State Bar of Arizona Ethics Opinions
95-13: Lawyer Referral Service; Referral Fees
A lawyer referral service that would connect callers to a participating lawyer based upon the caller's zip code and lawyer's area of expertise is an impermissible referral service with impermissible referral fees. [ER 7.1]
The inquiring attorney has received a proposed contract with a corporation (hereafter referred to as the "Network") under which the Network agrees to "connect" with contracting law firms (called "Members") individuals who call the Network seeking professional legal assistance. The selection of the Member to which the caller is connected is "based upon the location of the individual within the exclusive zip code or codes assigned to Member and upon the areas of experience [sic] listed by member in Member's application" to join the Network.
The Network proposes to generate such calls through advertising of its service, the "means and nature" of which "shall be determined and executed exclusively" by the Network. Members are required to pay fees to the Network "for cooperative advertising, connection services, registration, or other fees set forth by the [Network's] Rules." Neither the amounts of these fees nor the description of any other fees set forth by the Rules were provided with the inquiry. The contract also requires Members to pay a one time "applicant fee" of $1,000.00.
The Network's procedure upon receiving a call is to determine the caller's originating zip code and then provide the practice information on the Member whose exclusive zip code is the closest to the caller's zip code. If requested, each caller would also be given as many additional names as requested of the next closest Members. Once the caller makes the choice of Member based upon the biographical information related by Network, the caller is connected directly to the Members' office. Thereafter, the terms of the representation are fixed by agreement between the client and the Member, provided only that the legal fee to be paid by the client shall not be increased due to the Member's participation in the Network.
1) Is such a program a "lawyer referral service" prohibited by ER 7.1(r)(3)?
2) Does the program include referral fees prohibited by ER 7.1(j)?
RELEVANT ETHICAL RULES
ER 7.1(j): "A lawyer shall not give anything of value to a person for recommending the lawyer's services, except that a lawyer may pay the reasonable cost of advertising or written or recorded communications permitted by these rules and may pay the usual charges of a lawyer referral service or other legal service organization."
ER 7.1(r): "A lawyer ... may be recommended, employed or paid by, or may cooperate with, one of the following offices or organizations that promote the use of his services...:
3) a lawyer referral service operated, sponsored, or approved by a bar association."
RELEVANT PRIOR FORMAL ETHICS OPINIONS
Formal Op. 85-08 (November 1, 1985)
Formal Op. 90-09 (August 2, 1990)
Advertising Op. 01-93
1. Is the Network's program a "lawyer referral service" prohibited by ER 7.1(r)(3)?
Yes, ER 7.1(r)(3) provides that a lawyer may be recommended, or may cooperate with, "a lawyer referral service operated, sponsored, or approved by a bar association." This Committee previously has concluded that an earlier counterpart of that rule implies that a lawyer referral service not approved by any bar association is impermissible. Formal Op. 90-09 (August 2, 1990); accord, Formal Op. 85-08 (November 1, 1985).
The former Adverting Committee questioned in its Opinion 01-93 whether that negative implication may properly be drawn from ER 7.1(r)(3), without noting in that discussion that this Committee had already drawn that implication in Opinions 90-09 and 85-08. The advertising Committee opinion ultimately avoided deciding that question by concluding that the program at issue was a permissible group advertising program rather than a lawyer referral service.
Our opinion that a non-sponsored lawyer referral service is impermissible is consistent with the conclusion of the ABA Center for Professional Responsibility, which draws an analogous negative implication from ABA Model Rule 7.2(c)(2), the counterpart of Arizona's ER 7.1(j). ABA Center for Professional Responsibility, Annotated Model Rules of Professional Conduct 517 (2d Ed. 1992)("for-profit referral services[are] prohibited"). Many states similarly prohibit referral services that are either for-profit or not sponsored by bar associations. E.g., Alabama State Bar Ops. 89-18 & 91-43; Iowa State Bar Committee on Professional Ethics & Conduct Ops. 91-18 & 91-21; Association of the Bar of the City of New York Op. 1994-3; Ethics Advisory Committee of the South Carolina Bar Op. 88-20; Ethics Committee of the State Bar of South Dakota Op. 90-3. Consequently we see no reason to deviate from our conclusion that ER 7.1(r)(3) prohibits attorneys from being recommended by or cooperating with lawyer referral services that are not sponsored or approved by a bar association.
Since nothing in the facts presented or the form of contract provided suggests that the Network is operated, sponsored or approved by any bar association, the only question is whether it constitutes a "lawyer referral service."
A number of authorities have concluded that while lawyer referral services are impermissible if for-profit and not appropriately sponsored, "group advertising" is distinguishable from referral services and is permissible even if for profit and not sponsored by a bar association. E.g., Alabama State Bar Association v. R.W. Lynch Company, Inc., 655 So.2d 982 (Ala. 1995); State Bar of Arizona Advertising Op. 01-93; ABA Center for Professional Responsibility, supra. It is therefore necessary to determine whether the Network's program is merely group advertising or constitutes a lawyer referral service.
The key distinctions are identified in the recent Alabama Supreme Court decision cited above. That court found the "Injury Helpline" to constitute group advertising primarily because there was no effort made to match clients' needs to lawyers' expertise:
The calls are not screened by Lynch's answering service. In no manner are the callers' potential legal needs evaluated by Lynch. No representation is made to the caller regarding an attorney's experience or skill. As noted above, a caller is forwarded to an attorney only on the basis of the geographical area in which the caller lives.... The attorneys who pay for the "Injury Helpline" advertisement are the only persons who speak with the caller concerning the callers' legal situations.
