Deals on spa treatments, restaurants . . . and now lawyers?
An opinion issued by the American Bar Association's Standing Committee on Ethics and Professional Responsibility says that lawyers may use "deal of the day" or group coupon marketing. But, before you run out and sign up with Groupon, the opinion cautions that lawyers must ensure that in doing so, they do not run afoul of their ethical and professional responsibilities.
"While the Committee believes that coupon deals can be structured to comply with the Model Rules, it has identified numerous difficult issues associated with prepaid deals and is less certain that prepaid deals can be structured to comply with all ethical and professional obligations under the Model Rules."
Most people are familiar with these types of deals. A website advertises deals which can be viewed by visitors to the website, or people can subscribe to daily emails. According to the opinion, generally, after a certain number of buyers purchase a deal, the marketing company and the business offering the deal share in the proceeds, as previously agreed. The buyers receive a code, coupon, or voucher to obtain the good or service, which usually has an expiration date.
Of concern to the ABA's Committee are several issues, including fee sharing, advertising, competence, diligence, and the proper handling of legal fees.
Compliance with the Model Rules
ABA Model Rule 5.4 prohibits a lawyer, with certain exceptions, from sharing legal fees with non-lawyers. The ABA looked to several state bar opinions and agreed that a deal where a marketing organization retains a percentage of the payment is nothing more than payment of an advertising cost, and not sharing of fees. One caveat exists however, in that the percentage retained must be reasonable.
Additionally, the ABA cautions attorneys that:
- The advertising must not be false or misleading,
- The buyer of the deal must not be a prospective nor a current client,
- The matter must be handled competently, and
- The lawyer must be careful in establishing the maximum number of deals to be sold by the marketing organization.
Coupon vs. Prepaid Deal
The opinion identifies one particular area that could be especially problematic. Coupons are structured so that the purchase of a coupon merely sets the discount applicable to the cost of future legal services. No legal fees are involved until a client-lawyer relationship is formed, time is spent, and the discounted legal fees are collected directly by the lawyer. As a result, the money from such sales may be deposited in the lawyer's general account.
In contrast, a prepaid deal involves the marketing organization collecting all of the money to which the lawyer will be entitled for legal services that fall within the terms of the deal. Those advance legal fees need to be identified by the buyer's name and deposited into a trust account, according to the opinion.
What if the deal is purchased but never used? In that event, the attorney may retain the funds, provided that the lawyer has explained as part of the offer, that the cost of the coupon will not be refunded. However, this rule likely only applies to coupons, and the proceeds of prepaid deal need to be refunded.
If the lawyer cannot perform legal services in accordance with a deal, such as when a conflict of interest or other ethical issue arises, the lawyer must provide a full refund to the buyer to avoid running afoul of the rule prohibiting receipt of unreasonable fees. This result is required for both coupon and prepaid deals, and the lawyer may not avoid this obligation by including language in the offer to the contrary.
Review Your State Rules
The ABA Opinion cautions that the rules and regulations in individual jurisdictions control. Some states, such as New York, North Carolina, Maryland, and South Carolina have allowed the use of properly structured group coupon marketing deals. On the other hand, Indiana's State Bar issued an opinion in 2012 that the situation was "fraught with peril."