To many lawyers, participating in Avvo Legal Services (ALS) may seem like a convenient, cost-effective way to earn fees while helping people who need only limited-scope, or “unbundled,” legal services. However, participation in ALS or similar online programs may also raise ethical questions.
In particular, a lawyer who participates in ALS must pay a “marketing fee” to Avvo that reflects a portion of each flat fee that the lawyer earns for providing a service to a client. Does such an arrangement constitute improper fee-sharing (see ABA Model Rule 5.4)? Does it amount to making an improper payment for a recommendation (see ABA Model Rule 7.2)?
In recent months, bar panels in five states – Ohio, South Carolina, Pennsylvania, New Jersey and New York – have issued advisory opinions that addressed one or both questions. Each panel found that lawyers who participate in ALS (or programs that follow the ALS model) may be in violation of their state’s ethics rules.
The North Carolina State Bar’s ethics committee also recently weighed in and issued a proposed ethics opinion that would approve lawyers’ participation in ALS or online programs similar to it. However, the committee’s approval remains “subject to certain conditions,” and the opinion has yet to be adopted.
If you are considering whether to participate in ALS, it may help you to understand how the ALS model works and how the different bar panels have approached the ethics questions that it raises. (Note that none of these advisory opinions addresses First Amendment or antitrust issues.)
How Does the Avvo Legal Services Marketing Fee Work?
Avvo – known mainly for its online lawyer directory and “star ratings” system – launched its Legal Services program in early 2016. The program provides a way for consumers to find “fixed-fee, limited-scope legal services” from lawyers in their geographical area. It is currently available to consumers and lawyers in 26 states. Here’s how it works:
- A lawyer signs up for the program. The lawyer chooses what services the lawyer will provide. For instance, the lawyer may select to give 15- or 30-minute advice sessions on estate planning. Or a lawyer may opt to provide a more complex service such as drafting a living trust.
- Avvo puts the lawyer’s profile – including the lawyer’s “star rating” – in a list of lawyers in the same geographical area who offer the same service. The company says it lists the lawyers randomly and shuffles the list at least once every hour. Avvo defines the scope of the specific service and the fixed fee. For instance, for a 15-minute immigration law advice session, a consumer would pay a $39 fee. If a consumer wants help with filing a family green card application, it would carry a fee of $2,995.
- The consumer picks a lawyer for a specific service. The consumer pays Avvo the fixed fee. Avvo keeps the fee until it verifies that the lawyer completed the purchased service. If the consumer is “unhappy” with the service, Avvo helps the consumer to switch lawyers or services, or it refunds the fee as part of its “satisfaction guarantee.” Otherwise, once a month, Avvo deposits the full amount of every fee the lawyer has earned into the lawyer’s client trust or IOLTA account.
- Avvo also charges the lawyer a “per-service marketing fee.” The fee amount depends on the specific service. It varies widely. For example, the Avvo “marketing fee” for a $39 service is $10. For a $2,995 service, it’s $400. Once a month, Avvo withdraws every marketing fee it has charged a lawyer from the lawyer’s operating account. The lawyer pays no monthly membership or subscription fees.
On its website, Avvo states that it is “not referring people to a particular lawyer,” and it charges the per-service marketing fee because the company creates “the marketplace and advertising” on a participating lawyer’s behalf.
Additionally, Avvo tells lawyers on its website that they should not be concerned that participation in the service amounts to an improper fee-sharing arrangement.
Fee splits “only become a problem if the split creates a situation that may compromise a lawyer’s professional independence of judgment,” and the Avvo system amounts to more of a “technical fee split that would not create such a potential for compromise,” Avvo’s Chief Legal Officer Josh King states on the website.
“Nonetheless, we have tried to keep things simple and clear by making the per-service marketing fee a separate charge from your operating account,” King states.
How Have Bar Panels Viewed Avvo’s Marketing Fee?
Since the ALS launch, bar panels in Ohio, South Carolina, Pennsylvania, New Jersey and New York have issued advisory opinions which found that the program’s “marketing fee” arrangement violates their state’s prohibition against sharing fees with a non-lawyer and/or violates the state’s ban on paying for a referral (and does not fit within any exceptions to that rule). Please see the links to each opinion below.
A sticking point appears to be the fact that the “marketing fee” that Avvo charges a lawyer depends on the amount of the fee that the lawyer collects. Most states allow lawyers to pay for “reasonable costs of advertisements or communications.” However, none of the above bar panels found that the Avvo “marketing fee” fits into that category.
For instance, the South Carolina advisory opinion described it as a “contingency advertising fee arrangement,” while the Pennsylvania opinion found that basing advertising fees “directly on the revenue derived from such services, to the extent that this can be established, would effectively make the provider of advertising services a joint venturer with its customer.”
In Ohio, the advisory opinion states that, under the ALS model, “the company, not the lawyer, controls nearly every aspect of the attorney-client relationship, from beginning to end,” including the type of services offered, scope of representation and the fees charged.
According to that opinion, such as model “is antithetical to the core components of the client-lawyer relationship because the lawyer’s exercise of independent professional judgment on behalf of the client is eviscerated.”
It is important to note that the New York advisory opinion does not address whether the Avvo “marketing fee” violates the state’s prohibition against fee-sharing with a non-lawyer. However, the opinion finds that the fee amounts to an improper payment for a recommendation. According to the opinion, Avvo’s “star ratings” and its “satisfaction guarantee” expressly state, imply or create an impression that Avvo recommends the lawyers who participate in ALS.
In the proposed ethics opinion issued by the North Carolina State Bar’s ethics committee, the panel notes that a lawyer could participate in a program with an ALS-like “marketing fee” arrangement. However, the panel notes that participation would be subject to the condition that the non-lawyer exercises “no influence over the professional judgment of the lawyer, and the fee [is] a reasonable charge for marketing or advertising services.”
The committee voted at its July quarterly meeting to publish the proposed ethics opinion and receive comments. The committee will consider the issue again when it meets in late October.
At that same October meeting, the State Bar’s Council (its governing body) will also likely consider a proposed amendment to its ethics rule that bars fee-sharing with non-lawyers. The proposed change would allow payment of a reasonable portion of a legal fee to a credit card processor, group advertising provider or online platform for hiring a lawyer (such as ALS) as long as the business relationship does not interfere with the lawyer’s professional judgment on behalf of a client.
If you are interested in learning more about how different states have approached the ALS model, including its “marketing fee” arrangement, please read the advisory opinions below as well as the proposed opinion in North Carolina:
Ohio Supreme Court Board of Professional Conduct (June 2016)
- South Carolina
Ethics Advisory Opinion 16-06
South Carolina Bar Ethics Advisory Committee (July 2016)
Formal Opinion 2016-200
Pennsylvania Bar Association Legal Ethics and Professional Responsibility Committee (September 2016)
- New Jersey
New Jersey Supreme Court’s Advisory Committee on Professional Ethics, Committee on Attorney Advertising, and Committee on the Unauthorized Practice of Law (June 2017)
- North Carolina
Proposed 2017 Formal Ethics Opinion 6
North Carolina State Bar Ethics Committee (July 2017)
- New York
New York State Bar Association Committee on Professional Ethics (August 2017)