Can a lawyer provide 'prepaid legal services' bundled into a for-profit real estate company's flat-fee package, where the company collects the fee and pays the lawyer a set amount?

Plain-English summary

The inquiring lawyer regularly represents "for sale by owner" (FSBO) real estate sellers and proposed to join a for-profit FSBO listings business. Under the plan, an FSBO seller would pay the listings business a flat fee for a bundle of services, including legal services; the business would pay the lawyer a set amount for the legal services once the seller signed a fee agreement directly with the lawyer. The fee agreement would state the lawyer's set fee, that the business would not direct the lawyer's professional judgment, and that the lawyer and seller were forming a lawyer-client relationship.

The committee said it was strongly concerned the arrangement violates the RPCs, and walked through several rules. On the fee, it noted RPC 1.5(a) requires a reasonable fee, that an unearned flat fee must be considered for refund, and that the lawyer must ensure the flat fee is reasonable in each case. On conflicts, it observed that because the lawyer makes a standing offer to any seller the business contracts with, RPC 1.7(a) and 1.9 could be violated before the lawyer even knows a conflict exists, so a conflict check and pre-disclosure to the client are needed before each representation.

On the structure of the relationship, the committee found the arrangement appears to run afoul of RPC 5.4(b)'s bar on a lawyer forming a partnership with a nonlawyer where one activity is the practice of law, RPC 7.2(b)'s bar on giving value in return for referrals (the lawyer agrees to participate and to offer a reduced flat fee as an incentive), and RPC 5.4(a)'s bar on sharing legal fees with a nonlawyer. It added that the lawyer may be assisting the FSBO business in the unauthorized practice of law, but it declined to decide whether a partnership exists or whether the activity is the practice of law, treating those as legal questions outside its remit. Because the committee found the arrangement violated the RPCs, it declined to reach the second question (about an exclusivity agreement).

In practice

Under this opinion, and under the Washington rules as they stood at the time, a lawyer who bundles legal services into a for-profit listings company's flat-fee package, where the company collects the fee and pays the lawyer a set amount, faces several rule problems the committee identified: the lawyer must still ensure the flat fee is reasonable and run a conflict check before each representation, and the committee concluded the arrangement appears to run afoul of RPC 5.4(b), RPC 7.2(b), and RPC 5.4(a). The committee declined to decide the underlying legal questions of whether the relationship is an unlawful partnership or assists the unauthorized practice of law, and noted that the customer must be told the business is not practicing law or closing the transaction.

Common questions

Q: Does the lawyer still have to make sure the flat fee is reasonable?

A: Yes. The committee said RPC 1.5(a) requires a reasonable fee, that the lawyer must consider refunding an unearned fee, and that the lawyer must ensure the flat fee is reasonable in each case.

Q: Is paying the lawyer through the listings company a fee-sharing problem?

A: The committee said the arrangement appears to run afoul of RPC 5.4(a)'s bar on sharing legal fees with a nonlawyer and RPC 5.4(b)'s bar on forming a partnership with a nonlawyer to practice law; it declined to decide the underlying legal question of whether a partnership exists.

Q: Is the set payment in the bundle a prohibited payment for referrals?

A: The committee said it appears to run afoul of RPC 7.2(b). The lawyer agrees to participate, to be available, and to charge a reduced flat fee as an incentive, which the committee treated as giving value in return for referrals.

Q: What about conflicts of interest?

A: Because the lawyer makes a standing offer to any seller the business contracts with, the committee said RPC 1.7(a) and 1.9 could be violated before the lawyer knows a conflict exists, so a conflict check and pre-disclosure to the client are needed before representing each seller.

Q: Did the committee decide whether this is the unauthorized practice of law?

A: No. It said whether the activity is the practice of law is a legal question it cannot decide, but noted only lawyers (or, for certain real estate documents, Limited Practice Officers) may practice law, and the customer must be told the FSBO business is not practicing law or closing the transaction.

Background and rules framework

The opinion applies several Washington Rules of Professional Conduct: RPC 1.5(a) (Model Rule 1.5; a lawyer's fee must be reasonable); RPC 1.7(a) and RPC 1.9 (Model Rules 1.7 and 1.9; concurrent and former-client conflicts); RPC 5.4(b) (Model Rule 5.4; bar on partnering with a nonlawyer where one activity is the practice of law); RPC 5.4(a) (bar on sharing legal fees with a nonlawyer); and RPC 7.2(b) (Model Rule 7.2; bar on giving anything of value for recommending the lawyer's services). It treats whether the arrangement is a partnership or constitutes the unauthorized practice of law as legal questions it declines to resolve.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Washington RPC 1.5(a) (reasonable fee; refund of unearned flat fee)
• Model Rule 1.7 / Washington RPC 1.7(a) and Model Rule 1.9 / Washington RPC 1.9 (concurrent and former-client conflicts)
• Model Rule 5.4 / Washington RPC 5.4(a), (b) (sharing fees with a nonlawyer; partnership with a nonlawyer to practice law)
• Model Rule 7.2 / Washington RPC 7.2(b) (giving value for referrals)

