Can a New Jersey lawyer participate in online legal-services platforms like Avvo, LegalZoom, or Rocket Lawyer?

Plain-English summary

A bar association asked whether it is ethical for lawyers to participate in online, nonlawyer, corporately owned services offering legal services to the public, naming Avvo, LegalZoom, and Rocket Lawyer. The inquiry was decided jointly by the Advisory Committee on Professional Ethics, the Committee on Attorney Advertising, and the Committee on the Unauthorized Practice of Law.

For Avvo, the Committees held that New Jersey lawyers may not participate. Under Avvo Legal Services, the user pays Avvo a fixed fee for a defined legal service, the participating lawyer performs the service, and Avvo then collects a "marketing fee" that varies with the price of the service. The Committees found this is impermissible fee sharing with a nonlawyer under RPC 5.4(a), because the lawyer pays a portion of the earned legal fee to Avvo. The label "marketing fee" does not control; the Committees compared In re Weinroth and In re Maran, where disguised referral payments were treated as what they were. They also found the payment to be an impermissible referral fee under RPC 7.2(c) and 7.3(d): it does not resemble an advertising cost (which would be fixed, not tied to the type or price of the matter), and is paid only after a client retains the lawyer. The Committees rejected Avvo's arguments that the fee was advertising, that the model did not impair professional judgment under RPC 5.4(c), and that the First Amendment protected the arrangement.

For LegalZoom and Rocket Lawyer, the Committees found a different model. Those companies appear to offer legal service plans: subscribers pay a monthly fee to the company, the company pays participating lawyers (often a per-capita amount), and the lawyers' fees are not shared. Because the subscription fees are not paid to the lawyers, there is no fee sharing, and the companies are not charging participating lawyers a per-case fee, so they are not impermissible referral services. The problem is RPC 7.3(e)(4): a legal service plan must satisfy several conditions and must be registered with the Supreme Court (Administrative Office of the Courts). Neither company had registered its plan, so New Jersey lawyers may not provide legal services to their members.

The Committees noted that other states reached the same conclusion on Avvo-type "marketing fees," citing Ohio Opinion 2016-3, South Carolina Ethics Advisory Opinion 16-06, and Pennsylvania Formal Opinion 2016-200.

In practice

The opinion holds that, under the New Jersey rules as they stood at the time, a lawyer may not participate in Avvo's legal services (Avvo Advisor and Avvo Legal Services), because the per-service "marketing fee" is fee sharing with a nonlawyer (RPC 5.4(a)) and an impermissible referral fee (RPC 7.2(c), 7.3(d)). Per the opinion, the LegalZoom and Rocket Lawyer offerings are legal service plans that avoid those problems, but a New Jersey lawyer may not serve their members while the plans remain unregistered under RPC 7.3(e)(4)(vii). The opinion also concludes that Avvo's holding of the fee before transfer does not violate the IOLTA rule (Rule 1:28A-2), since New Jersey lawyers may deposit advance fees in an operating account absent agreement otherwise.

Common questions

Q: Can a New Jersey lawyer take cases through Avvo Legal Services?

A: No. The Committees held that Avvo's "marketing fee" is impermissible fee sharing with a nonlawyer under RPC 5.4(a) and an improper referral fee under RPC 7.2(c) and 7.3(d).

Q: Why is the "marketing fee" treated as a referral fee rather than advertising?

A: Because it varies with the price of the legal service and is paid only after a client retains the lawyer. The Committees found that, unlike a true advertising cost, it bears no relationship to advertising.

Q: Can a New Jersey lawyer join LegalZoom or Rocket Lawyer plans?

A: Not as offered. The Committees found those are legal service plans that must be registered with the Administrative Office of the Courts under RPC 7.3(e)(4)(vii); neither was registered, so participation is not permitted.

Q: Did paying through Avvo's trust-then-transfer arrangement violate the trust-account rule?

A: No. The Committees held that the arrangement does not violate Rule 1:28A-2, because New Jersey lawyers may deposit advance fee payments in an operating account absent a contrary agreement.

