Can a firm pay a for-profit marketing company an annual fee to advertise its services to a company's employees at a reduced rate?

Plain-English summary

A firm asked whether it could pay a contractual annual fee (1,200 dollars) to participate in what it called a "lawyer referral service," actually a for-profit advertising and marketing agency, to market its wills and estate planning services to the employees of a for-profit medical entity. The agency would use the medical entity's internal channels (employee bulletin boards and the like) to advertise the firm's services, available only to those employees, at a "reduced" rate. The committee assumed the firm was the only participating firm.

The committee drew on its Opinion 06-01, which permitted participation in a not-for-profit lawyer referral service but reiterated that lawyers may not pay a for-profit referral service. Rule 7.2(d) bars giving anything of value for recommending the lawyer's services, with narrow exceptions: paying the reasonable cost of permitted advertising, paying the usual charges of a not-for-profit lawyer referral service or legal service organization, and paying for a law practice under Rule 1.17. The question was whether the agency was a for-profit referral service under Rule 7.2(d)(2) or merely an advertiser.

The committee concluded it was a referral service. Quoting the comment to Rule 7.2 (a lawyer may not pay another for "channeling professional work") and authority from Arizona, Texas, and Nebraska, it explained that providing the firm's name with the claim that the firm can meet the employees' needs, in exchange for a fee, is the essence of a referral. The arrangement targeted a defined group with a reduced rate not available to the public, which has the trappings of a referral rather than advertising to the public at large. Because the referral service was for-profit and the firm was giving value for the referral, the committee held the arrangement is prohibited under Rule 7.2(d)(2). It added that a lawyer may pay the reasonable costs of permitted advertising under Rule 7.2(d)(1), but may not pay another to advertise and then refer clients.

In practice

This 2008 opinion applies North Dakota Rule of Professional Conduct 7.2. Under that rule, the committee held that paying a for-profit "lawyer referral service" an annual fee to market the firm's services to a select group of consumers violates Rule 7.2(d)(2), which permits paying only a not-for-profit lawyer referral service. The committee held the arrangement was a referral, not mere permitted advertising, because the firm was singled out to be recommended to a defined group at a reduced rate not available to the public, and giving value for that recommendation is what Rule 7.2(d) prohibits. The committee distinguished paying the reasonable costs of advertising to the public at large, which Rule 7.2(d)(1) allows.

Common questions

Q: Can a firm pay a for-profit company to market it to a company's employees?

A: Not in this form. The committee concluded that paying a for-profit "lawyer referral service" to steer a select group of employees to the firm violates Rule 7.2(d)(2), which permits paying only a not-for-profit referral service.

Q: What separates a paid referral from permitted advertising?

A: The committee said providing the firm's name with a claim that it can meet a consumer's needs, in exchange for a fee, is a referral. Marketing exclusively to a defined group at a rate not offered to the public looked like a referral, not advertising to the public at large.

Q: Can a lawyer pay for advertising at all?

A: Yes. The committee noted Rule 7.2(d)(1) lets a lawyer pay the reasonable costs of permitted advertising, but a lawyer may not pay another to advertise and then refer clients to the lawyer.

Background and rules framework

The opinion interprets North Dakota Rule of Professional Conduct 7.2 (Model Rule 7.2, advertising and communications about a lawyer's services). Rule 7.2(d) generally bars giving value for recommending the lawyer's services, allowing payment for the reasonable cost of permitted advertising, the usual charges of a not-for-profit lawyer referral service, and the purchase of a practice under Rule 1.17. The opinion builds directly on SBAND Opinion 06-01 and draws on opinions from Arizona, Texas, and Nebraska distinguishing referral services from advertising.

The opinion is issued under North Dakota Rule for Lawyer Discipline 1.2(B), the safe-harbor provision protecting good-faith reliance on a written ethics-committee opinion.

