Can a Michigan lawyer sell legal services through a daily-deal coupon site that keeps a percentage of each purchase?

Plain-English summary

A company offered to set up a network of lawyer-vendors who agreed to sell specified legal services at a set price through a coupon deal. If enough consumers bought a coupon during a limited period, each could redeem it for the service. Payment went to the company by credit card; the company kept a percentage of each purchase and paid the balance to the lawyer. The lawyer asked whether participating was ethical.

The Committee concluded the threshold problem was fee sharing. Because the fee the company kept was tied directly to each coupon purchase and was a percentage of the money paid, the arrangement was more like fee sharing than advertising and therefore violated MRPC 5.4(a)'s prohibition on sharing fees with a nonlawyer (the exceptions to which did not apply). A footnote distinguished permissible advertising, noting that under MRPC 7.2 a lawyer is not permitted to pay another person for channeling professional work.

The Committee identified further problems independent of fee sharing. By buying a coupon, the consumer prepaid fees and expenses not yet earned, but paid the company rather than the lawyer; MRPC 1.15(g) requires advance fees and expenses to be deposited in a client trust account, and a footnote explained the lawyer cannot cure this by depositing only the lawyer's share, because the company's retained portion was also advance fees. The arrangement also impeded the lawyer's ability to assess competence (MRPC 1.1) and conflicts (MRPC 1.7 through 1.11) before forming the relationship, since those determinations normally precede engagement; where the lawyer had to decline or withdraw under MRPC 1.16(a), subsection (d) required refunding any unearned advance payment, including the company's share, and it was unclear how the lawyer could comply if the company held or had taken its cut, or how money would be refunded if a coupon went unredeemed.

In practice

The opinion holds that, under the Michigan rules as they stood at the time of the opinion, a lawyer may not participate in a daily-deal or coupon arrangement in which a nonlawyer vendor retains a percentage of the price paid for legal services, because that retention is fee sharing prohibited by MRPC 5.4(a). The opinion also identifies, as independent obstacles, the trust-account requirement of MRPC 1.15(g) for advance fees and the refund duty of MRPC 1.16(d) when the lawyer must decline a matter for competence or conflict reasons or when a coupon is never redeemed.

Common questions

Q: Can a lawyer offer legal services through a Groupon-style daily-deal coupon?

A: Per the opinion, no, where the vendor keeps a percentage of the purchase price. The Committee concluded that retention is fee sharing with a nonlawyer prohibited by MRPC 5.4(a), and called the arrangement more like fee sharing than advertising.

Q: Is the coupon money an advance fee that has to go into a trust account?

A: The opinion concluded that buying a coupon is an advance payment of unearned fees, so MRPC 1.15(g) requires deposit in a client trust account; because payment went to the company, and the company's retained share is also advance fees, the lawyer could not comply by depositing only the lawyer's portion in IOLTA.

Q: What happens if the lawyer must decline the matter or the coupon is never redeemed?

A: The opinion concluded that under MRPC 1.16(d) the lawyer must refund the entire unearned advance, including the company's share, and that it is unclear how the lawyer could do so if the company holds or has taken its cut, and likewise unclear how unredeemed coupon money would be refunded.

Q: Can a lawyer screen for competence and conflicts under this arrangement?

A: The opinion concluded the arrangement impedes the lawyer's ability to determine competence (MRPC 1.1) and conflicts (MRPC 1.7 through 1.11) before the relationship forms, since the consumer prepays without the lawyer first consulting to make those determinations.

Background and rules framework

The opinion interprets MRPC 5.4(a) (sharing legal fees with a nonlawyer; Model Rule 5.4) as the controlling prohibition, and MRPC 7.2 (advertising; no paying others to channel work; Model Rule 7.2) to distinguish advertising. It also applies MRPC 1.15(g) (advance fees and expenses to a client trust account; Model Rule 1.15), MRPC 1.16(d) (refund of unearned fees on declining or terminating; Model Rule 1.16), MRPC 1.1 (competence; Model Rule 1.1), MRPC 1.7 through 1.11 (conflicts; Model Rules 1.7-1.11), and MRPC 1.6 (confidentiality; Model Rule 1.6).

Citations and references

Rules of Professional Conduct:

• MR 5.4 / MRPC 5.4(a) (sharing legal fees with a nonlawyer)
• MR 7.2 / MRPC 7.2 (advertising; no paying to channel work)
• MR 1.15 / MRPC 1.15(g) (advance fees and expenses to a client trust account)
• MR 1.16 / MRPC 1.16(d) (refund of unearned fees)
• MR 1.6 / MRPC 1.6 (confidentiality of information)
• MRPC 1.1 (competence); MRPC 1.7-1.11 (conflicts of interest)

See also

• Mich Ethics Op. RI-163: Donating Part of a Fee to Charity
• Mich Ethics Op. R-18: Group TV Advertising Schemes
• Mich Ethics Op. RI-356: Third-Party Fee Lender Auto-Debits
• Mich Ethics Op. RI-189: No Avoiding the Trust Account

Source

• Landing page: https://www.michbar.org/opinions/ethics/numbered_opinions?OpinionID=1230&Type=6

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

RI-366

January 24, 2014

SYLLABUS

A lawyer's participation in a marketing arrangement in which consumers purchase coupons for legal services from a vendor that retains a portion of the purchase price would entail an impermissible sharing of fees with a nonlawyer and, on that basis, is unethical pursuant to MRPC 5.4.

