Can an Alabama lawyer sell discounted legal services through Groupon or other daily-deal websites?

Plain-English summary

The Office of General Counsel was asked whether a lawyer may use daily-deal websites such as Groupon to sell redeemable certificates for discounted legal services. Under the model described, a client pays the website a discounted price (for example $250 for a $500 certificate), the website keeps roughly half, and remits the rest to the lawyer. The Disciplinary Commission concludes the answer is no.

The opinion's central holding is that the website's cut is impermissible fee sharing with a non-lawyer under Rule 5.4(a). It acknowledges that North Carolina (Formal Ethics Opinion 10) and South Carolina (Ethics Advisory Opinion 11-05) treated the retained portion as an advertising cost, but finds those arguments unconvincing. Drawing on Alabama State Bar Association v. R.W. Lynch Company, Inc., 635 So. 2d 982 (Ala. 1995), the opinion reasons that a permissible advertising cost is a flat fee paid regardless of results, whereas Groupon "take[s] a percentage (usually 50%) of each and every purchase" that "is not tied in any manner to the 'reasonable cost' of the advertisement." It notes that in Alabama the prohibition on fee splitting with a non-lawyer is absolute, regardless of whether it affects the lawyer's independent judgment.

The opinion identifies several additional problems. Under Rule 1.15(a) all unearned fees must be held in trust, but the Groupon model lets the website claim half at purchase, making full deposit impossible; a demanded refund before services would entitle the client to the full amount, and failing to refund would be a clearly excessive fee under Rule 1.5(a) and a failure to return client property under Rule 1.16(d). The model also prevents a conflict check before payment, raising conflict-of-interest risk, and prevents the lawyer from assessing competence (Rule 1.1) and diligence (Rule 1.3) before being retained. Finally, under Rule 7.2(f) the lawyer is bound to honor advertised-fee purchases for at least sixty days, so a flood of purchases could leave the lawyer unable to diligently represent each new client (Rules 1.1, 1.3, and 1.4).

In practice

The opinion holds that, under the Alabama rules as they stood at the time of the opinion, selling legal services through Groupon-style daily-deal sites is impermissible. The opinion makes the absolute nature of Rule 5.4 the linchpin: even if the site's share could be characterized as advertising elsewhere, a percentage-of-each-sale arrangement is fee sharing with a non-lawyer in Alabama. The opinion applies Rule 1.15(a), 1.5(a), and 1.16(d) to the inability to hold the full unearned fee in trust and to honor refunds, and Rules 1.1, 1.3, and 1.4 to the lack of any pre-engagement consultation or conflict check.

Common questions

Q: Can an Alabama lawyer offer a Groupon deal for legal services?

A: No. The opinion concludes the use of daily-deal sites like Groupon "violates or potentially violates a number of rules of professional conduct," beginning with Rule 5.4's bar on sharing legal fees with a non-lawyer.

Q: Isn't the website's cut just an advertising cost, like other states found?

A: The opinion rejects that view. It distinguishes R.W. Lynch, where a permissible flat advertising fee was paid regardless of calls, from Groupon's percentage of every purchase, which "is not tied in any manner to the 'reasonable cost' of the advertisement."

Q: Why does the trust-account rule matter for Groupon deals?

A: Because the website keeps its share at the moment of purchase. The opinion explains that Rule 1.15(a) requires all unearned fees to be held in trust until earned, which is impossible when half the fee is claimed by Groupon up front, and a pre-service refund must still be paid in full.

Q: What conflict and competence problems does the opinion identify?

A: The lawyer is paid before meeting the client, so no conflict check is possible (raising conflict risk), and the lawyer cannot assess his own competence (Rule 1.1) or ability to diligently handle the volume of purchases (Rules 1.3, 1.4) before being retained.

Background and rules framework

The opinion interprets several Alabama Rules of Professional Conduct: Rule 5.4(a) (Model Rule 5.4(a), fee sharing with a non-lawyer), Rule 7.2(c) and 7.2(f) (Model Rule 7.2, advertising costs and the duty to honor advertised fees), Rule 1.15(a) (Model Rule 1.15, safekeeping property and unearned fees), Rule 1.5(a) (Model Rule 1.5, clearly excessive fee), Rule 1.16(d) (Model Rule 1.16, returning client property on termination), and Rules 1.1, 1.3, and 1.4 (competence, diligence, communication). It relies on the Alabama Supreme Court's analysis in R.W. Lynch of when a payment is genuinely an advertising cost.

