Ezel / Ethics Opinions / NYSBA
NYSBA 2004-11-05

Can a lawyer pay a marketing company a flat fee for a bundle of pre-screened client leads, here for federal tax-relief clients?

Short answer: No. Paying a marketing organization for leads to potential clients is compensation to obtain employment, which DR 2-103(B) prohibits, and neither of that rule's narrow exceptions applies.
Currency note: this opinion is from 2004
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Disclaimer: Advisory only. Not binding precedent.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NY State Bar Ethics Opinion 779: Buying bundles of client leads from a marketing company

Short answer: A lawyer may not pay a marketing organization a fee for a bundle of pre-screened client leads, because that payment is compensation to obtain employment, prohibited by DR 2-103(B), and neither statutory exception applies.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

View original opinion

Plain-English summary

A marketing organization advertised nationally for customers needing federal income tax reduction services, collected intake data, and screened files for likely IRS relief. It offered New York attorneys bundles of 20 pre-screened leads for a $500 sign-up fee plus $1,400 per bundle, would arrange for the customer to sign a power of attorney and the attorney's retainer, and would collect and forward a suggested partial fee. If a customer did not proceed, the $1,400 was not refunded. The committee was asked whether a lawyer could ethically participate.

The committee first establishes that the work is the practice of law when done by a lawyer holding himself out as a lawyer, even though non-lawyer CPAs and enrolled agents could perform tax services without engaging in unauthorized practice. Because the lawyer's services here constitute the practice of law, the Code governs.

The arrangement is then analyzed under DR 2-103(B), which bars a lawyer from compensating or giving anything of value to a person or organization to recommend or obtain employment, subject to two narrow exceptions: referrals to a non-legal professional under a DR 1-107 contractual relationship (with no monetary consideration or fee sharing for the referral), and the usual dues of a qualified legal assistance organization or referral fees to another lawyer under DR 2-107. The committee concludes the payments are compensation "to recommend or obtain employment by a client," neither exception applies, and the arrangement is therefore improper. It analogizes to N.Y. State 741 (business networks requiring reciprocal referrals) and distinguishes N.Y. State 705, which permitted a tax-reduction company acting as the client's agent to engage a lawyer and pay a portion of the client's payment, only where the company's own fee was separate and the lawyer was not paying for referrals.

In practice

Under the New York Code as it stood at the time, the opinion holds that paying a flat per-bundle fee for pre-screened client leads is buying clients, which DR 2-103(B) forbids. The committee's reasoning turns on characterizing the payment as compensation to obtain employment, then checking the rule's two exceptions and finding neither fits: there is no DR 1-107 non-legal-professional referral relationship, and the marketer is not a qualified legal assistance organization or a lawyer entitled to a DR 2-107 referral fee. The committee distinguishes N.Y. State 705 on the ground that there the company acted as the client's agent and the lawyer was not paying for referrals.

Common questions

Q: Can a lawyer pay a company for a list of pre-screened potential clients?

A: No. The committee concludes the per-bundle and sign-up fees are compensation to obtain employment by a client, which DR 2-103(B) prohibits.

Q: Does it matter that non-lawyers could perform the same tax work?

A: No. The committee holds that when a lawyer holds himself out as a lawyer and performs the work, it is the practice of law and the Code applies, regardless of whether non-lawyers could do it.

Q: Do any exceptions to DR 2-103(B) save the arrangement?

A: No. Neither the DR 1-107 non-legal-professional referral exception nor the DR 2-107 qualified-legal-assistance-organization and lawyer-referral-fee exception covers paying a marketer for leads.

Q: How is this different from N.Y. State 705, which allowed a company to engage a lawyer for its customers?

A: In N.Y. State 705 the company acted as the client's agent and kept its own fee separate from the lawyer's, and the lawyer was not paying for referrals. Here the lawyer pays the marketer directly for leads, which the committee treats as paying for referrals.

Background and rules framework

The opinion applies New York's former Code of Professional Responsibility. DR 2-103(B) prohibits compensating a person or organization to recommend or obtain employment (a facet of Model Rule 7.2's restrictions on paying for recommendations), with exceptions tied to DR 1-107 non-legal-professional referral relationships and DR 2-107 referral fees and qualified-legal-assistance-organization dues. The committee also touches on the line between the practice of law and non-legal services and the policies, reflected in Model Rule 5.4, against arrangements that let non-lawyers direct the lawyer's clientele for a fee.

Citations and references

Rules of Professional Conduct:

  • MR 7.2 (payment for recommendations; lawyer referral services); NY DR 2-103(B)
  • MR 5.4 (professional independence); NY DR 1-107, DR 2-107

Other opinions cited:

  • N.Y. State 741 (2001): a lawyer may not participate in a business network requiring reciprocal referrals
  • N.Y. State 705 (1998): distinguished; a tax-reduction company acting as the client's agent may engage a lawyer where the company's fee is separate and the lawyer is not paying for referrals
  • N.Y. State 557 (1984) and N.Y. State 662 (1994): services that constitute the practice of law when performed by a lawyer holding himself out as such
  • ABA Formal Op. 297 (1961): a lawyer cannot escape ethical rules by announcing he acts as a layman

See also

Source