See also

• ABA Formal Op. 464: Fee Division With Lawyers Who Share With Nonlawyers
• WA Ethics Op. 2146: Nonprofit Lawyer Referral Service
• CA Ethics Op. 1997-148: Lawyer Cooperation With a Nonlawyer Living-Trust Marketer

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1597

Original opinion text

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

Advisory Opinion: 2153
Year Issued: 2007
RPC(s): RPCs 1.5(a), 1.7(a), 1.9, 5.4(a) & (b), & 7.2(b)
Subject: a lawyer providing prepaid legal services as a part of a service package sold by a separate for-profit real estate listing company

I. Facts

The inquirer is a lawyer who regularly represents “for sale by owner” (FSBO) real estate sellers. The inquirer wants to enter into an arrangement with an FSBO listings business. The arrangement has a FSBO seller paying the listing business a flat fee for certain services, including legal services. The inquirer is to be paid a set amount of the fee for the legal services. The FSBO seller is provided with a fee agreement between the inquirer and the FSBO seller that indicates (1) the set amount of the fee the inquirer will receive; (2) the listing business will not direct or regulate the inquirer’s professional judgment; and (3) the inquirer and FSBO seller are creating a lawyer-client relationship, complete with the accompanying confidentiality requirements. If the FSBO seller signs and returns the fee agreement, the listings business pays the set amount to the inquirer; presumably if the FSBO seller does not sign the fee agreement, the amount he paid that related to legal services is returned to him. No other financial transactions will exist between the inquirer and the listings business. The listings business will promote the bundled services package, but not through direct in-person, telephone, or real-time electronic contact.

II. Questions

Does the above arrangement violate the RPCs?

Would the arrangement cause additional violations of the RPC if the inquirer agreed with the listings business not to enter into similar arrangements with other businesses that assist FSBO sellers?

III. Discussion

1. Does the arrangement violate the RPC?

The Committee is strongly concerned that the proposed arrangement violates the RPCs as set forth below:

a. The arrangement anticipates a fixed fee agreement. RPC 1.5(a) requires that a lawyer’s fee be reasonable. Moreover, if the fee is not earned then the inquirer must consider refunding the fee. The attorney/inquirer must ensure that the flat fee is reasonable in each case. b. Because the arrangement anticipates the inquirer making a unilateral offer to any FSBO seller with whom the listing business is willing to contract, there is a danger that RPC 1.7(a) (and RPC 1.9) may be violated prior to the attorney inquirer knowing that a conflict does in fact exist. Thus, the inquirer would need to ensure that a conflict check has taken place before representing the new client/seller and that such pre-disclosures are made to the client (so that the client is aware that the retention of the attorney’s services is contingent on no conflict being present). c. Notwithstanding the foregoing, and the conclusion that the attorney/inquirer may be able to ensure the reasonableness of the fee and that the transaction is free of conflicts, we find the arrangement appears to run afoul of RPC 5.4(b)’s prohibition against a lawyer forming a partnership with a non-lawyer where one of the activities of the partnership is the practice of law. However, this is a legal question which the committee declines to address. d. The lawyer is also not only receiving referrals in exchange for its involvement and cooperation with the bundled services operation, but also agreeing to be available and charging a reduced flat fee to provide incentive to the relationship, thereby making the FSBO’s business offer more lucrative for prospective clients of the FSBO. Thus, this relationship appears to run afoul of RPC 7.2(b)’s prohibition against giving of value (agreement to participate in the bundled services operation and to extend availability as well as a flat fee service) in return for referrals. e. By engaging in this relationship or arrangement with the FSBO (whether as a joint venture, de facto partnership or not), the attorney/inquirer may be assisting the FSBO entity in the unauthorized practice of law since one part of the arrangement between the FSBO business and the attorney is the practice of law. However, this is a legal question and therefore the Committee cannot opine as whether such activity is the practice of law. Nevertheless, as only lawyers (or with respect to certain real estate documents – Limited Practice Officers) may engage in the practice of law, it must be made clear to the client/customer that FSBO business is not engaged in the practice of law or the closing of the real estate transaction. f. Finally, this arrangement may run afoul of RPC 5.4(a)’s prohibition on sharing legal fees with a non-lawyer.

2. Would the arrangement cause additional violations of the RPC if the inquirer agreed with the listing business not to enter into similar arrangements with other businesses that assist FSBO sellers?

Because we find that the arrangement as presented by the inquirer’s first question to be in violation of the RPCs, the committee declines to reach this second issue.