Fixed Fee Legal Services Online — What is the State Bar Doing about AVVO?

At its meeting on October 26, 2017, the Ethics Committee voted to return Proposed 2017 Formal Ethics Opinion 6, regarding participation in Avvo Legal Services, to a subcommittee for further study. Why? To give the subcommittee time to consider the comments in opposition to the proposed opinion received from North Carolina lawyers.

Background Information on Avvo Legal Services

Avvo.com offers “fixed fee legal services from local lawyers” on its website. Known as Avvo Legal Services (ALS), this service allows consumers to select and employ a lawyer to perform an “unbundled” or discrete legal service.

Legal services available on the ALS platform include advice sessions, document reviews, document drafting, and, in some practice areas, a “start to finish” service such as a simple divorce. The legal fee for each service is displayed on the website together with a description of the legal service that identifies “what’s included” and “what’s not included.” After a consumer selects a legal service, the consumer clicks on the “choose a lawyer” button and is prompted to provide a zip code. The profiles of participating lawyers in or near the provided zip code appear. The consumer can then “select” one of the lawyers from the list to perform the legal service.

Avvo determines the fee that will be charged for each service and also charges participating lawyers a fee. The fee charged to the lawyer, which varies depending on the particular legal service, is called a “marketing fee.” Avvo initially collects the entire legal fee from the consumer via a credit card and deposits the funds in an Avvo bank account. On a monthly basis, Avvo pays the participating lawyer the entire amount of legal fees generated by the lawyer in the preceding month. In a separate transaction, Avvo collects its marketing fees for these legal services by debiting the lawyer’s operating account. Avvo represents that it will refund the fee paid by a consumer if the legal services are not delivered or the consumer is not satisfied with the service.

History of Inquiry

ALS came to the attention of the Ethics Committee in October 2016 when State Bar ethics counsel began receiving inquiries from lawyers asking whether participation in ALS was permissible under the Rules of Professional Conduct. Because ALS presented a unique business model, the matter was assigned to an ethics subcommittee for study and evaluation.

Subcommittee Process

The appointed subcommittee consists of five lawyers from large and small firms as well as a nonlawyer advisory member from Lawyer’s Mutual Insurance Company. The lawyers appointed to the subcommittee were selected, in part, based on their initial reactions to ALS. At least three members of the subcommittee were adamantly opposed to the business model.

The chair, vice-chair, and legal counsel to the Authorized Practice Committee also participated in the subcommittee meetings. The subcommittee meetings were attended by numerous guests including State Bar councilors, in-house legal counsel for Avvo, and, most recently, representatives of the Real Estate Lawyers Association of North Carolina (RELANC). The subcommittee also invited a North Carolina lawyer currently participating in ALS to describe her experience to the subcommittee.

The subcommittee met a total of six times in 2017, and spent countless hours researching ALS and discussing the many ethics rules potentially implicated. (The proposed opinion cites 13 Rules of Professional Conduct.) Because of the number of ethics issues involved, the subcommittee recognized early on that Avvo’s rating service should be examined separately from the actual platform for obtaining legal counsel. Therefore, the subcommittee decided to draft a separate proposed ethics opinion addressing the ratings issues. That proposed opinion was published for comment following the January 2018 quarterly meeting.

After extensive research, each of the subcommittee members arrived at the conclusion that an ethics opinion should not prohibit lawyers from participating in ALS. Throughout these meetings, the subcommittee members were guided by three assumptions: that the marketplace for legal services is changing, the role of the North Carolina State Bar is to protect the consumer of legal services, and there is undeniably a gap in the need and availability of affordable legal services.

The Proposed Opinion

The result of the subcommittee’s hard work is Proposed 2017 Formal Ethics Opinion 6. This opinion provides that lawyers may participate in ALS subject to certain conditions. Most notably, the opinion concludes that, “if there is no interference by Avvo in the independent professional judgement of a participating lawyer and the percentage marketing fees paid by the lawyer to Avvo are reasonable costs of advertising...the lawyer is not prohibited from participating in ALS on the basis of the fee-sharing prohibition [set out in Rule 5.4(a)].” I say “most notably” because, at present, six states have issued ethics opinions on the ALS business model and have concluded that lawyers cannot participate in the business model primarily on the grounds that the model involves prohibited fee-sharing.