Citations and references

Rules of Professional Conduct:

• Model Rule 7.2 / N.D.R. Prof. Conduct 7.2(d) (paying for referrals; not-for-profit referral services)
• Model Rule 1.17 / N.D.R. Prof. Conduct 1.17 (sale of a law practice; referenced in Rule 7.2(d)(3))
• N.D.R. Lawyer Discipline 1.2(B) (safe harbor for reliance on a committee opinion)

Cases:

• Disciplinary Board v. McCray, 2008 ND 162 (potential Rule 7.2(d) violation for giving value to recommend a lawyer's services)

Other opinions cited:

• SBAND Opinion 06-01 (participation in a not-for-profit lawyer referral service)
• State Bar of Arizona Ethics Ops. 05-08 and 06-06; Texas Ethics Op. 573 (2006); Nebraska Ethics Advisory Op. 89-3 (referral services vs. advertising)

See also

• SBAND Ethics Op. 06-01: Participation in a Lawyer Referral Service
• AL Ethics Op. 1991-43: For-Profit Referral Hotline
• ABA Formal Op. 474: Referral Fees and Conflicts

Source

• Landing page: https://www.sband.org/page/ethics_opinions
• Original PDF: https://cdn.ymaws.com/www.sband.org/resource/resmgr/docs/for_lawyers/opinion_08-06.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

STATE BAR ASSOCIATION OF NORTH DAKOTA
ETHICS COMMITTEE

OPINION NO 08-06

J. Introduction

The Committee has received a request from a Law Firm (“the Firm”) to determine whether
the North Dakota Rules of Professional Conduct permit participation in a “‘lawyer referral
service’”! whereby the Firm would pay an annual fee in exchange for the “ ‘lawyer referral
service’” performing advertising and marketing services to employees of a medical entity. The
Committee concludes that the proposed arrangement would violate Rule 7.2(d), North Dakota R.

Prof. Conduct.

II. Facts

The Firm inquires whether it would be permissible under the North Dakota Rules of

293

Professional Conduct to pay a contractual fee to participate in a “’lawyer referral service’” to
advertise and market its services in wills and estate planning to employees of a for-profit medical
entity. An outside for-profit “advertising/marketing agency” proposes to “administer” the
advertising and marketing to the employees through the use of the medical entity’s imternal
advertising sources (internal online employee bulletin boards and the like). The advertisements

would only be available to the employees. The advertisements would specifically market the

Firm’s services in wills and estate planning and would advertise those services at a “specified

' The Firm’s letter requesting this opinion refers to both a “lawyer referral service” and to an “advertising/marketing
agency” administering a advertising and marketing program to certain individuals as described herein.

‘reduced’ rate.” The Committee assumes that the Firm is the only participating firm, see n.3,
infra.

II. Discussion

In Opinion 06-01 the Committee considered a similar issue. In that Opinion, the question
was whether Rule 7.2 of the North Dakota Rules of Professional Conduct prohibited a lawyer
from participating in a lawyer referral service that was operated by a non-profit corporation when
the lawyer fulfilled certain conditions imposed by the referral service.

Rule 7.2, N.D. Prof. Conduct provides in relevant part:

(a) Subject to the requirements of Rule 7.1 and 7.3, a lawyer may market
and advertise legal services through media, including published and on-
line directories; newspapers, newsletters and other periodicals; outdoor
advertising; electronic advertising, including radio, television, video and
the Internet; and through text-based communications including written
correspondence and e-mail.

(d) A lawyer shall not give anything of value to a person for
recommending the lawyer's services, except that a lawyer may

(1) pay the reasonable costs of advertisements or communications
permitted by this Rule;

(2) pay the usual charges of a not-for-profit lawyer referral service or legal
service organization; and

(3) pay for a law practice in accordance with Rule 1.17

The Committee concluded in Opinion 06-01 that participation was permissible under Rule
7.2(d) so long as all the entities constituting the lawyer referral service operated as not-for-profit
and the referral service complied with all other applicable rules of professional conduct.
However, the Committee also noted that lawyers are prohibited from paying a for-profit lawyer

referral service. Id. at p. 6 (citing State Bar of Arizona Ethics Opinion 05-08).

Here, the Firm notes in its letter requesting this Opinion that it questions the propriety of

participating in a “‘lawyer referral service’” operated by a for-profit “advertising/marketing
agency” that was retained by medical entity (also for-profit). This analysis turns on whether the
“advertising/marketing agency” is a for-profit “lawyer referral service” under Rule 7.2(d)(2) or is
merely providing advertising services in exchange for the annual fee.

