State Bar of Arizona Ethics Opinions
99-06: Internet; Referral Fees; Division of Fees with Nonlawyers; Lawyer Referral Services; Advertising and Solicitation
Arizona lawyers ethically may not participate in an Internet service that sends legal questions from individuals to attorneys based upon the subject matter of the question. Lawyers also could not pay a fee for such referrals or give the service a portion of the legal fees earned from the referral. [ER 1.5, 5.4, 5.5, 7.1(j), 7.1(r)(3), 7.4]
The inquiring attorney received an electronic mail ("e-mail") message advising the recipient of a new Internet-based service that is said to connect individuals and businesses with "professionals in the legal field." The service is described in the message as an "effective and efficient way to market your services to new clients…" The message goes on to say that the service is a clearing-house for legal questions from potential clients. The service distributes the questions to members who are "experts" in the field to which the question relates. According to the e-mail message, the attorney to whom the question is forwarded can provide an answer to the potential client's inquiry and can "offer his/her services by checking a 'request for service' and including an estimate." The e-mail recipient is invited to visit the sender's web site at the URL address provided.
As a lead-in, the web site poses the question: "How many clients do you want today?" Among its other claims, the site tells the reader that the service will "deliver potential clients directly to you!" The web site goes on to emphasize the many ways that the service enhances the attorney's ability to attract more clients. There is a one-time fee to join the service. It appears that the member must then make a minimum deposit to cover the charges for the first thirty questions referred to the member. The member is charged a fixed amount against the deposit for each question from a potential client that is routed to that member. When the initial deposit is exhausted, the member pays another deposit to start the referral process all over again or discontinues the service. The application form apparently asks the attorney to identify the area or areas in which the attorney is being held out as an "expert".
The site also details certain of the rules and guidelines that are described as part of the contract between the service and the "expert". The rules include a "bonus program" that requires the lawyer to pay the service a percentage of any fee ultimately received from a client whose question was referred to the lawyer. The percentage varies depending on the amount of revenue generated and the area of expertise involved. The portion of the fee paid to the service ranges between one and five percent of the revenue received by the lawyer.
In addition, the web site suggests that if a member receives a request for services from someone "outside your region," the request should be forwarded to the service which in turn will forward the request to an "expert" in the other region. The member is told to negotiate a profit-sharing agreement with the other "expert" to whom the matter was referred.
The inquiring lawyer has asked whether participating in the on-line referral service violates the Arizona Rules of Professional Conduct.
ETHICAL RULES INVOLVED
ER 1.5 Fees
(e) A division of fee between lawyers who are not in the same firm may be
made only if:
(1) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation;
(2) the client is advised of and does not object to the participation of all the lawyers involved; and
(3) the total fee is reasonable.
ER 5.4 Professional Independence of a Lawyer
(a) A lawyer or law firm shall not share legal fees with a non-lawyer, except that:
(1) an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons;
(2) a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer; and
(3) a lawyer or law firm may include non-lawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.
ER 5.5 Unauthorized Practice of Law
A lawyer shall not:
(a) practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction; or
ER 7.1 Communications and Advertising Concerning a Lawyer's Services
(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.
(r) A lawyer or his partner or associate or any other lawyer affiliated with him or his firm 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 or those of his partner or associate or any other lawyer affiliated with him or his firm if there is no interference with the exercise of independent professional judgment on behalf of his client:
(3) a lawyer referral service operated, sponsored, or approved by a bar association. A lawyer shall not accept referrals from a lawyer referral service unless the service:
(A) engages in no communication with the public and in no direct contact with prospective clients in a manner that would violate the rules of professional conduct if the communication or contact were made by the lawyer;
(B) receives no fee or charge that constitutes a division or sharing of fees;
(C) refers clients only to lawyers lawfully permitted to practice law in Arizona when the services to be rendered constitute the practice of law in Arizona;
(D) furnishes the state bar on a quarterly basis with the names of all lawyers participating in the service; and
(E) neither represents nor implies to the public that this service is operated, endorsed, sponsored or approved by the state bar, unless the service is operated, endorsed, sponsored or expressly approved by the state bar.
ER 7.4 Communications of Fields of Practice
A lawyer may communicate the fact that the lawyer does or does not practice in particular fields of law. A lawyer shall not state or imply that the lawyer is a specialist except as follows:
(c) no lawyer shall state or imply that the lawyer is a specialist in any area of law unless the lawyer has been certified by the Arizona Board of Legal Specialization or is certified by a national entity which has standards for certification substantially the same as those established by the board…
The Internet has become ubiquitous. As a result, lawyers are making increasingly greater use of its varied resources in their practices. "Cyberspace" offers users the ability to communicate the availability of products and services, including legal services, on a worldwide basis. This new environment offers great potential but, at the same time, pitfalls for the unwary. Those pitfalls include potential ethical problems for lawyers venturing out into this digital world because the Rules of Professional Conduct have application to cyberspace just as they do in the more conventional settings in which lawyers are accustomed to functioning. However, difficulty can arise in identifying the ethical implications of conduct in the novel circumstances presented by the Internet. Some guidance already has been provided by the Committee to assist members of the Arizona Bar in assessing their ethical obligations when using the Internet. See generally Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 97-04. The present inquiry highlights a specific category of ethical issues that can be expected to recur as more and more persons try to find ways to capitalize on the Internet's capabilities.
