Can a New Jersey lawyer pay a marketing company for client 'leads,' and when does a paid lead become a prohibited referral?

Plain-English summary

Opinion 741, a joint opinion of the Committee on Attorney Advertising (as CAA Opinion 47) and the Advisory Committee on Professional Ethics, responds to an out-of-state marketing company emailing New Jersey lawyers offers to connect them with claimants in specific mass-tort matters at per-claimant prices (for example, $700 for Zantac claimants, $1,800 for Elmiron claimants), while touting an 86% retention rate.

The Committees reaffirm the core rule: RPC 7.3(d) bars a lawyer from compensating or giving anything of value to 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 lawyer referral service. So lawyers may not pay a non-lawyer or marketing company to refer clients, and paying a referral fee is also impermissible fee-sharing under RPC 5.4(a). The opinion cites prior joint opinions (ACPE 732/CAA 44/UPL 54 and ACPE 716/UPL 45) reaching the same conclusion for marketing and loan-modification arrangements.

The opinion then draws the line between a permissible "lead" and a prohibited "referral." Under CAA Opinion 43, a lawyer may pay per lead (a payment for each contact the service sends) but may not pay per client retained. The opinion stresses that labels do not control; a lawyer must look at whether the arrangement is really priced by the likelihood of forming an attorney-client relationship. It identifies signals that a "lead" is a disguised referral: the company emphasizing a high retention rate (showing the price tracks retention rather than mere contact), a price per claimant well above the ordinary market value of a lead, and terms in the contract pointing to the sale of clients rather than leads. The opinion cautions that the risk of violating the Rules is high.

In practice

The opinion holds that, in New Jersey, a lawyer may not pay a marketing company to refer clients (RPC 7.3(d)) and that paying a referral fee is impermissible fee-sharing (RPC 5.4(a)). Per the opinion, a lawyer may pay per lead but not per client retained, and a lawyer considering such a contract must look past the labels to whether the arrangement is priced according to the potential to form an attorney-client relationship. The opinion identifies the company's emphasis on a high retention rate, a price per claimant significantly above ordinary lead value, and contract terms keyed to retention as indicators that the purported "lead" is a disguised referral.

Common questions

Q: Can I pay a marketing company a flat fee for each potential-client 'lead' it sends me?

A: A lawyer may pay per lead, per CAA Opinion 43, but may not pay per client retained. The opinion warns that lawyers must examine whether the "lead" is actually priced by the likelihood of retention, which would make it a prohibited referral.

Q: What makes a 'lead' actually a prohibited referral?

A: The opinion identifies factors: the company touting a high retention rate, a price per claimant significantly above the ordinary market value of a lead, and contract terms suggesting the sale of clients rather than leads.

Q: Why can't I just pay for referrals if the price is fair?

A: The opinion concludes that paying for client referrals violates RPC 7.3(d), and that paying a referral fee is impermissible fee-sharing under RPC 5.4(a), regardless of the amount.

Background and rules framework

The opinion interprets RPC 7.3(d) (no compensation to a person or organization to recommend or secure the lawyer's employment, with limited exceptions) and RPC 5.4(a) (no fee-sharing with non-lawyers), and references RPC 7.1 (permissible public communications). New Jersey's RPC 7.3(d) is the analog to Model Rule 7.2(b) on payment for recommendations. The line between a permissible per-lead payment and a prohibited per-client referral comes from the Committee on Attorney Advertising's Opinion 43.

Citations and references

Rules of Professional Conduct:

• NJ RPC 7.3(d) (no payment to recommend or secure employment; analogous to Model Rule 7.2(b))
• MR 5.4 / NJ RPC 5.4(a) (no fee-sharing with non-lawyers)
• MR 7.1 / NJ RPC 7.1 (permitted public communications)

Other opinions cited:

• Committee on Attorney Advertising Opinion 43 (2011): pay per lead permitted, pay per client retained prohibited
• ACPE Joint Opinion 732 / CAA Joint Opinion 44 / UPL Joint Opinion 54 (June 2017)
• ACPE Joint Opinion 716 / UPL Joint Opinion 45 (June 2009)

See also

• NJ ACPE Op. 740: Non-Legal Companies and Unauthorized Practice
• ABA Formal Op. 465: Daily-Deal Marketing
• ABA Formal Op. 474: Referral Fees and Conflicts

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2021/acp741-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics and Committee on Attorney Advertising, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. Minor spacing artifacts from the source extraction may remain; the linked official source controls.