The Comment to Rule 7.2, N.D.R. Prof. Conduct states that while a lawyer is permitted
to pay for advertising permitted under the rules of professional conduct, a lawyer is “not
permitted to pay another person for channeling professional work.” See e.g., Disciplinary Bd. v.
McCray, 2008 ND 162, J 51(Crothers, J. concurring in part and dissenting in part)(finding
potential violations of Rule 7.2(d) for giving value to a person to recommend lawyer’s services).
This is the essence of a referral service - a third party is paid for channeling prospective clients to
a lawyer. As recognized by the State Bar of Arizona, a referral service is any organization that
holds itself out to the public as a lawyer referral service. State Bar of Arizona Ethics Opinion
06-06 (citing to analogue of N.D.R. Prof. Conduct 7.2).

The comment to the ABA Model Rule 7.2 adds that “referral services are understood by
laypersons to be consumer-oriented organizations that provide unbiased referrals to lawyers with
appropriate experience in the subject matter of the representation. . . .” In Arizona’s Ethics
Opinion 06-06, the bar recognized that “[i]t is the act of providing the name of an attorney who
the provider claims would meet the client’s needs that constitutes a referral.”

In Opinion 06-01 the Committee noted that even where lawyers pay a fee to be listed in a

“directory of lawyers” where the “directory” was tied to a lawyer referral service would involve

• The “directory of lawyers” was open to all attorneys and law firms in North Dakota, subject to an annual fee of not
  more than $1000.

giving value in order to receive referrals, which is clearly prohibited under N.D.R. Prof. Conduct
7.2(d). Id. at p. 5.

Here, the proposed arrangement would involve giving value (1,200 dollar annual fee) in
exchange for the specific targeting of a specified group of individuals for “advertising” and
“marketing.” Moreover, the targeted group of individuals would be offered a specified
“reduced” rate for legal services and presumably will be advised of the Firm’s expertise in the
area of wills and estate planning.’ The act of providing the name of the Firm along with the
claim that the Firm’s attorneys will be able to meet an employee’s will and estate planning needs
in exchange for a fee constitutes a referral. State Bar of Arizona Opinion 06-06. Accordingly,
since the “lawyer referral service” is for-profit and the arrangement involves giving value for the
referral, the proposed arrangement is prohibited under Rule 7.2(d)(2), N.D.R. Prof. Conduct.

Nor does the Committee believe that the proposed arrangement would merely be
advertising. Here, the Firm’s wills and estate planning services would not be marketed or
recommended to the public at large. Instead, the Firm presumably was chosen by the “lawyer
referral service” as an appropriate firm to recommend exclusively to the medical entity’s
employees. See Texas Ethics Opinion 573 (2006)(a referral service is one that selects or
recommends lawyers). As the Committee implicitly recognized in Opinion 06-01, specifically
identified consumers who are directed to specific lawyers has the trappings of a referral service
and not an advertising service. Id. at p. 6.

Moreover, a lawyer may not pay another to advertise and then refer clients to the lawyer.
Id. (citing Nebraska Ethics Advisory Opinion No. 89-3)(stating that a lawyer may pay for self-

advertising costs, a lawyer may not pay another to advertise and then refer clients to him/her.) It

3 The Committee also assumes that no other law firm will be involved in the arrangement.

is the Committee’s opinion that the “lawyer referral service” will be referring clients to the Firm
by virtue of its arrangement to market the Firm’s wills and estate planning services at a reduced
rate not available to the public at large. See Arizona’s Ethics Opinion 06-06, (stating “‘the act of
providing the name of an attorney who the provider claims would meet the client’s needs”
constitutes a referral).

While advertising is permitted under the Rules of Professional Conduct, Rule 7.2(d)(1)
only permits a lawyer to pay “the reasonable costs of advertisements” permitted under the rule.
The Committee’s opinion is that the proposed arrangement does not comprise simply advertising
but instead involves giving value for recommending the Firm’s services to a select group of
individuals.

IV. Conclusion

The Committee concludes that the proposed arrangement would violate Rule 7.2(d)(2),
N.D.R. Prof. Conduct.

This Opinion is provided pursuant to Rule 1.2(B) of the North Dakota Rules for Lawyer
Discipline.

This Opinion was drafted by Joseph A. Wetch, J unanimously approved by

Committee on November 17, 2008.

Dann Greenwood, Chair