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How Ethical Prohibitions on Fee Splitting Allows RocketLawyer and Gust Launch To Resell and Profit Off of Lawyers’ Free Legal Services

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A couple of weeks back, I stumbled across a company called Gust Launch – billed as a one-stop shop for high-growth start-ups.  For $199/month (or $239/month if billed annually), Gust Launch provides startups with ongoing legal, financial, accounting and back-end services dispensed through one convenient cloud-based platform.

Somewhat like Clio, the practice management system best known for its many integrations, most of the services that Gust Launch offers aren’t homegrown.  Instead, they’re drawn from already existing services. For example, GustLaunch offers accounting through Xero’s  Starter Plan (which costs six bucks a month if purchased direct from Xero), bookkeeping services through Simplexity, a corporate bank account with Metropolitan Capital Bank and legal services which include incorporation as a Delaware C-Corporation, an FEIN number and free startup lawyer question and answers through Rocket Lawyer through Rocket Lawyer.

The legal Q&A are offered on “all you can eat” basis. The Gust Launch website emphasizes to users that:

There’s no limit on the number of questions you can ask. Unlimited online Q&A access to the lawyers at Rocket lawyer is included with Gust Launch. For legal services beyond Q&A Gust Launch makes it easy to find and engage counsel

Gust Launch’s free Q&A offering got me wondering about “how’d they do that?”  After all, even forward-looking #altlaw Avvo charges users 39 bucks a pop for a 15 minute consult.  So channeling  Bob Ambrogi , I decided to do a little investigation  of my own and reached out to Gust Launch about its services. Here’s my email exchange with one of their staff:

[Me] Do you know how the lawyers at Rocket Lawyer are paid?  Or do they advise like a free consult and get retained for more work. I’d love to blog about this at MyShingle.com so any info you have would be helpful

[GustLaunch] I have no insight into how RocketLawyer pays their legal teams. However, the service covered is the unlimited Q&A.

Since Gust Launch’s response didn’t shed much light, I took a look at the Rocket Lawyer site. Rocket Lawyer offers a legal services plan for businesses for $49.95/month which includes access to a lawyer for legal questions.  Lawyers who participate in Rocket Lawyer’s “free legal Q&A” aren’t paid – but they gain a shot at paying work – at 40 percent discount off their hourly rate, or 10 percent discount off their flat fee rate per Rocket Lawyer’s terms of service – if the client eventually retains them.

But here’s the catch: while Rocket Lawyers’ attorneys are working for free, both Gust Launch and Rocket Lawyer are getting paid. Gust Launch receives $239/month for a services package that touts the free legal services provided by lawyers, and presumably, RocketLawyer gets a cut of that fee for the cost of its $49.95 legal services plan. (Rocket Lawyer has not responded to my inquiries about whether it received payment for its “partnership” with Gust Launch). Moreover, Rocket Lawyer and Gust Launch are getting paid as a direct result of the free legal services that they tout as a benefit of purchasing their offerings.

The fact that Gust Launch and Rocket Lawyer are profiting off of lawyers willing totrade legal advice for leads doesn’t bother me all that much. After all, the participating lawyers are grown-ups, free to donate their time as they wish. Instead, what really riles me is the fact that unlike Rocket Lawyer, the lawyers participating in the Gust Launch package can’t take a cut of Gust Launch’s subscription service even if they demanded it because of ethics rules prohibiting fee-splitting. In other words, while Rocket Lawyer can sell a lawyer’s free services and generate a monthly stream of revenue, if a lawyer wanted to cut out the middle man and have Gust Launch share a portion of its $239/month subscription service to answer legal questions for free, the lawyer couldn’t accept the money because he’d be sharing fees with a non-lawyer.  There’s something very, very wrong with this picture.

