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Online Attorney Referral Networks and Sharing Fees with a Non-Lawyer

It seems everything is moving online these days, including legal services. In a time when more people are apt to send an email or a text than pick up the phone, when people increasingly shop, bank, and even date online, it seems only natural that more people would want to go to the Internet for easy, efficient legal services. Enter the multitude of startup online attorney referral networks, offering a range of features from marketing to communications, document processing, and full-service billing and payment, for a small fee, of course. As tempting as these services may be for lawyers looking to boost their books of businesses, they should be aware that bar regulators may have a few objections. In only the last few months, ethics committees in Ohio, South Carolina, and Pennsylvania have issued opinions regarding the fee structures offered by online attorney referral networks. Although these opinions also considered several other ethics issues implicated by attorney participation in these networks, the common conclusion they share is that attorneys participating in some of these networks may risk running afoul of the Rules of Professional Conduct prohibiting sharing of legal fees with a non-attorney. 

Three ethics advisory committees recently considered the ethical implications of participation in commercial online legal services networks for attorneys in their respective jurisdictions. The network business model considered by each jurisdiction was fairly uniform: A non-attorney-owned entity offers marketing and other non-legal services to participating lawyers in exchange for a “marketing fee” for each completed client matter obtained via the network, which marketing fee is calculated based on the fee generated from the matter. The client would pay the lawyer's fee to the network, which would then forward the fee to the lawyer once the matter was completed, and the attorney would pay the network's marketing fee in a separate transaction, after it is calculated. The consistent theme throughout all of these opinions was that participation in such a service may constitute the impermissible sharing of legal fees with a non-lawyer because network's marketing fee was entirely dependent on the fees charged by the participating attorney for a particular engagement obtained through the network.

The Board of Professional Conduct of the Supreme Court of Ohio opined that, in addition to other problems, this arrangement violates the prohibition against fee sharing under Rule 5.4(a). Unlike a typical advertising fee, the amount of the marketing fee is keyed to the amount of legal fees generated in a particular matter rather than to the value of the services. Even though the network separates the marketing fee paid by the lawyer into a different transaction from the legal fee, it may nevertheless enable impermissible fee sharing because it is calculated based on the attorney's fee. One month later, the South Carolina Bar Ethics Advisory Committee also concluded that this could constitute impermissible fee sharing, again reasoning that because the marketing fee deviates from the reasonable cost of advertising, this looks more like fee sharing than payment for advertising. The South Carolina Committee observed that reasonable marketing costs are assessed by the market rate for the type of advertising, or based on a fixed price reflective of the frequency or impact of an advertisement. Presumably, they reasoned, the cost of advertising does not vary by the type of legal service advertised. By contrast, however, the network's marketing fee purports to calculate the cost of marketing based upon the type and cost of legal services provided. Finally, the Pennsylvania Bar Association Legal Ethics and Professional Responsibility Committee joined the discussion in September. The Pennsylvania Committee observed that the amount of the marketing fee charged to the attorney for each engagement varies directly with the amount of the fee for legal services. Again, the Committee opined that this arrangement likely amounts to an impermissible sharing of legal fees, among other violations of the Rules of Professional Conduct. Like the Ohio Board, the Pennsylvania Committee observed that the manner in which the payments are structured -- as separate transactions for the marketing and legal fees -- is not dispositive of the question of whether it constitutes fee sharing. Rather, the manner in which the amount of the marketing fee is calculated, in view of the reasonable value of the non-legal services the network performs, led the Committee to conclude that the lawyer's payment constitutes impermissible fee sharing.

Business start-ups attempting to bring the efficiency of e-Commerce to the legal services industry have proliferated in recent years. As more prospective clients are attracted to such businesses, more attorneys will seek to follow them to these online legal services networks. However, as these three state ethics advisory opinions have found, the way in which these businesses monetize their services has significant implications for attorney ethics. In particular, business models that calculate a service fee based upon the attorney's fee may expose any participating attorney to professional discipline for violating the applicable ethics rule prohibiting the sharing of legal fees with a non-lawyer, regardless of how the transaction is structured.

Online referral networks vary widely in their fee structures, and not all of them will look like the examples considered by the opinions cited above. In view of these opinions, however, lawyers should carefully assess the business models and fee structures of non-lawyer online legal services networks for possible violations of the applicable ethics rules, and seek advice if necessary, before signing up.