655 So.2d at 984.
By contrast, the 1989 Report of the ABA Standing Committee on Lawyer Referral and Information Service concluded that the two important functions of a lawyer referral service are to screen inquiries and to "provide the client with an unbiased referral to an attorney who has experience in the area of law appropriate to the client's need." 655 So.2d at 984.
The distinguishing features of the Network program before us satisfy the ABA Standing Committee's description of a lawyer referral service, and match none of the characteristics of group advertising identified by the Alabama Supreme Court.
The purpose of the Network as stated in the contract "is to assist the general public by providing a means whereby any person in need of services of a lawyer may be connected to a qualified Member of the State Bar of Arizona" (emphasis added). The Network refers callers to Members based not only upon geographical location but also "upon the areas of experience [sic] listed by member." The Network's instructions to prospective Members in filling our their professional biographies indicates that the "Professional Summary is read to the interested consumers" and should be written "to satisfy the two most important hidden objections [sic?] in the consumers [sic] mind...
1) 'Is this the right professional for my needs?'
2) 'Is this professional good?"
The process of ascertaining the caller's legal needs and then matching them to a Member having appropriate "area of experience" is the distinguishing feature of a referral service. In addition, unlike the group advertising program in Lynch, supra, participating attorneys are not the only persons who speak with consumers, and representations are made about Members' experience. All relevant authorities find these features to characterize a referral service, and we concur.
Indeed, an earlier version of the proposed contract provided by the inquiring attorney provided that the Network "shall refer" callers to Members. In a subsequent version this language was changed to provide that the Network "shall connect" callers to Members. That change in label does not change the function.
Because the Network is a lawyer referral service that is apparently not operated, sponsored or approved by a bar association, it would be a violation of ER 7.1(r) for Arizona attorneys to be recommended by or to cooperate with the Network.
2. Does the program require payment of referral fees prohibited by ER 7.1(j)?
Although this second issue is mooted by the conclusion reached as to the first, it will be addressed because it is appropriately raised by the inquiry. We conclude that the Network's contract calls for the payment of impermissible referral fees, which are not merely for the cost of advertising.
ER 7.1(j) provides that an attorney may not pay anyone for recommending the lawyer's services except for "the reasonable costs of advertising ... [and] the usual charges of a lawyer referral service ..." Necessarily, that rule could not consistently authorize the payment of "the usual charges of a lawyer referral service" from which attorneys may not accept referrals pursuant to paragraph (r) of the same rule. The reference to permissible "usual charges" must be to those charges of lawyer referral services that are operated, sponsored or approved by a bar association pursuant to ER 7.1(r)(3). Since we have already concluded that this is not such a permissible lawyer referral service, the payments to the Network cannot be justified under that portion of ER 7.1(j). They therefore are permissible only if the fees required by the agreement are limited to "the reasonable costs of advertising."
The contract form provided to the Committee does not indicate the nature of the required fees to be paid by Members except to describe them as fees for "cooperative advertising, connection services, registration, or other fees set forth by the Rules." While fees for cooperative advertising are permissible under ER 7.1(j), fees for "connection services" are not so authorized. Although we cannot be certain on the facts presented, it appears that the term "connection services" is simply a euphemism for a referral fee; in fact, the earlier version of the contract identifies this fee as being for "referral services." At a minimum, it appears to be a fee intended to cover at least the salary of the individual who receives the telephone calls, matches zip codes and practice areas and connects the caller to the selected Member attorney, services that could reasonably be encompassed in the term "connection services." In addition, it may cover the overhead for the office and the phone equipment. This fee could well provide the principal profit element to the Network. But the Committee need not so speculate to conclude that it is not a fee for advertising, because that is covered by the term "cooperative advertising." Therefore, since it does not appear to be a fee for the "reasonable costs of advertising," it is not permissible under ER 7.1(j).
Similarly, the contract also calls for a one time "application fee" in the amount of $1,000.00. Again, assuming that this is in addition to the fees intended to cover the cost of "cooperative advertising," such a fee does not appear to be a fee for the "reasonable costs of advertising" and therefore is impermissible under ER 7.1(j).
Because the Network is not merely an answering service that provides lists of Member firms to callers, but in addition attempts to match the nature of the inquiry to Members' areas of expertise, it constitutes a lawyer referral service and not merely a group advertising program coupled with an answering service. Under Arizona rules, lawyers may participate in only those referral services that are operated or sponsored by bar associations (or otherwise qualify under ER 7.1(r)(3).) Because the Network appears to have no such sponsorship, it is not ethically permissible for Arizona attorneys to participate in or cooperate with it. In addition, the fees required by the Network cover more than the reasonable costs of advertising, and therefore constitute impermissible referral fees.
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings. ã State Bar of Arizona 1995
Prospective Members also are asked to be "guided by the rules and guidelines in Attachment A before composing your professional summary," but this attachment was not provided to us with the inquiry. Prospective Members also are cautioned that "Consumers have a very short attention span so please make your Professional Summary as concise and brief as possible."
Both referral services and group advertising programs also often raise other concerns that need not be addressed here. For example, the advertising must comply with ER 7.1(a) through (g), and must include the names of local lawyers who are responsible for its content. ER 7.1(n). All Members would have to be provided and maintain copies of all Network advertising to comply with ER 7.1(o). The Network, or at least the referred Member, would presumably have to supply callers the written informational background required by ER 7.2(c). Members would have to take care that their listings of areas of "expertise" comply with ER 7.2(b) and 7.4(c).