Now, granted, forty bucks a month (which I’ll assume that is roughly what RocketLawyer gets from the deal, i.e.,a discount on its $49.95/month business service plan) is lunch money. But multiply that amount by 25 clients/month and that’s rent for many solos.  Even if said lawyer were to spend 30 minutes every single month responding to client questions – (a highly generous assumption given that studies show that most individuals use their pre-paid legal plans just 4.2 times/year or 8 calls/per month for 25 clients ) – at most, that would amount to 12.5 hours a month –hardly a huge sacrifice for new solos who generally have more time than money on hand. Moreover, with a reliable, steady stream of income, lawyers would save money in the long run, since they could avoid the kind of rock-bottom desperation that otherwise drives them to take on crazy clients or meritless cases that consume countless unpaid hours or put them at risk of a bar complaint.

Moreover, making Gust Launch profitable for lawyers is important — because the overall idea behind Gust Launch makes eminent sense. Lawyers aren’t the center of the universe and often times, the services that we provide address only a small piece of a client’s overall puzzle.  Startups don’t just need legal advice on incorporation and IP but also accounting, bookkeeping and financial services. Family law clients don’t just need an advocate in the courtroom, but also a financial advisor to offer guidance to a spouse who never worked on how to invest her share of her ex’s IRA or a social worker to mediate disputes and support the kids. And so on. Larger clients have the money to hire their own hand-picked team of investigators, appraisers, accountants and forensics experts to support legal transactions. So why shouldn’t we make it easy for smaller clients to procure these varied services all in one place for reasonable monthly fee?

Some may argue that these types of collaborative opportunities between lawyers and non-lawyers have been tried in the past — with devastating consequences. For example, eight years back, I blogged about  a Foreclosure Solutions, a company that purported to help clients fight foreclosure by negotiating a loan modification or challenging the foreclosure in court.  Company representatives who were not lawyers negotiated the deals and partnered with three Ohio attorneys who signed off on Foreclosure Solutions’ template pleadings for $125/pop if the case needed to go to court. Needless to say, the template pleadings were inadequate, clients lost money and their homes, and a bar complaint alleging fee splitting and inadequate preparation justifiably ensued.

Yet here’s the thing: most competent lawyers understand that fee-splitting is prohibited, and as such, would have sussed it out a mile away in the Foreclosure Solutions arrangement and steered clear. Because most decent, competent lawyers wouldn’t fall for a Foreclosure Solutions scheme, that’s why these companies attract incompetents – the lawyers too stupid to know better or too desperate or greedy to walk away. Thus, it’s not surprising that the lawyers who wound up as part of foreclosure prevention or credit counseling services ultimately botched clients’ cases.

But what if regulators were to ease up on fee-splitting regulations to facilitate participation in the kinds of multi-disciplinary packaged services that Gust Launch offers? If that happened, I can almost guarantee that that companies seeking to offer packa would attract a better class of lawyers savvy enough to recognize the value of these products to clients, smart enough to know when to say no to situations (like signing someone else’s pleading without reading it) that would compromise the lawyer’s ethical obligation to the client. As with prostitution and pot, oftentimes, legalizing formerly forbidden activities can result in the implementation of additional protections that drive out the bad actors.

In the meantime, so long as regulators and lawyers continue to reflexively ban fee splitting without any thought whatsoever to the needs of clients in a changing world, we should recognize that we’re not helping clients, but instead, the venture capital-backed companies with a Huffington Post-like business model of making money off lawyers’ services that they’ve agreed to give away for free.

  • Paul Spitz

    Relaxing the fee-splitting rules isn’t enough to attract a better class of lawyers. These services also need to stop the Wal-Mart pricing of legal services. I don’t want to take a 50% or 60% reduction in what I consider a fair legal fee, so that I can work with these services. It’s a race to the bottom.

  • The prohibition against fee-splitting with nonlawyers entities are an out of touch rule that is a legacy from a different era. The rule restrains innovation for online referral companies that can do a better job than traditional bar legal referral agencies. When you read the prohibition on fee-splitting, together with the rules that govern bar-approved legal referral programs, it is becomes clear that the real purpose of the rule is to maintain the organized bar monopoly over legal referral and to protect the bar’s income stream from legal referral fees. Fee-splitting rules don’t apply to bar-approved legal referral programs. In my opinion, the fee-splitting rules are out of date, restrain competition in the legal referral market space, serve no useful purpose, and should be abolished.

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