Citations and references

Rules of Professional Conduct:

• Alabama Rule 5.4(a) / Model Rule 5.4(a) (sharing legal fees with a non-lawyer)
• Alabama Rule 7.2(c), 7.2(f) / Model Rule 7.2 (advertising costs; honoring advertised fees)
• Alabama Rule 1.15(a) / Model Rule 1.15 (unearned fees held in trust)
• Alabama Rule 1.5(a) / Model Rule 1.5 (clearly excessive fee)
• Alabama Rule 1.16(d) / Model Rule 1.16 (returning client property)
• Alabama Rules 1.1, 1.3, 1.4 / Model Rules 1.1, 1.3, 1.4 (competence, diligence, communication)

Cases:

• Alabama State Bar Association v. R.W. Lynch Company, Inc., 635 So. 2d 982 (Ala. 1995), when a payment is a permissible advertising cost versus a referral fee

Other opinions cited:

• New York State Ethics Op. 897; North Carolina Formal Ethics Op. 2011-10; South Carolina Ethics Advisory Op. 11-05; Indiana State Bar Ass'n Legal Ethics Comm. Op. 1 of 2012 (other states' daily-deal opinions)
• Alabama Formal Opinion 2008-03: unearned fees in trust

See also

• ABA Formal Op. 464: Fee Division With Lawyers Who Share With Nonlawyers
• Alabama Ethics Op. 2013-01: Prosecuting a BP Claim
• Alabama Ethics Op. 2023-01: Fee Splitting

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/2012-01/
• Original PDF: https://www.alabar.org/assets/2019/02/2012-01-1.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

ETHICS OPINION
RO-2012-01

Advertising on Groupon and Similar Deal of the Day Websites

QUESTION:

May an attorney use websites such as Groupon or other "daily deal" websites to market discounted legal services in the form of redeemable certificates to prospective clients?

ANSWER:

No. The use of daily deal websites, such as Groupon, violates or potentially violates a number of rules of professional conduct.

DISCUSSION:

Recently, the Office of General Counsel has been asked to opine on the ethical propriety of "daily deal" websites, such as Groupon, as a marketing tool for law firms. These "daily deal" websites typically contact the consumer via email and give the consumer the opportunity to purchase a certificate for services or products from a retailer at a discounted rate of 50% or greater. The proceeds from each sale are typically divided on a 50-50 split between the website and the retailer. For example, a law firm would agree to sell a coupon entitling the purchaser to $500 worth of legal services for a discounted rate of $250. The purchaser or prospective client would pay the website $250 and would receive a certificate for $500 to redeem for legal services with the law firm. The certificate may or may not have an expiration date. From the sale, the website would keep 50% of the revenue, $125 in this case, and remit the remaining $125 to the law firm.

Several bar associations have recently issued opinions concerning the ethical propriety of lawyers using these "daily deal" websites. New York, North Carolina, and South Carolina have issued ethics opinions approving the use of websites like Groupon, while Indiana has issued an opinion disapproving of such sites. (See New York State Ethics Op. 897, North Carolina Ethics Op. 2011-10, South Carolina Ethics Op. 11-05, and Indiana State Bar Ass'n Legal Ethics Comm. Op. 1 of 2012.) All acknowledge, however, that marketing discounted legal services through these sites is fraught with ethical landmines. First and foremost among the issues raised is whether the use of Groupon to market and sell legal services constitutes the sharing of legal fees with a non-lawyer in violation of Rule 5.4(a), Ala. R. Prof. C.

In Formal Ethics Opinion 10, North Carolina found that the portion of the fee retained by the website is merely an advertising cost since "it is paid regardless of whether the purchaser actually claims the discounted service and the lawyer earns the fee..." In Ethics Advisory Opinion 11-05, South Carolina also determined that the website's share of the fee paid by the purchaser was an "advertising cost" and not the sharing of a legal fee with a non-lawyer. The Disciplinary Commission finds these arguments unconvincing. In Alabama State Bar Association v. R.W. Lynch Company, Inc., the Supreme Court of Alabama addressed whether a television advertisement touting the "Injury Helpline" was a for-profit referral service in violation of Rule 7.2(c), Ala. R. Prof. C. 635 So. 2d 982 (Ala. 1995). While there is no claim that sites like Groupon are for-profit referral services, R.W. Lynch is instructive on whether the fees charged by such sites are truly "advertising fees".