Background and rules framework

The opinion applies RPC 5.4(a) (a lawyer shall not share legal fees with a nonlawyer; cf. Model Rule 5.4(a)), RPC 5.4(c) (a lawyer shall not let a person who pays for legal services direct the lawyer's professional judgment; cf. Model Rule 5.4(c)), RPC 7.2(c) (a lawyer shall not give anything of value for recommending the lawyer's services, with exceptions; cf. Model Rule 7.2), RPC 7.3(d) (no compensation to secure employment or reward a recommendation, with exceptions), and RPC 7.3(e)(4) (conditions for, and registration of, legal service plans). It also addresses Rule 1:28A-2 (IOLTA trust accounts).

Citations and references

Rules of Professional Conduct:

• RPC 5.4(a) (sharing legal fees with a nonlawyer); cf. Model Rule 5.4(a)
• RPC 5.4(c) (third party directing professional judgment); cf. Model Rule 5.4(c)
• RPC 7.2(c) (giving value for recommending services); cf. Model Rule 7.2
• RPC 7.3(d) and 7.3(e)(4) (compensation for recommendations; legal service plans and registration)

Court Rules:

• Rule 1:28A-2 (IOLTA trust accounts)

Cases:

• In re Weinroth, 100 N.J. 343 (1985), disguised referral fee
• In re Maran, 80 N.J. 160 (1979), improper referral fee in the form of an inflated bill
• In re Stern, 92 N.J. 611 (1983), advance fees may be deposited in an operating account

Other opinions cited:

• Joint ACPE Opinion 716 / UPL Opinion 45 (June 2009): referral fees
• Ohio Board of Professional Conduct Opinion 2016-3: Avvo "marketing fee" is a referral fee
• South Carolina Ethics Advisory Opinion 16-06: fee sharing and improper referral fee
• Pennsylvania Formal Opinion 2016-200: impermissible fee sharing

See also

• NY State Bar Op. 1132: Paying Avvo's Legal Services Marketing Fee
• SC Bar Ethics Op. 16-06: Online Fee-Split Referrals
• NY State Bar Op. 1131: Paying a For-Profit Lead Generation Service

Source

• Landing page: https://www.njcourts.gov/sites/default/files/notices/2017/06/n170621f.pdf
• Original PDF: https://www.njcourts.gov/sites/default/files/notices/2017/06/n170621f.pdf

Original opinion text

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

Issued by ACPE, CAA, & UPL June 21, 2017

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
COMMITTEE ON ATTORNEY ADVERTISING
COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW

Appointed by the Supreme Court of New Jersey

ACPE JOINT OPINION 732 / CAA JOINT OPINION 44 / UPL JOINT OPINION 54

Lawyers Participating in Impermissible Lawyer Referral Services and Providing Legal Services for Unregistered Legal Service Plans - Avvo, LegalZoom, Rocket Lawyer, and Similar Companies

The Advisory Committee on Professional Ethics received an inquiry from a bar association requesting a formal opinion on "whether it is ethical for lawyers to participate in certain online, non-lawyer, corporately owned services that offer legal services to the public." Inquirer stated that three companies (Avvo, LegalZoom, and Rocket Lawyer) are soliciting New Jersey lawyers to provide legal services to customers of the companies. The inquiry was jointly considered by the Advisory Committee on Professional Ethics, Committee on Attorney Advertising, and Committee on the Unauthorized Practice of Law. The Committees find that New Jersey lawyers may not participate in the Avvo legal service programs because the programs improperly require the lawyer to share a legal fee with a nonlawyer in violation of Rule of Professional Conduct 5.4(a), and pay an impermissible referral fee in violation of Rule of Professional Conduct 7.2(c) and 7.3(d). The Committees further find that LegalZoom and Rocket Lawyer appear to operate legal service plans through their websites but New Jersey lawyers may not participate in these plans because they are not registered with the Administrative Office of the Courts in accordance with Rule of Professional Conduct 7.3(e)(4)(vii).

Inquirer asked four specific questions: (1) Does a lawyer's participation in these services constitute impermissible fee sharing with nonlawyers in violation of RPC 5.4(a)? (2) Does participation interfere with a lawyer's independent professional judgment in violation of RPC 5.4(c)? (3) Are Avvo, LegalZoom, and Rocket Lawyer impermissible attorney referral services in violation of RPC 7.2? (4) Do the services violate Rule 1:28A-2, which requires lawyers to establish an IOLTA account in which to hold client funds until earned, by having a nonlawyer company hold such funds and/or by allowing a nonlawyer company direct access to a lawyer's trust or bank accounts?

