New York State Bar Association
Committee on Professional Ethics
Opinion 897 (12/13/11)
Topic:
Marketing of legal services by use of a “deal of the day” or
“group coupon” website.
Digest: Lawyer
may market legal services on a “deal of the day” or
“group coupon” website provided that the advertising is not
misleading or deceptive and makes clear that no lawyer-client
relationship will be formed until the lawyer can check for conflicts and
competence to provide the services. If the lawyer is unable to
provide the offered service due to a conflict or competence issue, the
lawyer must give the coupon buyer a full refund. If the coupon
buyer terminates the representation, the buyer is entitled to a refund
subject to the lawyer’s quantum
meruit claim.
Rules: 1.1, 1.5, 1.10(e),
1.16(e), 7.1, 7.2(a), 7.3
FACTS
1.
A number of websites offer subscribers a “deal of
the day” or “group coupon” which enables the
subscribers to purchase specified goods or services at a discount.
For example, such a website might invite consumers to purchase a coupon
which can later be exchanged for a described good or service, such as a
spa treatment or a restaurant meal. The consumer buys the coupon
from the website for an amount which can be significantly less than the
regular price for the item in question.
2.
The website negotiates the discount with participating
vendors, who agree to provide the described good or service in exchange
for the coupon or voucher which was purchased at a discount price.
The coupon offer may involve a number of conditions or
restrictions. Many times the offer is valid only if a certain
minimum number of subscribers buy the coupon. Generally the coupon
is valid for a specified limited time period after which it expires and
is of no further value.
3.
The website collects the cost of the coupon via credit
card from the consumers who purchase it. Upon the close of the
“deal of the day,” the website deducts a percentage of the
gross receipts as its compensation and pays the balance to the
participating vendor.
QUESTION
4.
May an attorney market legal services by participating in
a “daily deal” or “group coupon”
website?
OPINION
5.
A recent ethics opinion from South Carolina approves of
lawyers’ use of such websites, subject to various limitations and
conditions. See South Carolina
Opinion 11-05.
6.
Although not all legal services are suited to this kind
of discount marketing, at least some might be. For example, a
participating lawyer might offer the preparation of a simple will, for
which the lawyer normally charges $500, for $250.[1] Indeed, a lawyer
could permissibly publish an equivalent discount coupon advertisement in
the newspaper, see N.Y. State 563 (1984),
subject to the rules governing advertising.[2]
7.
The use of such a website as a means of marketing legal
services raises a number of issues. These
include:
A. Whether the arrangement is an improper payment for a referral,
Rule 7.2(a);
B. Whether the amount received by the lawyer could, under certain
circumstances, result in a prohibited excessive fee, Rule
1.5;
C. Whether any statements made by or on behalf of the lawyer are
false or misleading or otherwise violative of the rules regarding lawyer
advertising, Rule 7.1; and
D. Whether the logistical arrangement of payment in advance for a
legal service, before the lawyer has had the opportunity to check for
conflicts or determine whether the lawyer is competent to perform the
service and whether the client needs the service, constitutes a
premature and improper formation of a lawyer-client relationship, Rule
1.1, Rule 1.10(e).
Is the money retained by the
website an improper payment for a referral?
8.
Rule 7.2(a) provides: “A lawyer shall not
compensate or give anything of value to a person or organization to
recommend or obtain employment by a client, or as a reward for having
made a recommendation resulting in employment by a client,” with
two exceptions that do not apply here.
9.
Comment 1 to Rule 7.2 notes that Rule 7.2(a) “does
not prohibit a lawyer from paying for advertising and communications
permitted by these Rules....”
10.
The question then arises whether the money retained by
the website is merely an appropriate payment for a novel form of
advertising or is a compensation for the referral of a
client.
11.
South Carolina Op. 11-05 concluded that the money
retained by the website was the payment for “the reasonable cost
of advertisements.”
12.
We note that the website has no individual contact with
the coupon buyers other than collecting the cost of the coupon.
The website has not taken any action to refer a potential client to a
particular lawyer – instead it has carried a particular
lawyer’s advertising message to interested consumers and has
charged a fee for that service.
13.
We are not privy to the percentage amount retained by
these various websites, but assuming that it is a reasonable payment for
this form of advertising, we conclude that there is no violation of Rule
7.2.[3] This conclusion rests on the facts and assumptions
stated here. Different arrangements between the lawyer and the
website could lead to the opposite conclusion, i.e., that the lawyer is
paying for a referral in violation of Rule 7.2.
Excessive Fee
14.
Some coupon buyers may not, for various reasons, receive
all or any of the legal services to which the coupons entitle
them. Rule 1.5 prohibits excessive legal fees as an ethical
matter, and fee arrangements are also subject to other rules as a matter
of law. Applying these rules requires consideration of the various
reasons that the legal services may not be delivered.
15.