ER 7.1 (j) prohibits a lawyer from giving "anything of value to a person for recommending the lawyer's services, except that a lawyer...may pay the usual charges of a lawyer referral service or other legal service organization." ER 7.1 (j) "must be read in conjunction with ER 7.1 (r)(3)," which permits a lawyer to be recommended by or to cooperate with a lawyer referral service only where the organization is operated, sponsored or approved by a bar association. Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 98-03, p. 6. In short, before a lawyer may pay the usual charges of a referral service or be recommended to clients by the service, that service must satisfy the requirement of ER 7.1 (r)(3). See generally Ariz. State Bar Committee on the Rules of Professional Conduct, Ops. 90-09 and 85-8. In its earlier opinion on use of the Internet by lawyers, the Committee concluded that a lawyer "probably" could not join an on-line referral service "unless the service is in compliance with ER 7.1 (r)(3)…At present that would require approval by the State Bar of Arizona. The are no on-line services currently approved by the State Bar." Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 97-04, p. 5.
Here, it does not appear that the service has been approved by any bar association much less by the State Bar of Arizona. Accordingly, the on-line service described in the e-mail communication to the inquiring attorney does not comply with ER 7.1 (r)(3). The question thus becomes whether the service is a "lawyer referral service" as that term is used in ER 7.1 (r). If it is, the lawyer may not accept referrals from the service under ER 7.1 (r) and may not pay anything of value to the service for referrals under ER 7.1 (j). Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 98-03, p. 6.
The Committee has previously found the defining characteristic of a lawyer referral service to be "[t]he process of ascertaining the caller's legal needs and then matching them to a member having the appropriate 'area of expertise'." Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 95-13, p. 4. Likewise, a report of the ABA Standing Committee on Lawyer Referral and Information Services notes that the primary purpose of lawyer referral services "is 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…[The service] is expected to be able to match the consumer's particular legal, economic, geographic, language, and other needs with an attorney who is competent to handle the matter referred…" Alabama State Bar Ass'n v. R.W. Lynch, Inc., 655 So.2d 982 (Ala. 1995) (quoting report). In Lynch, however, the court found that the service was not a lawyer referral service where caller needs were not screened, no representation was made regarding an attorney's skill, calls were forwarded only on the basis of geographic location of the caller and the attorneys participating in the service were not charged a fee based upon the number or type of calls forwarded. The court concluded that the service represented "merely an economical group advertising method that allows individual attorneys…to pool their resources to achieve greater advertising exposure." See also Ariz. Advertising Op. 01-93.
By contrast here, it appears that the service described in the e-mail message and web site is designed to perform a screening function; the members are asked to identify their area of expertise and inquiries are then routed to members based upon the match between the subject matter of the question and the members' claimed expertise. Moreover, there is a direct relationship between the fee paid by the participating attorney and the number of questions referred to the member. As such, the service goes well beyond permissible group advertising by lawyers that may be for-profit and not sponsored by a bar association. See Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 98-03, pp.6-7. In the circumstances, the on-line service here must be characterized as a "lawyer referral service" subject to the requirements of ER 7.1 (r).
The Nebraska State Bar Association reached the same conclusion in reviewing the ethical propriety of accepting referrals from a similar on-line service. See Nebraska State Bar Association Advisory Committee, Op. 95-3. The program at issue was described as a "service directory created specifically to provide Internet users access to legal representation and services worldwide." Potential clients located the service at on-line shopping malls and were guided eventually to the participating lawyers who had provided the service with information about themselves and paid a fee to participate. The Nebraska Advisory Committee concluded that participating in the service would violate Nebraska's DR 2-103 (A), which closely tracks ER 7.1 (j).
The referral service under review here is problematic in other respects as well. First, the "bonus program" requires the participating lawyer to share with the service a varying percentage of any fee received from the referral. ER 7.1(r)(3)(B) prohibits a referral service from receiving a fee "that constitutes a division or sharing of fees" and ER 5.4 prohibits sharing legal fees with a non-lawyer. The "bonus program" contravenes those prohibitions. Second, where an inquiry from a potential client is forwarded to a second attorney, the original attorney to whom the client was referred is encouraged to negotiate a "profit-sharing" agreement with the second lawyer. Without more, this scheme runs afoul of ER 1.5(e), which prohibits a division of fees between lawyers except in accordance with the Rule's requirements. Third, the service creates an environment that could easily give rise to violations of ER 5.5. Responding to questions from non-Arizona potential clients may constitute or give rise to the unauthorized practice of law in another jurisdiction in violation of ER 5.5(a). Finally, the lawyer/member apparently is held out by the referral service as an expert in the field or fields of law identified by the lawyer. This representation conflicts with ER 7.4(c), which prohibits any statement that implies the lawyer is a specialist in an area of law unless the lawyer has been certified as set forth in the Rule. Ariz. State Bar Committee on the Rules of Professional Conduct, Op. 90-09, p. 4.
The service advertised in the e-mail solicitation received by the inquiring lawyer is an on-line lawyer referral service that does not comply with ER 7.1(r)(3) Therefore, it would be impermissible for an Arizona lawyer to participate in the service.