Appointed by the Supreme Court of New Jersey

JOINT OPINION

Committee on Attorney Advertising Opinion 47

Advisory Committee on Professional Ethics Opinion 741

Lawyers Shall Not Pay For Client Referrals; Purported Leads Offered by Marketing Companies May Be Disguised Referrals

The Committee on Attorney Advertising has been made aware that an out-of-state marketing company is sending emails to New Jersey lawyers offering to connect the lawyers with clients for specific mass tort cases. The emails list prices for claimants starting at $700 for persons adversely affected by the drug Zantac; $500 for persons injured by faulty earplugs made by 3M; $1,000 for persons suffering side effects after hernia mesh surgery, and $1,800 for persons whose eyesight was damaged by the drug Elmiron. The emails also state that the company can provide names of claimants who suffered sex abuse by clergy. The company states that it has an 86% retention rate. As the activity concerns potential violations of the ethics rules governing referrals and fee-sharing, the Committee on Attorney Advertising and the Advisory Committee on Professional Ethics issue this Joint Opinion to remind lawyers that they are prohibited from paying for client referrals, and purported leads offered by marketing companies may be disguised referrals.

This activity raises concerns about violation of Rule of Professional Conduct 7.3(d), which provides

A lawyer shall not compensate or give anything of value to a person or organization to recommend or secure the lawyer's employment by a client, or as a reward for having made a recommendation resulting in the lawyer's employment by a client except that the lawyer may pay for public communications permitted by RPC 7.1 and the usual and reasonable fees or dues charged by a lawyer referral service operated, sponsored, or approved by a bar association.

Accordingly, lawyers may not pay a non-lawyer or marketing company to refer clients to them. ACPE Joint Opinion 732 / CAA Joint Opinion 44 / UPL Committee Joint Opinion 54 (June 2017) (paying a marketing fee to a company that refers clients to lawyers violates RPC 5.4(a) and RPC 7.3(d)). See also ACPE Joint Opinion 716 / UPL Committee Joint Opinion 45 (June 2009) (lawyers may not pay referral fees to loan modification companies to refer clients to them). Further, payment of a referral fee is considered impermissible fee-sharing, in violation of Rule of Professional Conduct 5.4(a).

The Committee on Attorney Advertising, in Opinion 43 (2011), found that lawyers may pay per lead but may not pay per client retained. The Committee stated: The fee scheme imposed by the Internet company here is pay-per-lead, a payment for each contact form the website sends to a participating attorney. The payment is based only on the contact, not on the retention of the attorney by the client or the establishment of an attorney-client relationship.

While New Jersey lawyers may pay per lead, they have an obligation to question whether the marketing company is improperly labelling its services and the lead is really a disguised referral. Lawyers must consider factors that differentiate between a payment per lead and a payment per client, beyond the mere labels used.

The out-of-state company whose emails were reviewed by the Committees touts that its leads have an 86% retention rate. The company's emphasis on a high retention rate demonstrates that its services are priced according to the potential for the establishment of an attorney-client relationship and they are not selling mere leads.

Another factor to consider is the price requested per lead. A high price per claimant supports the notion that the company is selling a client, not a lead on a client. The company charges lawyers $1,800 per Elmiron lawsuit claimant. Most leads do not approach this monetary value. Prices per lead that are significantly higher than the ordinary marketplace value of a lead suggest that the sale is of a client, not a lead.

Other factors become apparent based on an examination of the terms of the sale offered by the marketing company. There may be signals in the contract that support a finding that the sale is of clients, not leads.

Lawyers must be extremely cautious when considering whether to enter into such contracts, as there is a high risk of violating the Rules of Professional Conduct. Purported leads offered by marketing companies may be disguised referrals. Lawyers are prohibited from paying for client referrals, Rule of Professional Conduct 7.3(d), and paying a referral fee is considered impermissible fee-sharing. RPC 5.4(a).