Opinions

Ethics Opinion 342

Participation in Internet-Based Lawyer Referral Services Requiring Payment of Fees


Lawyers may participate in both not-for-profit and for-profit lawyer Internet-based referral services where the services require a flat fee for participation, a flat fee for transmitting the lawyer’s name to a potential client, and/or a flat fee for every client secured as a result of a referral.

Applicable Rules

  • Rule 5.4 (Professional Independence of a Lawyer)
  • Rule 7.1 (Communications Regarding a Lawyer’s Services)          

Inquiry
We have received a number of inquiries concerning participation in, and the creation of, Internet-based referral services. All inquires seek guidance on whether a lawyer’s participation in a specific program would be permissible under the D.C. Rules of Professional Conduct. Specifically, we have been asked to provide guidance with respect to the applicability of D.C. Rules 5.4 and 7.1 to lawyer participation in referral services under the terms common to the programs reviewed.

Most referral programs are run by State Bar Associations or other nonprofit organizations. There are, however, a substantial number of programs that are operated by for-profit organizations, and these services vary in size, sophistication, legal specialty, and design. While most sites have numerous disclaimers that could be accessed from the home page, the cost of lawyer participation and the existence of fees required if a lawyer is selected through the referral service are often not apparent without signing up for the service.   

The common elements among the inquiries included the following: (1) the services do not charge a fee to the prospective client or consumer; (2) they charge, instead, a flat fee for lawyers to participate in the service; (3) they require that the fees charged by the lawyers to clients secured through the referral service not be higher than fees charged to clients who do not use the referral service; (4) they provide guidelines on the type of information that participating lawyers must provide; (5) they adopt specific qualification requirements for lawyers to participate (e.g., certificates of specialties, malpractice insurance, minimum number of years of practice); (6) they include disclaimers to prospective clients that the lawyer is responsible for the content of the description of the lawyer’s services; and (7) they provide disclaimers stating that the referral service does not provide legal advice or recommend a particular lawyer. In addition, none of the referral services reviewed appear to solicit prospective clients by “in-person contact.”[1] While the referral services advertise in a variety of media, the consumer or the prospective client must initiate the contact with the referral service to receive any referrals.

Background
Rule 7.1 of the D.C. Rules of Professional Conduct governs all communications regarding a lawyer’s services, including advertising. The Rule prohibits a lawyer from making a false or misleading communication about her services and imposes certain limits on in-person solicitation.[2] 

Prior to February 1, 2007, D.C. Rule 7.1(b) permitted lawyers to use paid intermediaries to make in-person contact with prospective clients, so long as the lawyer reasonably knew that such solicitation was consistent with the intermediary’s contractual or other legal obligations and the lawyer took reasonable steps to ensure that the potential client was informed about how much the intermediary was paid and the effect, if any, of the payment on the lawyer’s total fee.[3] The current version of D.C. Rule 7.1(b) no longer permits the use of paid intermediaries. "A lawyer shall not give anything of value to a person (other than the lawyer’s partner or employee) for recommending the lawyer’s services through in-person contact.” D.C. Rule 7.1(b)(2). Comment [5] explicitly states that a “lawyer is no longer permitted to conduct in-person solicitation through the use of a paid intermediary.”

The District of Columbia Bar Rules of Professional Conduct Review Committee recommended this change for two reasons:

First, lawyer advertising in now widespread, reaching diverse communities in the District of Columbia, including non-English speakers and immigrants. Concerns that certain persons, without the intervention of a paid intermediary, would be unable to locate a lawyer to hire, should no longer exist. Second, there is reason to believe that at least some paid intermediaries, who are effectively beyond the power of the Bar to regulate, have used harassing, abusive, or unseemly practices in soliciting potential clients for lawyers.

District of Columbia Bar Rules of Professional Conduct Review Committee, Proposed Amendments to the District to Columbia Rules of Professional Conduct: Final Report and Recommendations (Clean Copy) 179 (June 21, 2005; revised Oct. 6, 2005).

While we have not previously addressed an inquiry about Internet-based referral services that charge lawyers a fee for participating, we have addressed similar or analogous inquires. All of those inquiries have been resolved, at least in part, with references to the now prohibited practice of using paid intermediaries. See, e.g., D.C. Ethics Ops. 261 (1995), 286 (1998), 302 (2000), & 307 (2001). Thus, our conclusions reached in these prior opinions must be read and reassessed in light of the recent amendments to D.C. Rule 7.1.