The subcommittee carefully reviewed each opinion from the other State Bars and concluded that Proposed 2017 Formal Ethics Opinion 6 is the correct application of Rule 5.4(a), which is specifically intended to protect the lawyer’s professional independence of judgment. See Rule 5.4, cmt. [1]. Indeed, taking payment by credit card, which many lawyers do, is already a form of fee-sharing, since the credit card fee is a percentage of the amount paid. In reaching the conclusions set out in the proposed opinion, the subcommittee members carefully considered the purpose of the rules relative to the State Bar’s duty to protect the public.

North Carolina Lawyer Comments

Following publication of the proposed opinion, we received approximately 30 comments opposing the proposed opinion. (We also received one comment in favor of the opinion.) Pursuant to the process for adopting formal ethics opinions, if even one comment is received about a proposed formal ethics opinion, the proposed opinion is reconsidered by the Ethics Committee at its next quarterly meeting after publication. The comments on Proposed 2017 Formal Ethics Opinion 6 were carefully considered at the committee’s meeting on October 26. As a result of this reconsideration process, the Ethics Committee voted to return Proposed 2017 Formal Ethics Opinion 6 to the subcommittee for further study.

The comments received primarily focus on one aspect of the multi-faceted proposed opinion: the discussion of fee-sharing with a nonlawyer. Other comments generally suggested that these types of online services allow unqualified lawyers to provide legal services (i.e., lawyers just out of law school working out of a parent’s basement), and diminish the legal profession by emphasizing business rather than professionalism.

The favorable comment commends the Ethics Committee for “prioritizing consumer interests in drafting the proposed opinion,” and states that the result “is a reasonable set of guidelines that maintain the consumer protection principles behind the Rules of Professional Conduct and will maintain their relevance as technology, legal business models, and consumer expectations evolve, rather than making bright-line rules based on current models that may not be a good fit for unforeseen future circumstances.” It concludes that, by engaging in analysis of the actual impact on consumers of online platforms, the Ethics Committee has drafted an ethics opinion that protects consumers while fostering an environment in which access to the legal system will improve for North Carolinians.

What Happens Now

The subcommittee will meet during the upcoming quarter to further consider the comments received in opposition to the proposed opinion, and to consider withdrawing the proposed opinion or revising and republishing it for comment.

Regardless of the future actions of the ethics subcommittee, companies providing online legal services are not going away. As noted by the ABA Commission on Ethics 20/20:

Technology has irrevocably changed and continues to alter the practice of law in fundamental ways. Legal work can be, and is, more easily disaggregated; business development can be done with new tools; and new processes facilitate legal work and communication with clients. Lawyers must understand technology in order to provide clients with the competent and cost-effective services that they expect and deserve.

The State Bar’s role in this legal marketplace is to protect the consumers of these new types of legal services. It is not the role, or the aspiration, of the State Bar to restrict consumers’ access to affordable legal services. Similarly, it is not the role of the State Bar to unnecessarily restrict the right of North Carolina lawyers to participate in a potentially profitable business venture. The Rules of Professional Conduct are not intended to prevent “new and useful ways” of providing legal services. See 2001 FEO 2 (contracting with management firm to administer law office).

Navigating these new legal waters is not easy. The subcommittee members digested information on ALS and other types of online legal platforms for a year before publishing the proposed opinion for comment. The proposed opinion is still a work in progress and we request your participation in the reconsideration process. The subcommittee members specifically request that lawyers writing to express dissatisfaction with the proposed opinion also include in their comments viable solutions or alternatives. What measures do you recommend to protect consumers? To protect the integrity of the legal profession?

Subcommittee Meetings are Open to the Public

A great way to become educated on the issues involved in services like ALS and to be involved in the reconsideration process is to attend the subcommittee meetings on the proposed opinion. The subcommittee meetings are open public meetings and generally take place by conference call. The dates of the meeting are posted on the State Bar website: ncbar.gov/about-us/upcoming-events/. The dates are also posted on the television monitors throughout the State Bar building. In addition, you may also email me if you would like to be notified of the date and time of the next subcommittee meeting: slever@ncbar.gov.

(This article originally appeared in the Winter 2018 edition of the North Carolina State Bar Journal.)