In addition, the proposed arrangement would constrain a lawyer from taking the necessary steps to ensure that the lawyer ethically may represent the person before receiving either information made confidential by MRPC 1.6 or an advance payment of fees and expenses or both; would subvert compliance with MRPC 1.15(g), which requires the deposit of legal fees and expenses paid in advance in a client trust account; and would impede compliance with MRPC 1.16(d) under circumstances in which monies representing a prepayment of fees and expenses must be fully refunded because they have not been earned.

References: MRPC 1.1, 1.6, 1.7, 1.8, 1.9, 1.10, 1.11, 1.15(g), 1.16(d), 5.4, 7.2

TEXT

This opinion addresses whether a lawyer's participation in coupon-type marketing is ethical.

A lawyer has been approached by a company (the "Company") which has set up a network of vendors consisting of lawyers who agree to sell specified legal services at a set price. If a sufficient number of consumers purchase a coupon during a limited period of time, each consumer can use the coupon to obtain the product by presenting the coupon within a prescribed period of time. Payment is made to the Company by credit card. The Company extracts a percentage of the purchase price paid for each coupon, with the balance being paid to the lawyer vendor.

Because the Company proposes to receive and retain a portion of the purchase price, it must be determined whether this type of marketing arrangement constitutes fee sharing with a nonlawyer, which is impermissible under MRPC 5.4 except in specific circumstances, none of which are applicable, or advertising, which is permissible so long as the advertising activities comply with the applicable Michigan Rules of Professional Conduct.1

We conclude that, because the fee paid to the Company is tied directly to each purchase of a coupon and is derived as a percentage of the money paid for the coupons, this type of marketing arrangement is more like fee sharing than advertising. Therefore, this type of marketing arrangement violates MRPC 5.4(a)'s prohibition against fee sharing with nonlawyers.

While a lawyer's participation in this type of marketing should not be undertaken because of the prohibition against fee sharing with a nonlawyer alone, we note that there are additional ethical concerns raised by the proposed arrangement.

By purchasing a coupon from the Company, the person is making advance payment of legal fees and expenses—that is, making a payment of fees and expenses that have not yet been earned. However, payment is made to the Company, not the lawyer. MRPC 1.15(g) provides that "[l]egal fees and expenses that have been paid in advance shall be deposited in a client trust account and may be withdrawn only as fees are earned or expenses incurred."2 A lawyer may not agree to allow the tender of advance legal fees or expenses into the Company's account, because doing so violates MRPC 1.15(g)'s requirement that legal fees and expenses paid in advance be deposited in a client trust account.

Additionally, this type of marketing arrangement raises concerns about a lawyer's ability to appropriately determine as to any individual purchaser of a coupon whether the lawyer is competent to undertake the matter and whether the lawyer has any conflicts of interest that would preclude undertaking the matter. At the outset of the lawyer-client relationship, a lawyer must conclude that he or she is competent to handle the matter pursuant to MRPC 1.1 and that taking on the matter will not violate the rules governing conflicts of interest, MRPC 1.7 through 1.11. These determinations by a lawyer are typically made based upon an exchange of information between the lawyer and a prospective client before a lawyer-client relationship is established. When, as here, a prospective client pre-pays for legal services from a lawyer without permitting the lawyer to consult with the client to make these determinations, MRPC 1.16, which discusses declining or terminating the lawyer-client relationship, may be implicated. A lawyer presented with a coupon who ascertains that he or she is not competent to handle the matter or is precluded from doing so because of a conflict of interest under MRPC 1.7 or MRPC 1.9 must decline or terminate the representation pursuant to MRPC 1.16(a)(1).

In circumstances where a lawyer must decline a representation or withdraw pursuant to MRPC 1.16(a), subsection (d) identifies the necessary actions to protect the client's interests, including the return of fees. Under (d), the lawyer must refund "any advance payment of fee that has not been earned."

Under circumstances in which a lawyer must decline a prospective representation generated by the proposed marketing arrangement for any reason, including concerns about competence or conflicts, the lawyer has a duty to refund the entire fee, including the Company's share, to the consumer. Regardless of whether the Company is holding the entire advance fee, or the Company has already transmitted fees to the lawyer, less the Company's share, it is unclear how the lawyer could comply with the obligations of MRPC 1.16(d) if the lawyer must decline a potential representation generated by this type of marketing.

Moreover, it is unclear how the money paid in advance is to be refunded if the coupon is not presented for redemption within the time allotted. Again, because the fees have not been earned, MRPC 1.16(d) would require they be remitted in toto.

In summary, a lawyer's participation in a marketing arrangement in which consumers purchase coupons for legal services from a vendor that retains a portion of the purchase price would entail an impermissible sharing of fees with a nonlawyer and, on that basis, is unethical. In addition, the proposed arrangement would constrain a lawyer from taking the necessary steps to ensure that the lawyer ethically may represent the person before receiving either information made confidential by MRPC 1.6 or an advance payment of fees and expenses or both; would subvert compliance with MRPC 1.15(g), which requires the deposit of legal fees and expenses paid in advance in a client trust account; and would impede compliance with MRPC 1.16(d) under circumstances in which monies representing a prepayment of fees and expenses must be fully refunded because they have not been earned.

1 See MRPC 7.2. A comment to MRPC 7.2 provides that a lawyer "is not permitted to pay another person for channeling professional work."

2 We note that the legal fees and expenses paid in advance would include the amount paid to the Company. Because the fees and expenses at issue include the portion retained by the Company before the lawyer received any money, the problem is not avoided by the lawyer depositing into an IOLTA account the portion the lawyer receives.