The Committees reviewed the websites and public information posted by Avvo, LegalZoom, and Rocket Lawyer, and considered written responses from the companies. Avvo offers two legal services products: Avvo Advisor and Avvo Legal Services. Through Avvo Advisor, users may purchase a 15-minute telephone conversation with a lawyer for a flat fee; the user pays Avvo, Avvo contacts participating lawyers, and the first lawyer who responds gets the job. After the conversation, Avvo deposits the flat fee into the lawyer's bank account and then withdraws a "marketing fee" (currently $10, about 25% of the $39.95 flat fee). Through Avvo Legal Services, users may purchase various legal services for fixed fees paid to Avvo, such as an uncontested divorce or a green card application; when the services are completed, Avvo deposits the fees into the lawyer's bank account and then withdraws a "marketing fee" in set amounts that vary according to the fee charged for the specific legal service.

LegalZoom offers what appear to be legal service plans to users through its website. For Business Advantage Pro, users pay a monthly flat fee subscription and receive legal advice on limited business matters. For Legal Advantage Plus, users pay a monthly flat fee and receive legal advice on various matters such as estate planning, family law, and tax. Under both plans, users receive "unlimited" 30-minute consultations with lawyers. The "Join Our Attorney Network" page states that lawyers do not pay LegalZoom to participate; the monthly subscription fees are retained by LegalZoom. Rocket Lawyer offers what appear to be legal service plans for a monthly flat fee; subscribing users receive limited legal advice on document-related matters (called "document defense"), a "free" 30-minute consultation with a lawyer, and an "ask a lawyer" section. Participating lawyers do not pay Rocket Lawyer but agree to offer a discounted fee for additional services; Rocket Lawyer retains the monthly subscription fees.

The Committees find that the LegalZoom and Rocket Lawyer websites appear to offer legal service plans to paying subscribers, rather than an attorney referral service. Rule of Professional Conduct 7.3(e)(4) governs legal service plans. That Rule permits a "bona fide organization" to "recommend[], furnish[,] or pay[]" for legal services to its "members or beneficiaries" under certain conditions. If the organization is for profit, the legal services cannot be rendered by lawyers "employed, directed, supervised or selected by it." RPC 7.3(e)(4)(i). The participating lawyers must be separate and apart from the organization. RPC 7.3(e)(4)(ii) and (iii). The member or beneficiary must be recognized as the client of the lawyer, not the organization. RPC 7.3(e)(4)(iv). The member must be entitled to select other counsel. RPC 7.3(e)(4)(v). Participating lawyers must not have cause to know the organization is in violation of applicable law. RPC 7.3(e)(4)(vi). Lastly, the organization must register its plan with the Supreme Court (Administrative Office of the Courts, Professional Services). RPC 7.3(e)(4)(vii).

LegalZoom submitted a response stressing that its employees do not provide legal advice; it merely offers prepaid legal service plans, contracting with a New Jersey law firm and paying a monthly capitated fee per plan member. Rocket Lawyer stated that it offers prepaid legal service plans through independent lawyers who are not employees, and that participating lawyers are paid an undisclosed sum for participation in the "Q&A Service." The LegalZoom and Rocket Lawyer offerings appear to be legal service plans, as they "furnish" and "pay for" limited legal services through outside participating lawyers to "members" who pay a monthly subscription fee. As of the date of this Joint Opinion, however, neither organization has registered a legal service plan with the Administrative Office of the Courts. Therefore, New Jersey lawyers may not provide legal services to members of these unregistered legal service plans. The Avvo plans do not meet the definition for legal service plans; they are pay-for-service plans, with no "members or beneficiaries" to whom legal services are "furnished" and "paid for" through a plan.

The first question asks whether lawyers who participate are engaged in impermissible fee sharing in violation of RPC 5.4(a) ("[a] lawyer shall not share legal fees with a nonlawyer"). The Committees find that the Avvo business model violates RPC 5.4(a). The participating lawyer receives the set price for the legal service, then pays a portion of that amount to Avvo. The label Avvo assigns to this payment ("marketing fee") does not determine its purpose. In re Weinroth, 100 N.J. 343, 349-50 (1985); In re Maran, 80 N.J. 160 (1979). Here, lawyers pay a portion of the legal fee earned to a nonlawyer; this is impermissible fee sharing, prohibited under RPC 5.4(a). See also In re Bregg, 61 N.J. 476 (1972); Joint ACPE Opinion 716/UPL Opinion 45 (June 2009). The Committees further find that the monthly subscription fees paid by consumers to LegalZoom and Rocket Lawyer for the "free" consultations do not violate this Rule, because those fees are not paid to the lawyers providing the service.

