NYSBA October 9, 2012

Can lawyers who own a separate nonlegal business buy marketing leads for that business, even though their law firm could not buy leads for itself?

Short answer: Yes, if the nonlegal entity has no lawyers, operates wholly separately from the firm, and discloses in writing that it provides no legal services. The firm is then not subject to the rules for that entity's services, so the lead purchase does not violate Rule 7.2(a).

Apply this to your situation

This page answers the general question as of 2012. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.

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 Not binding precedent.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 on this page) is the authoritative source for any reliance.

Plain-English summary

The lawyers in a firm want to form a separate entity to provide Social Security Disability Insurance (SSDI) services, which a nonlawyer "Licensed Hearing Representative" is permitted by federal law to handle. The entity would have a different name, facility, letterhead, business cards, phone number, and staff, would employ no lawyers, and would tell customers in writing that the SSDI services "are not legal services and do not come within any attorney-client relationship." The question is whether the entity may buy SSDI "leads" from a marketing organization, given that the firm itself could not buy leads for its law practice.

The committee starts from Rule 7.2(a), which bars a lawyer from compensating a person to recommend or obtain employment by a client, and acknowledges N.Y. State 779 (2004) held a lawyer may not pay a marketing organization for leads to potential clients. The key rule is Rule 5.7 on nonlegal services. Because the SSDI services are ones a nonlawyer may lawfully provide, they are "nonlegal services" under Rule 5.7(c). Since no lawyer or firm provides the services, Rule 5.7(a)(3) controls: a firm that owns an entity providing nonlegal services is subject to the rules for those services only if the recipient could reasonably believe the services are the subject of a client-lawyer relationship.

On the facts, the entity is outwardly separate, avoids reference to the affiliation, and disclaims any attorney-client relationship, so absent other facts (such as perceptible connections or legal-services-style advertising), customers would have no apparent basis to believe they were receiving legal representation. The committee notes Rule 5.7(a)(4) presumes the recipient believes a client-lawyer relationship exists unless the firm advises in writing that the services are not legal services and that no client-lawyer protection applies, made at a time and manner ensuring the recipient understands it; the inquirer proposes exactly that. Because the firm would not be subject to the rules for the entity's services, Rule 7.2(a) does not bar the lead purchase, though the lawyers remain subject to other rules barring illegal or deceptive conduct (Rule 5.7, Comment [4]).

In practice

The opinion holds that, under the New York rules as they stood in 2012, a firm-owned nonlegal entity may buy marketing leads without violating Rule 7.2(a), provided the firm is not subject to the rules for the entity's services. The committee identifies the controlling factor as whether customers could reasonably believe they are in a client-lawyer relationship, which here is negated by the entity's separateness and an effective written disclaimer under Rule 5.7(a)(4); it cautions that lawyers remain bound by rules against illegal or deceptive conduct incidental to owning the entity.

Common questions

Q: Can a law firm's separate nonlegal business pay for marketing leads?

A: Yes, on these facts. Per paragraphs 9 and 10, because the firm is not subject to the rules for the entity's nonlegal services, Rule 7.2(a)'s bar on paying for leads does not apply to the entity's purchases.

Q: What keeps the firm from being governed by the rules for the nonlegal services?

A: An effective written disclaimer and true separateness. Per paragraphs 7 and 8, Rule 5.7(a)(3) applies only if customers could reasonably believe a client-lawyer relationship exists, and Rule 5.7(a)(4) requires a written notice that the services are not legal services.

Q: Does this opinion cover a lawyer working in the nonlegal entity?

A: No. Per the opinion's footnote, different questions would arise if a lawyer participated in providing the SSDI services; the opinion assumes no lawyer does.

Background and rules framework

The opinion interprets New York Rule 5.7 (Model Rule 5.7, responsibilities regarding nonlegal services, including the Rule 5.7(a)(3) reasonable-belief test and the Rule 5.7(a)(4) written-disclaimer condition) and Rule 7.2(a) (Model Rule 7.2, the bar on paying for client recommendations). The analysis turns on whether the firm is "subject to these Rules" for the entity's nonlegal services.

Citations and references

Rules of Professional Conduct:

MR 5.7 / NY Rule 5.7(a)(3), (a)(4), (c) (nonlegal services; reasonable-belief test; written disclaimer)
MR 7.2 / NY Rule 7.2(a) (paying for client recommendations)

Statutes:

42 U.S.C. 406 (recognition of nonlawyer representatives before the Social Security Administration), cited by the inquirer.

Other opinions cited:

N.Y. State 779 (2004): a lawyer may not pay a marketing organization for leads to potential clients.

Source

Landing page: https://nysba.org/ethics-opinion-938/

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