There are three principal differences between the Model Rules (and those of other jurisdictions) and D.C. Rule 7.1 that are relevant to the inquiries. First, D.C. Rule 7.1 is more permissive than the Model Rule with respect to lawyer solicitation. Model Rule 7.3 generally prohibits a lawyer from engaging in any in-person solicitation of potential clients (which the Model Rules define to include both live telephone calls and “real-time electronic contact”) unless the potential client is either a lawyer or has a pre-existing relationship with the contacting lawyer. By contrast, in the District of Columbia, Rule 7.1 permits a lawyer to make such in-person solicitations so long as the lawyer’s claims are not misleading, the solicitation does not involve the use of coercion, duress, or harassment, and the potential client has the capacity to make reasoned judgments regarding the selection of a lawyer. See D.C. Rule 7.1(b).[4]

Second, the D.C. Rule 7.1 is less restrictive than other jurisdictions in regulating advertising. The rule only requires that advertising not contain misrepresentations of fact or law or assertions that cannot be substantiated. See D.C. Rule 7.1(a). Comment [4] further states that any restrictions beyond these limited requirements impose barriers to the flow of information about lawyers’ services. Although Model Rule 7.2 is similar in this regard, other jurisdictions are much more restrictive. See, e.g., Iowa Rule of Professional Conduct 32:7.2 Advertising.

Finally, D.C. Rule 7.1 differs from the Model Rule regarding participation in lawyer referral programs. Both rules now prohibit a lawyer from paying a person to recommend her services (e.g., intermediaries), and both rules carve out an exception for referral services. Model Rule 7.2, however, states that a lawyer may “pay the usual charges of … a not-for-profit or qualified lawyer referral service”(emphasis added). A “qualified lawyer referral service” is defined as one that “has been approved by an appropriate regulatory authority.” Model Rule 7.2(b)(2). Comment [6] to D.C. Rule 7.1, on the other hand, simply states that “a lawyer may participate in lawyer referral programs and pay the usual fees charged by such programs.” Thus, the D.C. Rule, which was adapted from the Model Rule, specifically omitted wording that would limit payment of fees only to not-for-profit referral services or to services that are otherwise regulated by appropriate authorities.[5]

Discussion
In the District of Columbia, questions regarding a lawyer’s participation in an Internet-based referral service are no different than any other question about lawyer communications regarding legal services. We have previously said that “we see nothing untoward in lawyers communicating about their services through web sites, provided that such communications comply with our general rules governing lawyer communications with clients.” D.C. Ethics Op. 302. Such communications are governed by D.C. Rule 7.1.

As an initial matter, the rule requires lawyers to ensure that their listings with the referral services, and any statements made by the referral services about the lawyers’ services, satisfy D.C. Rule 7.1(a). Thus, the lawyers must ensure that the communications about their services provided by the referral service are neither false nor misleading and that any affirmative statements about their legal services can be substantiated. See D.C. Ethics Op. 249 (1994). The referral programs under review request information such as the following: office locations; contact information; years of practice; certificates of specialty if the State Bar recognizes specializations; current areas of practice; certificate of malpractice insurance; and current bar memberships. Our rules expressly permit the public dissemination of this type of information.[6] 

The referral service must also conform to the requirements of D.C. Rule 7.1(b)(2), which prohibits a lawyer from giving “anything of value to a person (other than the lawyer’s partner or employee) for recommending the lawyer’s services through in-person contact.” As previously discussed, this language was added to make clear that use of paid intermediaries in the District of Columbia is now prohibited. Notwithstanding this change to the text of the rule, the relevant language in the Comments remains unchanged, and it states that “a lawyer may participate in lawyer referral programs and pay the usual fees charged by such a programs.” D.C. Rule 7.1, Comment [6]. Thus, Rule 7.1(b)(2) was not intended to curtail participation in fee charging referral programs, but, rather, to stop lawyers from using paid intermediaries to make in-person solicitations. The key distinction between referral programs and paid intermediaries is that referral programs do not generally engage in unsolicited in-person contact with prospective clients.