The Supreme Court concluded that R.W. Lynch's "Injury Helpline" was not a "for-profit" referral system but rather a permissible form of group advertising. In reaching its decision, the Court noted that lawyers who participate in the helpline pay a flat-rate fee for the advertising, regardless of the number of calls forwarded to them. Id. Pursuant to Rule 7.2(c), a lawyer "may pay the reasonable cost of any advertisement". In this instance, Groupon and other similar sites do not charge a flat rate fee or even a fee based on the website's traffic. Instead, as noted by the Indiana State Bar Ass'n Ethics Committee, Groupon and other sites take a percentage (usually 50%) of each and every purchase. The percentage taken by the site is not tied in any manner to the "reasonable cost" of the advertisement. As a result, the Disciplinary Commission finds that the use of such sites to sell legal services is a violation of Rule 5.4 because legal fees are shared with a non-lawyer.

[This issue is not directly addressed in New York State Ethics Op. 897. The North Carolina opinion finds that, alternatively, even if the transaction does constitute the splitting of an attorney's fee with a non-lawyer, Rule 5.4 is not violated because there is not any interference with the lawyer's professional independence and judgment. In Alabama, the rule prohibiting fee splitting with a non-lawyer is absolute, regardless of whether the fee-splitting affects the lawyer's professional independence or judgment.]

The use of sites like Groupon would also violate a number of other ethics rules. For example, it is well-settled that pursuant to Rule 1.15(a), all unearned fees must be placed into a lawyer's trust account until earned. See Formal Opinion 2008-03. However, under the fee model employed by Groupon, half of the legal fee paid by the purchaser is claimed by Groupon at the time of the purchase making it impossible for the lawyer to place the entire unearned legal fee into trust as required by Rule 1.15(a). Further, if the purchaser were to demand a refund prior to any services being performed by the lawyer, the purchaser would be entitled to a complete refund regardless of the fact that half of the fees were claimed by Groupon. Failure to make a full refund would be considered charging a clearly excessive fee in violation of Rule 1.5(a) [Fees] and/or failing to return the client's property as mandated by Rule 1.16(d) [Declining or Terminating Representation].

Another ethical dilemma created by the use of daily deal websites is the inability of the lawyer to perform any conflict check prior to the payment of legal fees by the potential client. Under the Groupon model, the lawyer is selling future legal services and receiving the fees for such future services without ever having spoken with or having met with the client. Because the lawyer cannot perform a conflict check prior to being retained, the potential for conflicts of interest among the lawyer's former and current clients is great.

Additionally, the Disciplinary Commission is concerned that the use of such daily deal sites could result in violations of Rule 1.1 [Competence] and/or Rule 1.3 [Diligence]. Because there is no meaningful consultation prior to the payment of legal fees, the purchaser may be retaining a lawyer that does not possess the requisite skills or knowledge necessary to competently represent the purchaser. There is no opportunity for the lawyer to determine his own competence or ability to represent the client prior to his being hired.

Likewise, the lawyer is also unable to judge whether he will be able to diligently represent the client. Unless the lawyer places restrictions on the type of services offered and on the number of deals available for purchase, the lawyer may find that his caseload becomes unmanageable. Rule 7.2(f), Ala. R. Prof. C., provides as follows:

RULE 7.2 ADVERTISING

A lawyer who advertises concerning legal services shall comply with the following:

(f) If fees are stated in the advertisement, the lawyer or law firm advertising must perform the advertised services at the advertised fee, and the failure of the lawyer and/or law firm advertising to perform an advertised service at the advertised fee shall be prima facie evidence of misleading advertising and deceptive practices. The lawyer or law firm advertising shall be bound to perform the advertised services for the advertised fee and expenses for a period of not less than sixty (60) days following the date of the last publication or broadcast.

Pursuant to Rule 7.2(f), a lawyer will be bound to honor all purchases made through sites like Groupon. If a large number of purchases are made through Groupon, the lawyer may not have the time or resources to diligently represent each new client resulting in violations of Rules 1.1 [Competence], 1.3 [Diligence], and 1.4 [Communication], Ala. R. Prof. C.