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Stupid Bar Decisions on Fee Splitting Don’t Just Kill Avvo, But The Entire Future of #AltLaw

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Avvo is one of the online platforms that many solos and smalls love to hate. And even though I’ve been a fan of Avvo since its inception, there are a number of features that I’m not crazy about – such as using lawyer profiles that they’ve cultivated with reviews and links to post competitors’ paid ads.  Still, in a world where lawyers will find themselves rated one way or another, I’ve always believed that solos and smalls are better off with the devil they know than  the ones they don’t..

In any event, Avvo-haters will be applauding the recent trio of ethics rulings out of South Carolina, Ohio and Pennsylvania. These copycat opinions declare unethical certain aspects of the Avvo Legal Services Program —which gives consumers access to flat fee attorney services — because (1) Avvo collects a flat fee from clients up front but doesn’t deposit the fee in a trust account and (2) Avvo retains a percentage of the fee as a reasonable “marketing expense” which the regulators view as fee-splitting.

Seriously? First of all, if the regulators would just get rid of trust accounts, the regulators’ first issue with Avvo would disappear. As I’ve argued repeatedly,  trust accounts don’t keep client money safe anyway and they increase transaction costs and expose solos and smalls to draconian sanctions for silly infractions. Like any other 21st century consumer, clients’ use of a credit card provides ample protection against attorneys who perform sub-standard work, or don’t do the work at all.

Second, so what if Avvo takes a percentage of fees in exchange for the work performed? Five years ago, the ABA added a comment to Model Rule 7.2 permits pay-per-click and other lead generation arrangements so long as the ad does not recommend the attorney’s services (otherwise, the arrangements would run afoul on the rather sensible prohibition on giving something of value in exchange for a referral). The Avvo system isn’t any different than pay per click. In fact, if the bars are going to split hairs, then credit card transactions would also constitute prohibited fee splitting too because charges paid to the merchant are a percentage of the overall fee and differ depending upon the overall fee paid by the client.

The Pennsylvania opinion isn’t on line yet. Apparently, it relies on the South Carolina and Ohio opinions which display some of the sorriest legal reasoning that I’ve seen since the Minnesota opinion that reprimanded a Colorado attorney for unauthorized practice of law when he wrote a couple of emails to a creditor in Minnesota an effort to help his in-laws try to negotiate a judgement.  The Ohio opinion attempts to analogize the Avvo scenario to other fee-splitting arrangements previously deemed unethical – such as a company that offered “foreclosure defense services” that included a re-negotiation of the homeowner’s mortgage and legal services for a defense in court, or bankruptcy and debt-counseling companies that solicited clients (presumably circumventing ethics rules on direct solicitation) on behalf of attorneys to whom the company referred the cases. However, those scenarios are markedly different from the Avvo situation in that (1) they involved an active partnership between the lawyers and the non-lawyer provider and (2) they potentially create confusion for the client who may not be able to determine if the lawyer is responsible for the case, or the non-lawyer firm that was the first point of contact. By contrast, Avvo plays a passive role, simply acting as a fund collector. Moreover, Avvo does not go out and actively pursue cases like debt collection services (which call or send mailings to clients); instead clients come to Avvo in search of a lawyer.

Both Ohio and South Carolina also take issue with Avvo taking a percentage cut of the cost of a legal service. Ohio says that  a fee splitting arrangement dependent upon the fee earned runs afoul of ethics rules, while South Carolina can’t seem to get its head around why a company might reasonably charge a higher advertising cost for a  more lucrative case:

Presumably, it does not cost the service any more to advertise online for a family law matter than for the preparation of corporate documents. There does not seem to be any rational basis for charging the attorney more for the advertising services of one type of case versus another. For example, a newspaper or radio ad would cost the same whether a lawyer was advertising his services as a criminal defense lawyer or a family law attorney. The cost of the ad may vary from publication to publication, but the ad cost would not be dependent on the type of legal service offered.

The above passage reflects a shocking lack of understanding about how attorneys make decisions about advertising. While it’s true that ads may have a different cost depending upon the publication, a lawyer is not going to spend $5k on an advertisement for $200 wills in the New York Times because the likelihood of breaking even, let alone making a profit is nil. Likewise, lawyers who spend 20 bucks on a Craigs’ List ad realize that their chance of reeling in a high-net worth divorce is as likely as winning the lottery. The reality is that there is a rational basis for why ads for certain services and certain clients cost more than others: it’s called ROI .

Unfortunately, it’s only a matter of time before these three jurisdictions’ opinions will spread like the Zika virus, infecting other states with the kind of tortured reasoning that wouldn’t pass muster one a 1-L legal ethics exam. Worse, while Pennsylvania, South Carolina and Ohio regulators are no doubt relishing their role as Avvo-killers, the truth is that these insane decisions will kill the fledgling legal tech industry when it’s just getting off the ground. After all, Avvo isn’t the only company in town (or online) that relies on a percentage cut of client payments. Numerous other companies that match attorneys with small businesses like Law Kick , Up Counsel , Priori Legal rely on an identical business model. And like Avvo, these companies are also VC-backed  to the tune of $10 million for Upcounsel and $200k for LawKick. These recent decisions will either send investors running for the hills – or more likely, to the legislature urging relief from these local ethics overlords through deregulation of the profession.

