Update on the Ethics of Performance-Based Marketing

Most lawyers who have researched ethics opinions related to online advertising are familiar with the Total Attorneys ethics matter, which began in April, 2009 when a single Connecticut lawyer filed an ethics complaint with the state bar disciplinary counsel in 47 states. The complaints targeted not just the company, but also more than 500 of its bankruptcy law firm customers. Here’s the final update on how this played out along with my thoughts on the significance of this process.

Established in 2002, Total Attorneys is a cloud-based technology and marketing company that is the country’s oldest and largest performance-based lead generation provider to small law firms. As some of you probably know, this is the company that acquired VLOTech, the software that I co-created and use for my virtual practice. For those not familiar with advertising terminology (after all, we don’t typically receive business education in law school), a “lead” for a law firm would be a “prospective” client.

The ethics complaint alleged advertising ethics violations pertaining to the company’s methods. Specifically, the complaint alleged 1) that the lawyer advertising model was actually a for-profit referral service and not advertising, 2) that its customers were fee-sharing, and 3) that the company’s paralegal services constituted the unauthorized practice of law. Of the 47 states that were presented with these allegations, only 24 states requested a response to the Complainant’s charges. The remaining states never took any action with regard to the complaint. While most of the disciplinary counsel who opened investigations did not pursue fee-sharing and UPL issues and many quickly closed investigations with no finding of wrongdoing, a few disciplinary counsel aggressively argued that the Total Attorneys business model violated Rule 7.2. The complainant alleged that when an attorney paid a fee on a per lead basis (instead of the traditional flat fee directory model), the payment violated Rule 7.2 of the Model Rules of Professional Conduct, as adopted by most state bar associations, which prohibits a lawyer for paying a non-attorney for the recommendation of his/her services.

To defend its business model, its customers and the ability of lawyers nationwide to take advantage of new technology to grow their legal practices, the company funded the legal defense of its attorney customers in each state. Total Attorneys, their customers and their counsel successfully argued that Total Attorneys was not a referral service and that the payments were payments for the reasonable cost of advertising and not a payment for a recommendation of the lawyers’ services. Over a period of almost 3 years, each of the 24 states’ regulatory bodies reviewed the complaint and closed their investigations with either “no finding” or a “finding of no wrongdoing. All of the complaints were eventually dismissed by November 2011. The states which conducted an inquiry and then closed or dismissed the matter are listed below:

• Illinois
• Connecticut (charges dismissed at close of prosecution in evidentiary hearing, see Zelotes v Rousseau)
• Hawai’i
• Alaska
• Alabama
• Arizona- A request for advisory opinion was jointly submitted by bar counsel and defense counsel – this was a term of the dismissal. The AZ Bar issued Opinion 11-02 in Oct. 2011.
• Idaho
• New Mexico
• Colorado
• Vermont
• Washington
• Texas
• North Carolina
• Missouri
• Wisconsin
• Maine
• North Dakota
• Michigan
• Tennessee
• Oregon
• Montana
• South Carolina
• Utah
• New Jersey

Resolution of the ethics matter was an important development in the states’ interpretation of online marketing. For the first time, clearer distinctions were made between referral sites, directory listings and other forms of lead generation marketing used by lawyers. (You can read many of the pleadings herewhich discuss in greater detail the difference between referral services, online directories and how pay-per-click advertising works.)

The fact that the company had to spend so much money defending its permissible advertising methods raises concerns. Any company or lawyer who comes up with an innovative method of marketing their services to the public must be aware of both the risk that comes with presenting a new method of marketing without obtaining the initial blessing of the states’ regulatory entities and the inertia that resists change within the legal profession. Unfortunately, the approval process is time-consuming and the default response to the use of new methodologies is often “no, you can’t”. Both attorneys and consumers pay the price for that inertia, as commercial speech is chilled and opportunities to expand access to legal services are lost. Further, the lack of standardization in the advertising rules from state to state, especially with regard to online advertising methods, puts even more of a chill on future innovation. After a long a tedious approval process, one state may permit the new advertising method/pricing structure only to have the state next door prohibit the same exact activity. The result is that the public is presented with fewer alternatives for locating and working with a lawyer.

What about the lawyer who wants to try a new form of online advertising or a multijurisdictional virtual law firm that must figure out how to comply with differing ethics rules in several states? Total Attorneys’ investment in advancing legal marketing opened up many options for attorneys, but in the time that it took to resolve the ethics matter, additional online advertising methods and technology for marketing have emerged. These may contain other nuances that have not been clearly addressed by state regulators and may not be clearly interpreted by a law firm reading its states’ advertising rules. Where the rules of a jurisdiction don’t clearly relate to a specific method, lawyers are left to interpret the rules without context and with little guidance.

Citing the ethics matter among others, the Standing Committee on the Delivery of Legal Services wrote a letter to the ABA Commission on Ethics 20/20 providing its recommendations regarding lawyer advertising rules, including the deletion of Model Rule 7.2(b), the rule that prohibits a lawyer from giving anything of value for recommendation for his or her services with four exceptions. The exceptions to the rule combined with the emergence of new online advertising methods have left lawyers with more questions than confidence when it comes to using Internet-based tools for client development.

The Committee’s recommendation for removal of the restrictions in 7.2 was rejected at the February meeting of the Commission. However, initial awareness of the issues was raised and a larger conversation started. A proposal to amend Model Rule 7.2 will go to the ABA House of Delegates for consideration at the Annual Meeting in August. The proposed amendment to Comment 5 would clarify the meaning of “recommending the lawyer’s services” and explicitly state that a lawyer may pay others for “generating client leads, such as Internet-based client leads, so long as the lead generator affirmatively states that it does not recommend the lawyer, any payment to the lead generator is consistent with Rules 1.5(e) (division of fees) and 5.4 (professional independence of the lawyer), and the lead generator’s communications are consistent with Rule 7.1 (communications concerning a lawyer’s services).” While it would have been preferable to eliminate Rule 7.2 outright, this proposal at least demonstrates recognition of the increased pressure for attorneys to compete in a crowded marketplace and the continued lack of access to lawyers among lower and middle-class Americans and raises hope for continued evolution of the Rules to alleviate those issues.