The second question asks whether these services unduly interfere with the lawyer's professional judgment in violation of RPC 5.4(c). The Committees disagree that they do; Avvo does not insert itself into the legal consultation in a manner that would interfere with the lawyer's professional judgment, and the limited consultations offered by LegalZoom and Rocket Lawyer are the nature of legal service plans.

The third question asks whether the companies offer impermissible attorney referral services. RPC 7.2(c) provides that a lawyer "shall not give anything of value to a person for recommending the lawyer's services," with exceptions for the reasonable cost of advertising and the usual charges of a not-for-profit lawyer referral service. RPC 7.3(d) prohibits compensating a person or organization to recommend or secure the lawyer's employment, except for permitted public communications and the usual fees of a bar-association-approved referral service. The Committees find that the "marketing fee" lawyers pay Avvo is not for the "reasonable cost of advertising" but is an impermissible referral fee: it "bears no relationship to advertising," varies with the cost of the legal service, and is paid only after the lawyer completes services for a client referred by Avvo. Lawyers may "advertise" on the Avvo website, or pay a set flat amount for "leads," but may not pay a fee in exchange for referral or retention of a client for a specific case. CAA Opinion 43 (June 2011). LegalZoom and Rocket Lawyer offer legal service plans through a different model; participating lawyers do not pay referral fees to those companies.

The fourth question asks whether payment of the legal fee by the user to Avvo violates Rule 1:28A-2. In New Jersey, lawyers are not required to hold advance payment of fees in their trust account absent an agreement with the client; while that is the better practice, they may deposit such monies in their operating account. In re Stern, 92 N.J. 611 (1983). The arrangement by Avvo does not violate Rule 1:28A-2.

The Committees rejected Avvo's further arguments: that it serves a public purpose of improving access to legal services (commendable, but participating lawyers must still adhere to ethical standards); that it is not recommending or referring lawyers (the Committees disagreed, finding Avvo conflates its attorney-referral service with its attorney-directory service); that the "marketing fee" is an advertising cost (the label and timing do not transform a fee that varies with the price of the service into advertising); that its marketing is protected commercial speech (the First Amendment does not protect lawyers who participate in prohibited referral programs or impermissible fee sharing); that fee sharing is only unethical if it compromises professional judgment (New Jersey precedent does not so limit the prohibition; In re Weinroth, supra); and that its "pay-per-action" model is permitted because the user chooses the lawyer (the prohibition does not depend on deception and is unqualified). A pay-per-legal-service fee is a hallmark of an attorney referral service.

The Committees reviewed advisory opinions about Avvo-type companies from other states. Ohio found that the "marketing fee" was a referral fee because it is based on a percentage of the fee for rendering legal services. Supreme Court of Ohio, Board of Professional Conduct, Opinion 2016-3 (June 3, 2016). South Carolina found that the arrangement violates Rule 5.4(a) and Rule 7.2(c), reasoning that "[a] lawyer cannot do indirectly what would be prohibited if done directly." South Carolina Ethics Advisory Opinion 16-06 (July 14, 2016). Pennsylvania also found impermissible fee-sharing and that the "marketing fee" was not the "usual cost of advertising," because "[t]he cost of advertising does not vary depending upon whether the advertising succeeded in bringing in business, or on the amount of revenue generated by a matter." Pennsylvania Bar Association Formal Opinion 2016-200 (September 2016).

In sum, the Committees find that the Avvo website offers an impermissible referral service, in violation of RPC 7.2(c) and 7.3(d), as well as improper fee sharing with a nonlawyer in violation of RPC 5.4(a). LegalZoom and Rocket Lawyer avoid those problems but appear to be offering legal service plans that have not been registered pursuant to RPC 7.3(e)(4)(vii). New Jersey lawyers may not participate in the Avvo legal service programs. In addition, New Jersey lawyers may not participate in the LegalZoom or Rocket Lawyer legal service plans because they are not registered with the New Jersey Supreme Court (Administrative Office of the Courts).