Five days after an appeal in New Jersey was denied that would have overturned a ban on using Avvo Legal Services, Avvo announced that it would end Avvo Legal Services. New Jersey now has some of the clearest rules for online legal services and the unauthorized practice of law, and this blog discusses New Jersey’s ethics opinion in relation to attorney referrals online.
New Jersey’s Ethics Opinion
New Jersey’s ethics opinion cited four rules that required review in relation to Avvo (and other legal services). Avvo Legal Services was deemed to violate two of those rules:
1. Fee sharing
Avvo Legal Services violated the New Jersey rule against impermissible fee sharing with nonlawyers. Avvo’s ‘marketing’ fee was considered an impermissible referral fee out of the fees paid to the lawyer. Avvo forwarded the flat fee received from the client to the lawyer and then was reimbursed the ‘marketing fee’. When the New Jersey committees decided the marketing fee was part of the fees paid to the lawyer, Avvo Legal Services' days were numbered.
2. Attorney referral services
Avvo Legal Services violated New Jersey’s rule against impermissible attorney referral services. Lawyers may pay reasonable costs for advertising, but the New Jersey ethics panel found that Avvo Legal Services’ marketing fees bore no relationship to advertising. Because this is a key test for impermissible attorney matching services online, I’ve excerpted the New Jersey ethics panel discussion here:
"The Committees find that the “marketing fee” that lawyers pay Avvo after providing legal services to clients is not for the “reasonable cost of advertising” but, instead, is an impermissible referral fee. The fee “bears no relationship to advertising.” … Rather, it is a fee that varies with the cost of the legal service provided by the lawyer, and is paid only after the lawyer has completed rendering legal services to a client who was referred to the lawyer by Avvo.
Lawyers may “advertise” by placing an ad on the Avvo website or participating in other parts of the website without paying this “marketing fee.” Lawyers may pay a set, flat amount for potential client inquiries or “leads” that may or may not result in retention of a client for a specific matter, but they may not pay a fee in exchange for referral or retention of a client for a specific case… This service offered by Avvo is a lawyer referral program that does not conform to the requirements of Rule of Professional Conduct 7.2(c) and Rule of Professional Conduct 7.3(d). Accordingly, New Jersey lawyers may not participate in the program.
The Committee on Attorney Advertising has issued several opinions on the distinction between “advertising” and an impermissible referral service… Because the companies at issue in those opinions did not charge a fee for each case a lawyer received (as opposed to inquiries or “leads”), the opinions focused on whether the companies were making improper statements or restricting information about the participating lawyers. When the lawyers pay a fee to the company based on the retention of the lawyer by the client or the establishment of an attorney-client relationship, the answer to the inquiry is simple: the company operates an impermissible referral service."
When that opinion could no longer be appealed, it made business sense to shut down Avvo Legal Services. The decision to shut down Avvo Legal Services is often tied to the sale of Avvo to Internet Brands in January of this year (and the departure of Josh King), but New Jersey's denial of appeal would have been a good trigger regardless of who was making the calls.
LegalZoom and Rocket Lawyer were also reviewed by the New Jersey ethics panel and they got away with an easily remedied requirement to file as a legal services plan. There's nothing in the New Jersey ethics opinion that will slow them down. The crucial step for them was being considered comparable to legal service plans, which are traditionally sponsored by large employers and insurance companies as an employee benefit. Like a legal service plan, LegalZoom can collect subscriptions without being too closely connected to a referral fee for a particular service. After the dust has settled, Avvo could easily relaunch in New Jersey with a subscription-based legal services plan.