Each of the referral programs described by the inquirers requires that the prospective client initiate contact with the referral service to receive any information about a prospective lawyer. While the referral services advertise through websites and other media outlets, none of them initiates unsolicited in-person communications with prospective clients. Instead, the inquirers all described Internet-based services through which prospective clients can electronically request a referral. For some services, the prospective client can call the referral service for technical assistance in using the web site to request a referral. Others allow the prospective client to either submit the request electronically, or call the service to receive referrals. But none of the services engage in any unsolicited contact with prospective clients.[7] 

Each referral service also informs the prospective client that the service is simply providing a list of available lawyers and is not recommending any particular lawyer. In many cases, the service provides multiple random referrals for each request. While the particular programs described in the inquiries we received do not recommend any specific lawyers when they transmit the names to potential clients, we do not believe that our conclusions would change if these programs were to make specific recommendations. Such recommendations would, however, be subject to scrutiny under Rule 7.1(a). Specifically, we believe that a service that recommends a lawyer without offering any explanation of the basis for the recommendation could be misleading, particularly if the service simply recommends any lawyer who pays a fee. However, if the basis for the recommendation is clearly explained, such advertising is unlikely to run afoul of Rule 7.1(a).[8]

With respect to fees, the programs described by the inquirers require of each lawyer a flat fee to participate or to have information listed with the service for a specified period of time. Such fees are permissible if they are “the usual fees charged by such programs.” D.C. Rule 7.1, Comment [6]. What is “usual” will vary over time and among different services based on the costs of operating them. At a minimum, “usual” means that the fees fall within a range of fees charged by comparable services.

D.C. Rule 5.4 generally prohibits lawyers from “sharing” fees with nonlawyers. The purpose of this prohibition is to “protect the lawyer’s professional independence of judgment.” D.C. Rule 5.4, Comment [1]. Although some of the referral programs make the payment of a fee contingent upon securing a client from the referral, none of them makes the fee contingent on the outcome of the case or on the amount of the legal fees. As we explained in Opinion 286, “[a] non-contingent payment for the referral of legal business, i.e., one that is paid regardless of the success or outcome of the representation, is not a division of legal fees. Such payments are simply part of a lawyer’s marketing expenses, payable whether or not they produce revenue for the lawyer.”[9] Thus, we conclude that a flat fee for transmittals, or for each client secured, does not violate either D.C. Rule 7.1 or 5.4.

In Opinion 307, we considered a referral system operated by the federal government. That referral program required that a law firm bidding to participate on a schedule contract to provide legal services to a government agency pay one percent of the fee income generated in order to cover the costs of the referral program. We concluded that

the drafters of the D.C. Rules were not particularly concerned about the manner in which non-profit lawyer referral services structured their fee arrangements; their principal focus was on preventing non-lawyer intermediaries from using their power over lawyers who rely on them for business referrals to influence those lawyers’ “professional independence of judgment.” D.C. Rule 5.4, Comment [1].

We went on to recognize that “the development of referral schemes that do not compromise lawyers’ independence [is] a positive development, though we recognize that our Rules are less clear than they could be on this issue.” D.C. Ethics Op. 307. The recent amendments to D.C. Rule 5.4 now expressly allow a lawyer to share legal fees “with a nonprofit organization that employed, retained, or recommended employment of the lawyer in the matter and that qualifies under Section 501(c)(3) of the Internal Revenue Code.” D.C. Rule 5.4(a)(5).[10]   

Thus, while there is no distinction between not-for-profit and for-profit referral services in D.C. Rule 7.1, D.C. Rule 5.4 does make a distinction between not-for-profit and for-profit programs with respect to fee sharing. But as long as the lawyers participating in a for-profit Internet-based referral program pay a flat fee, or a flat fee per transmittal, rather than a portion of the fees earned from the client, D.C. Rule 5.4 is not violated.

Finally, all of the inquiries we received made clear that none of the participating lawyers would have any financial interest in the referral service. Nor would any participating lawyer have any employment or contractual relationship with the referral service provider even where the provider was a large entity with other business interests. If such a relationship were to exist, it would likely prove problematic under D.C. Rule 5.4(b).

In sum, the amended D.C. Rules prohibit a lawyer from conducting, “in-person solicitation through the use of a paid intermediary,” but allow a lawyer to “participate in lawyer referral programs and pay the usual fees charged by such programs.” See D.C. Rule 7.1, Comments [5] and [6]. Thus, we conclude that participation in lawyer referral programs, like those described above, that conform to the D.C. Rules of Professional Conduct in general, and to D.C. Rules 7.1 and 5.4 in particular, is permitted.

