Potential legal clients are increasingly turning to online matching services to find attorneys. In some cases, these services charge a fee based on a percentage of the attorney’s costs for their legal help, and the money is paid to and controlled by the third party.
A Michigan state bar committee is considering a resolution asserting that such fees constitute an impermissible sharing of fees with a non-lawyer, violating numerous ethical rules in the state codified in the Michigan Rules of Professional Conduct. Attorneys in other states, many of which have similar rules, would do well to be aware of the issues raised.
The Michigan ethical rules in question include provisions that prohibit a lawyer from participating in for-profit lawyer referral services, sharing fees with a non-lawyer or giving anything of value to recommend a lawyer’s services—aside from reasonable advertising fees, charges for a nonprofit lawyer referral service, or sale of a law practice.
Connecting to clients through such online matching services also would “subvert” compliance with another ethical rule that requires legal fees and expenses paid in advance be deposited into a client trust account until the fee is earned and expenses incurred, the resolution notes. It adds that this also “impedes” compliance with the requirement that unearned prepaid fees and unexpected advances on costs be refunded.
To whatever extent such an online service provider identifies itself as providing legal services, attorneys that partner with the online service assist in the unauthorized practice of law, the resolution states. Finally, to the extent the matching service provides administrative “back office” services usually done through a law firm, “this does not comport with the professional obligations of the lawyer.”
“The assessment requires a careful review of the business model to determine whether it constitutes a for-profit referral service and if compliance with the terms for participation requires a Michigan lawyer to violate the Michigan Rules of Professional Conduct,” the resolution reads. “Legal matching services are not new, but innovation in technology has spearheaded private entrepreneurial online matching services beyond the usual bar association non-profit lawyer referral services.”
The resolution considers two scenarios. In one case, a national website includes “legal services” in its business name, markets to consumers, brands participating lawyers with the business name, offers services for a fixed fee, asks the consumer to choose an attorney based on a review of profiles, and requires the consumer to pay a deposit into the website portal. The site markets to lawyers that it matches them with clients who already have paid, takes care of all administrative services, and deducts a percentage as a “marketing fee.”
The second scenario has the word “legal” in its name, targets businesses needing legal services, tasks them to fill out an attorney request form, provides a free half-hour consultations followed by a pricing proposal from the attorney, then asks the business client to pay through the website. The third party then collects and holds all fees and keeps about 7.5 percent of each. Lawyers must provide at least a 17.5 percent discount off their standard rates, and the service touts discounts of 60 percent to 75 percent because it offers administrative services normally handled by a law firm.
“Numerous ethical concerns are presented by both business models,” the proposed Michigan bar resolution concludes. “Although these online matching services do not call themselves lawyer referral services, the functional characteristics of a referral service are embedded in both business models.”