Hello and welcome to this JACPA Ethics Alert blog which will discuss the recent Indiana State Bar Association Ethics Opinion which states that a lawyers’ use of group coupon or daily deal programs to obtain new clients is “fraught with peril” and most likely violates Indiana Bar Rules. The opinion is Indiana State Bar Association Legal Ethics Comm., Op. 1, 2012-JDH-1. A copy of the opinion is attached.
The opinion addresses lawyers’ participation in the escalating industry of marketing through group coupon or daily deal arrangements (such as Groupon) and notes that in these arrangements the group coupon company and the participating business establish a discounted price for the item or service to be sold and then share that price. The company charges the customers for the coupon only after a certain number of people respond to the offer and also, some customers who purchase coupons do not redeem them within the time period stated in the offer.
Indiana Bar Rule 2.1 requires a lawyer to exercise independent professional judgment in representing a client and the opinion notes that this standard is difficult (if not impossible) to meet if the representation of a client is determined by the potential client’s decision to purchase a coupon without any consultation.
The opinion also notes that Indiana’s guidelines on use of non-lawyer assistants provide that the creation of an attorney-client relationship is the nontransferable duty of the lawyer and a lawyer may not delegate to a non-lawyer assistant the responsibility for establishing an attorney-client relationship, which would occur of the company offers the coupons.
Indiana Bar Rule 5.4 also prohibits fee-sharing with non-lawyers in most circumstances, and Comment (4) to Indiana Bar Rule 7.2 states that lawyers are not permitted to pay others “for channeling professional work” (i.e. referrals). By creating buying groups, the companies offering group coupon arrangements “are being paid to channel buyers of legal work to the specific lawyer, in violation of the advertising and fee-sharing rules.”
In addition, under Indiana Bar Rule 1.7, a lawyer is required to insure there are no conflicts of interest or any conflicts are resolved before undertaking the representation and, if any conflicts are not resolved before the representation begins, the lawyer is required to terminate the representation and return any fees paid.
According to the opinion, the coupon users might qualify as prospective clients under Indiana Bar Rule 1.18 if they deposit money with a group coupon company for the purpose of forming an attorney-client relationship and, if that occurred, lawyers would be required to meet the rule’s obligations regarding confidentiality and avoiding conflicts of interest.
The opinion found it “troubling” that group coupon companies hold funds paid by clients until the funds are disbursed to the lawyer and that some companies pay out the funds over time in incremental amounts. This arrangement would violate Indiana Bar Rule 1.15(c), which requires that advance fees must be held in trust and withdrawn only when earned. In addition, the client’s funds are most likely not segregated and complete trust records are not maintained as required by Indiana Bar Rule 1.15(a). The provision in some of the group coupon contracts that the funds remain the property of the company also violates Indiana Bar Rule 1.15.
The opinion also expressed concern that if consumers who purchase coupons are not ultimately represented by the lawyer, the participating lawyer would not be able to comply with Indiana Bar Rule 1.16(a), which requires a lawyer to refund any advance fees which have not been earned. In addition, the lawyer would not be able to timely identify each individual who bought a coupon but did not become clients and refund the entire amount paid to the client, including the company’s share, which is required by the Indiana Bar Rules.
Although Indiana Bar Rule 7.2(b)(1) allows a lawyer to pay the reasonable costs of advertisements, the group coupons used by some companies violate that rule since the company keeps as much as 50% of the amount collected, instead of allocating an amount related to the reasonable costs of the advertising.
The opinion suggests that online coupon advertising arrangements may be permissible under certain limited circumstances, for example, if the lawyer offers a coupon for legal services at a specified rate, with the client to pay the lawyer directly. If the client paid a nominal fee for this coupon related to the reasonable costs of the marketing, this arrangement would not violate the Indiana Bar Rules.
According to the opinion, a few states have examined this issue and “(t)he reports are that they have considered different aspects of the program as important and have disagreed as to the propriety of such programs.” The opinion refers to ethics opinions from Missouri, New York, North Carolina, and South Carolina.
The opinion concluded that “it is likely not appropriate for a lawyer licensed in Indiana to advertise through a group coupon program” similar to those discussed in the opinion and lawyers considering such an arrangement should do “rigorous research before entering into such an arrangement” and may even want to hire private counsel to “guide the lawyer through the dangers inherent in such marketing, including discussion of alternative courses of action that may comply with the rules.”
Bottom line: The Florida Bar’s Professional Ethics Committee has not issued an ethics opinion on this issue; however, this Indiana ethics opinion makes it very clear that, at least in Indiana, lawyers must be aware that unless the group coupon program avoids the minefields set out in the opinion, a lawyer who participates would potentially violate the Indiana Bar Rules and be subject to disciplinary consequences.
Be careful out there!
As always, if you have any questions about this Ethics Alert or need assistance, analysis, and guidance regarding these or any other ethics, risk management, or other issues, please do not hesitate to contact me.
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