And honestly, who could blame them? For years, I railed against outside investment and deregulation . This is because I believed that there were other equally effective ways to fund access to justice initiatives and I feared that the potential harm to lawyers’ independence as a result of being beholden to outside investors would jeopardize the future of independent minded solos  who take on unpopular causes and are the lynchpin of our judicial system.

Yet now, I’m not so sure. With moronic ethics rulings like these, many solos will go under anyway because they’ll have fewer cost-effective options for marketing their practices. Don’t regulators remember the days when solos and smalls who wanted to advertise online had to lock into costly, long-term contracts with the likes of Findlaw or Legal Match to the tune of hundreds or thousands of dollars a month that they were forced to pay month after month even if business never materialized?  I sure do – maybe because I can recall at least 3 phone calls from distressed readers locked into one of those plans and were on the verge of bankruptcy or eviction from their office.

Ultimately, regulators and ethics decisions like these fee splitting opinions are an embarrassment to the legal profession, making all of us look like a bunch of provincial local yokels who  approach modern-day conventions like online advertising in 2016 as if the Gods must be crazy. If the only way to stop this madness is to deregulate the legal profession, then let’s just do it. I’ve had enough.

  • Josh King

    Thanks, Carolyn. We’ve built Avvo Legal Services with the consumer in mind at every step, and we believe it has the potential to unlock a huge latent market of clients who aren’t comfortable with the “black box” of full-scope representation. That would be a win for consumers and solos alike.

    I expect that any regulatory body with disciplinary authority would take a more nuanced view than these three handwringing, results-seeking opinions, and look to whether Avvo Legal Services actually poses any threat to consumers before doing anything. And despite these three “advisory” opinions, we are continuing to offer Avvo Legal Services in all of these states.

  • Paul Spitz

    I’m deeply ashamed to be a lawyer in Ohio right now, with such idiots on the state supreme court. Of course, these are elected officials, not appointed, but that’s still no excuse for the absolutely pathetic “reasoning” that goes on in this opinion. These idiots can’t even read the rules of professional conduct properly. For example, this honker from the Ohio opinion, purporting to have Rule 7.3 as its basis:

    “A lawyer cannot solicit clients if a significant motive in doing so is pecuniary gain.”

    First of all, Rule 7.3 says nothing of the sort. Nothing. Second, what the frack do these mental pygmies think we seek clients for, if not pecuniary gain? I don’t practice law for hugs and kisses, I practice law so that I have a roof over my head, food on my table, an Aston Martin DB10 in my garage, and the occasional vacation.

    I’m also baffled by the whole notion that charging a percentage of the legal fee is somehow unethical. Visa, MasterCard, Amex, and Discover all do exactly this. Is the supreme court seriously going to ban payment by credit cards?? Because that is the logical conclusion of their toddler-level analysis. Moreover, so what if Avvo takes the payment from the client upfront, and doesn’t hold it in a trust account. This is a valuable service to the lawyer, because it guarantees that we will get paid.

  • Paul Spitz

    Have you looked into getting approved as a referral service in these states? And if so, why haven’t you followed up? I ask because you can’t operate your service, without lawyers, and if lawyers are terrified of losing our licenses and having to bag groceries at Krogers for a living, your service won’t work.

  • Josh King

    Yes, but it’s a non-starter because we aren’t a lawyer referral service, and even if we were many states don’t permit for-profit lawyer referral services. I also strongly believe that playing mother-may-I with the regulators is anti-competitive, anti-innovation, and weakens the availability of information about legal services. We’re also confident that we’ve got the scale to have enough attorneys involved to make Avvo Legal Services work.

  • Paul Spitz

    Hey, I agree with most of what you are saying, and I appreciate that you’ve looked into it. Your last sentence really rubs me the wrong way. It seems like you’re saying “so what if you get disbarred for participating in our service, we have enough lawyers left over so that we can make money.” I doubt that’s what you intended to say, but that’s how it reads.

  • Josh King

    Thanks, Paul – and that’s not at all what I meant. I don’t think any state will actually take action against an attorney for participating in Avvo Legal Services (and if it did, we would get involved); my point was simply that Avvo has the scale to have enough attorneys participating who aren’t scared off by this kind of advisory opinion posturing.

  • Paul Spitz

    The California bar has recently sent threatening letters to a number of attorneys that are participating on Upcounsel’s platform. The bug up California’s butt is that Upcounsel was charging a percentage of the legal fees, ergo fee-splitting (although again, perfectly OK for credit card processing). So don’t assume that the states won’t take action, because California already is.

  • Christopher Velez

    Credit card transactions are different because, while they may charge a percentage of a transaction, the percentage needn’t be paid from the transaction. One of the reasons LawPay scrupulously avoids ethical issues is that the whole sum charged is deposited into your operating/trust account, with the processing fees being separately billed on a monthly basis.

    Whether or not that should be how it’s done is another question. But credit card processing is materially different from Avvo Legal Services’s marketing fee.

  • Paul Spitz

    I didn’t read the other opinions, but the Ohio opinion merely says that charging a percentage of the legal fee is unethical; there’s no discussion of where the money is paid from. The fact that LawPay takes its fee out of one account and not another is designed to avoid trust fund violations; it has nothing to do with fee-splitting.

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