Deal of the Day or Stay Away?

In October, the ABA issued a Formal Ethics Opinion about attorneys using Deal-of-the-Day or Group Coupon marketing programs.  The ABA’s opinion raises many hypothetical questions and potential pitfalls that should be considered by lawyers who are contemplating this type of arrangement.  However, its conclusions about whether a lawyer can ethically offer deals on websites like Groupon and Living Social are not entirely clear.  The final sentence of the opinion states:  “The Committee has identified numerous difficult issues associated with prepaid deals, especially how to properly manage payment of advance legal fees, and is less certain that prepaid deals can be structured to comply with all ethical and professional obligations under the Model Rules.” 

Fortunately for North Carolina lawyers, the State Bar has issued a formal ethics opinion (2011 FEO 10) providing more guidance on the subject.  Highlights from 2011 FEO 10 include:

• A deal-of-the-day arrangement does not constitute fee sharing with a non-lawyer in violation Rule 5.4(a).  Instead, the fee paid to the marketing website is a cost of advertising under Rule 7.2(b)(1).

• The deal cannot be misleading or illusory.  The discount offered (whether it is a $99 will preparation package or 5 hours of attorney time for $500) must be a real discount from the lawyer’s established, standard fee for the service. 

• The deal must include disclosures stating that the prospective purchaser should carefully investigate the lawyer’s credentials and take the decision to hire a lawyer seriously. 

• The ad must inform the buyer that the lawyer may not be able to provide the service and will refund the purchase price if there is a conflict of interest or if the lawyer determines that the service is not appropriate for the buyer.

• Payments received from the website are advance payments of legal fees and must be deposited in the lawyer’s trust account.  The offer cannot be structured so that the money paid is a flat fee earned by the lawyer upon payment.  See 2008 FEO 10.

• The purchaser of the deal is a prospective client for purposes of Rule 1.18 and is entitled to the protections provided by that Rule.

• If the purchaser does not redeem the offer within the specified time, the lawyer must refund the funds deposited in his or her trust account.

• If the lawyer concludes that there is a conflict of interest or that the services are not appropriate for the client, the entire advance payment – including the portion paid to the marketing website – must be refunded.

• If the lawyer finds that additional time is required to competently complete the representation, beyond what was anticipated in the advertised deal, the lawyer must fulfill the representation without additional charge to the client.

It is interesting to note that the ABA opinion differs from 2011 FEO 10 in some respects.  The ABA concludes that the purchase of a deal for legal services does not create a prospective client relationship between the buyer and the attorney.  It also disagrees with the State Bar’s conclusion that it is per se improper to charge additional fees if the matter requires more time than originally anticipated.

Aside from the thorny ethical issues, does it make sense for attorneys to offer group coupon deals?  After factoring in the discount and the fee paid to the marketing website, the lawyer will likely receive only 25% of his or her standard fee for the work performed.  Is the deal likely to lead to repeat or referral business?  If so, it may be worth an initial loss to generate that business.  Carefully consider whether your practice involves the sort of discrete services that would work for a daily deal offer.  Finally, the ABA cautions lawyers to be careful in setting the maximum number of deals that can be sold on the marketing website.  If too many deals are sold, the lawyer may face an excessive volume of work that cannot be handled promptly, diligently, and competently as required by the Rules of Professional Conduct. 

Laura Loyek joined Lawyers Mutual as claims counsel in 2009 and her focus areas are real estate and litigation. She is an active member of the North Carolina Association of Women Attorneys and the Real Property Section of the NCBA. Contact Laura at 800.662.8843 or laura@lawyersmutualnc.com.