, 2017 three New Jersey Committees, the Advisory Committee on Professional Ethics, the Committee on Attorney Advertising and the Committee on the Unauthorized Practice of Law issued a joint opinion finding that two services offered by AVVO,  Avvo Advisor and Avvo Legal Services violated the New Jersey Rules of Professional conduct because they involved the sharing of fees with nonlawyers and also operated as an impermissible lawyer referral service. 

Legal Zoom and Rocket Lawyer

The Committee also reviewed legal services plans offered by Legal Zoom and Rocket Lawyer, and found that they were operating otherwise permissible pre-paid legal services plans but since they had not complied with the applicable state registration requirements with the Administrative Office of the Courts, lawyers in New Jersey could not participate in the plans.

AVVO

Under the AVVO Advisor plan, the client pays a fee to AVVO and then selects a lawyer who provides a 15 minute consultation.  Once completed, AVVO deposits the fees into the lawyer’s account and then withdraws a percentage of those fees in what it characterizes as a marketing fee. 

Under the AVVO Legal Services plan, the consumer pays AVVO a fee for specific legal services and then retains a participating lawyer to provide the services.  Once completed, AVVO deposits the fees in the lawyer’s account and again withdraws a percentage of those fees that it characterizes as “marketing fees”.

Not a Legal Services Plan

After considering the parameters of the AVVO plans, the New Jersey Committees found that they did not qualify as legal services plans under New Jersey Rules of Professional Conduct 7.3(e)(4).

“The Avvo plans do not meet the definition for legal service plans; they are pay-for-service plans. There are no “members or beneficiaries” to whom legal services are “furnished” and “paid for” through a legal service plan.”

Sharing legal fees with Non-Lawyers; Impermissible Referral Fees

The Committees examined the fee arrangements between AVVO and the lawyers who participated in the plans and concluded that the AVVO plans violate Rule 5.4(a) (sharing legal fees with nonlawyers) of the New Jersey Rules of Professional Conduct:

…[T]he Avvo business model violates Rule of Professional Conduct 5.4(a). The participating lawyer receives the set price for the legal service provided, then pays a portion of that amount to Avvo. The label Avvo assigns to this payment (“marketing fee”) does not determine the purpose of the fee. …Here, lawyers pay a portion of the legal fee earned to a nonlawyer; this is impermissible fee sharing, prohibited under Rule of Professional Conduct 5.4(a)….

The Committees also found that the AVVO plans violate Rules 7.2 Advertising and 7.3 Personal Contact with Prospective Clients of the New Jersey Rules because the fees AVVO withdraws from the lawyer’s account are in fact impermissible referral fees and not a “reasonable cost of advertising”:

…The Committees find that the “marketing fee” that lawyers pay Avvo after providing legal services to clients is not for the “reasonable cost of advertising” but, instead, is an impermissible referral fee. The fee “bears no relationship to advertising.” … Rather, it is a fee that varies with the cost of the legal service provided by the lawyer, and is paid only after the lawyer has completed rendering legal services to a client who was referred to the lawyer by Avvo…

…This service offered by Avvo is a lawyer referral program that does not conform to the requirements of Rule of Professional Conduct 7.2(c) and Rule of Professional Conduct 7.3(d). Accordingly, New Jersey lawyers may not participate in the program.

The Committee considered opinions from several other state bar ethics committees that had come to similar conclusions.  See, Supreme Court of Ohio Board of Professional Conduct 2016-3 , South Carolina Ethics Advisory Opinion 16-06, Pennsylvania Legal Ethics And Professional Responsibility Committee. Formal Opinion 2016-200.

 

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