As described above, the lawyer’s portion of the
gross amount of the website’s coupon sales receipts is paid to the
lawyer shortly after the offer closes and before the individual buyers
receive services. In some cases, when the buyer comes to receive
the service, the lawyer may determine that he or she is unable to render
the described services, either because of a conflict of interest or
because the lawyer is not able to deliver competent services that are
appropriate for the client. In such a case, the lawyer cannot
provide what the coupon buyer purchased, and must give the buyer a full
refund.[4]
16.
In other cases, the coupon buyer, having changed his or
her mind about going forward with the representation, may discharge the
lawyer. If that occurs, rules of ethics and law require the lawyer
to give a full refund, subject to any quantum
meruit claim for services rendered prior to the termination of the
representation. See Rule
1.16(e) (providing that upon termination of representation, lawyer must
promptly refund any part of a fee paid in advance that has not been
earned); N.Y. State 599 (1989) (citing case law for proposition that a
client “may always discharge his attorney, with or without cause,
and in the absence of a contract providing otherwise an attorney
discharged without cause is entitled to be compensated in quantum
meruit”).
17.
Some buyers might purchase the coupon from the website
and then never seek the discounted services from the lawyer. Other
buyers might wait too long to use the coupon, which has a stated
expiration date, and try to use it after that date. In either
case, the lawyer is entitled to treat the advance payment received as an
earned retainer for being available to perform the offered service in
the given time frame.
Compliance With Rules Regulating
Advertising
18.
Like all lawyer advertising, the “daily deal”
advertisement must not be false, deceptive or misleading, Rule
7.1(a)(1). The lawyer must comply with Rule 7.1(j), requiring the
availability to the public of a written statement describing the scope
of the service advertised for a fixed fee. Having offered a
particular service for a fixed fee, the lawyer must provide the service
for the advertised fee if the coupon purchaser seeks that service within
the specified time frame, Rule 1.7(l). The offered discount must not
be illusory, but must represent an actual discount from an established
fee for the named service. Otherwise the advertisement would be
misleading. See N.Y. State 563 at n.
2. The advertisement must include the words “Attorney
Advertising” on the web page and in the subject line of any
related email, as required by Rule 7.1(f). If the specific
language of the advertisement makes it “targeted,” then the
advertisement is a solicitation and must comply with Rule 7.3 as
well.
Premature and Improper Formation
of Lawyer-Client Relationship
19.
Purchase of the coupon entitles the consumer to the
described legal service. The danger is that the arrangement could
be taken to establish a lawyer-client relationship before the lawyer has
had any opportunity to check for conflicts, determine whether the
described legal services are appropriate for the consumer, and whether
the lawyer is competent to provide those services.
20.
South Carolina Ethics Advisory Opinion 11-05 confronted
this issue and concluded that the problem could be avoided with proper
logistical arrangements and disclosures. We agree.
21.
To avoid the premature and improper formation of a
lawyer-client relationship, the lawyer’s advertisement on a
“deal of the day” website must make clear that the offer
made on the website is subject to a number of conditions. These
would include that before such a relationship is formed, the lawyer will
check for conflicts and determine that the lawyer is competent to
provide legal services that are appropriate to the consumer. If
the lawyer determines that the lawyer-client relationship is untenable
for these reasons, the lawyer must give the coupon buyer a full
refund. This arrangement should be disclosed as part of the coupon
offer on the website, along with any other information needed to avoid
making the offer misleading in any way.
22.
If the lawyer-client relationship is formed, the lawyer
must promptly describe the scope of the services to be performed and the
fee arrangement as required by Rule 1.5(b).
CONCLUSION
23.
A lawyer may properly market legal services on a
“deal of the day” or “group coupon” website,
provided that the advertisement is not false, deceptive or misleading,
and that the advertisement clearly discloses that a lawyer-client
relationship will not be created until after the lawyer has checked for
conflicts and determined whether the lawyer is competent to perform a
service appropriate to the client. If the offered service cannot
be performed due to conflicts or competence reasons, the lawyer must
give the coupon buyer a full refund. The website advertisement
must comply with all of the Rules governing attorney advertising, and if
the advertisement is targeted, it must also comply with Rule 7.3
regarding solicitation.
(26-11)
[1] It has long been
established that a lawyer may properly offer a particular legal service
at a specified price, so long as the lawyer actually performs the
service for that price. Bates v. State Bar of Arizona, 433
U.S. 350 at 372-73, 378-79 (1977).
[2] For example, N.Y.
State 563 makes clear that an offer of a discount from a customary fee
would be misleading if the customary fee were not “readily
ascertainable.”
[3] A useful comparison
might be to an arrangement where the lawyer publishes an advertisement
on, for example, a directory website. Clicking on the ad follows a
link to the lawyer’s website. Instead of paying a flat fee
for the placement of the ad, the website’s compensation (and the
lawyer’s cost of advertising) is determined by how many times the
lawyer’s ad is clicked. In this arrangement the lawyer is
still paying the cost of advertising, but the calculation of the cost is
different from the traditional arrangement customary in newspaper or
television advertising.
[4] In reaching this conclusion we have assumed that
the original advertisement on the website did not include any contrary
provision regarding refunds.
Related Files
Ethics Opinion 897 (Adobe PDF File)
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