Published: November 2007

[1] “In-person contact” or solicitation “include[s] telephone contact but not electronic mail.” D.C. Rule 7.1, Comment [5].
[2] As amended, D.C. Rule 7.1 states in pertinent part that: 
(a) A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it: (1) Contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading; or
(2) Contains an assertion about the lawyer or the lawyer’s services that cannot be substantiated.
(b) (1) A lawyer shall not seek by in-person contact, employment (or employment of a partner or associate) by a nonlawyer who has not sought the lawyer’s advice regarding employment of a lawyer, if:
(A) The solicitation involves use of a statement or claim that is false or misleading, within the meaning of paragraph (a);
(B) The solicitation involves the use of coercion, duress or harassment; or
(C) The potential client is apparently in a physical or mental condition which would make it unlikely that the potential client could exercise reasonable, considered judgment as to the selection of a lawyer.
(2) A lawyer shall not give anything of value to a person (other than the lawyer’s partner or employee) for recommending the lawyer’s services through in-person contact.
(c) A lawyer shall not knowingly assist an organization that furnishes or pays for legal services to others to promote the use of the lawyer’s services or those of the lawyer’s partner or associate, or any other lawyer affiliated with the lawyer or the lawyer’s firm, as a private practitioner, if the promotional activity involves the use of coercion, duress, compulsion, intimidation, threats, or vexatious or harassing conduct.
[3] The prior version of D.C. Rule 7.1 included the following language:
(b) A lawyer shall not seek by in-person contact, or through an intermediary, employment (or employment of a partner or associate) by a nonlawyer who has not sought the lawyer’s advice regarding employment of a lawyer, if:
. . . .
(4) The solicitation involves use of an intermediary and the lawyer knows or could reasonably ascertain that such conduct violates the intermediary’s contractual or other legal obligations; or
(5) The solicitation involves the use of an intermediary and the lawyer has not taken all reasonable steps to ensure that the potential client is informed of (a) the consideration, if any, paid or to be paid by the lawyer to the intermediary, and (b) the effect, if any, of the payment to the intermediary on the total fee to be charged.
[4] Lawyers should be aware that substantive law may limit certain solicitation practices in particular circumstances. See, e.g., D.C. Code § 22-3225.14 (limiting the ability of lawyers and other “practitioners,” whether directly or through a paid intermediary, to solicit clients during the 21-day period following a motor vehicle accident).
[5] Because the Internet crosses jurisdictional boundaries, and because we rely on unique aspects of the District of Columbia Rules, lawyers who accept referrals should exercise particular care when doing so from clients based in, or regarding matters arising out of, other jurisdictions, because the rules of those jurisdictions may apply. See D.C. Rule 8.5(b), D.C. Ethics Op. 311 (2002).
[6] “This rule permits public dissemination of information concerning a lawyer’s name or firm name, address, and telephone number; the kinds of services the lawyer will undertake; the basis on which the lawyer’s fees are determined, including prices for specific services and payment and credit arrangements; a lawyer’s foreign language ability; names of references and, with their consent, names of clients regularly represented; and other information that might invite the attention of those seeking legal assistance.” D.C. Rule 7.1, Comment [3].
[7] Because most of these services allow referrals to be made over the telephone, the communications arguably fall within the definition of “in-person” solicitation under the D.C. Rules. But we interpret the prohibition in D.C. Rule 7.1(b)(2) against paying a person for recommending the lawyer’s services through in-person contact not to extend to situations in which a prospective client makes a telephone call to a referral service and affirmatively requests a name or names of lawyers. We do not believe that D.C. Rule 7.1(b)(2) was intended to prohibit a lawyer from paying to participate in a referral service in which the prospective client initiates the contact, expressly seeking lawyer referrals.
[8] The location of such an explanation is likely to vary from web site to web site depending on the design. We have cautioned before that, “because web pages allow multi-layered communications, questions may arise about whether a visitor to a web page may be misled because relevant disclosures are hidden many clicks away from the main pages.” D.C. Ethics Op. 302.
[9] Opinion 286, along with other opinions discussing payments of fees for referrals (see, e.g., D.C. Ethics Op. 307), incorporated into its analysis of fee sharing an analysis of the District of Columbia’s unique rule permitting the use of intermediaries. While the rule no longer permits the use of intermediaries, the reasoning of these opinions with respect to fee sharing remains sound.
[10] The rule change only addressed nonprofit organizations that qualify under section 501(c)(3); Opinion 307 continues to apply with respect to government referral services.

November 2007