Ethics Committee Advisory Opinion #2013-14/08
By the NHBA Ethics Committee
This opinion was submitted for publication by the NHBA Board of Governors at its February 22, 2014 meeting.
May a lawyer ethically offer discounted legal services through a “group coupon” or “daily deal” service?
A number of internet web sites offer discounts on products or services to their subscribers through “group coupons” or “daily deals.” Although the methods used by group coupon services vary, two commonly used models include the “coupon deal” and the “prepaid deal.” Under the coupon deal model, a business sells a coupon, perhaps for $25, entitling the buyer to obtain goods or services at a discount, say 50% off the regular price. The buyer pays for the goods or services, at the discounted price, only at the time of the actual purchase from the offering business. Under the prepaid deal model, a business sells a voucher, perhaps for $250, entitling the buyer to obtain goods or services usually selling for a higher price, say $500. The buyer does not pay any additional funds when they redeem the voucher. Under both models, the group coupon service collects the cost of the coupon or voucher from the buyers, retains an agreed-upon portion, and forwards the balance to the offering business.
A member of the Bar has inquired whether a lawyer may ethically use a group coupon service to provide legal services at a discount. Specifically, the inquiring lawyer envisions offering to draft a will at a $200 discount from the usual fee.
Under certain circumstances, a coupon deal can be structured in such a manner as to comport with the New Hampshire Rules of Professional Conduct. The Committee believes that it is unlikely that a prepaid deal could be structured to comply with the Rules.
Recent ethics opinions from several other jurisdictions and the American Bar Association’s Standing Committee on Ethics and Professional Responsibility (the “ABA”) have addressed the issue of offering discounted legal services through group coupon services. Bar association ethics committees from North Carolina (Op. 2011-10), South Carolina (Op. 11-05) and New York (Op. 897), and the ABA (Formal Opinion 465), have found that lawyers may ethically utilize group coupon services under certain circumstances. Indiana (Op. 1 of 2012) and Alabama (RO 2012-01) bar associations have found otherwise. The New Hampshire Bar Association Ethics Committee agrees with the former group, especially with the ABA’s opinion, and concludes that a lawyer may provide discounted legal services using a coupon deal offered through a group coupon service, assuming that various ethical concerns are addressed as discussed below.
Advertising Cost or Fee Sharing?
When the group coupon service collects funds from its subscribers, it retains a portion for itself and pays the rest to the service provider. Several of the ethics opinions on this issue have analyzed whether the funds retained by the group coupon service constitute prohibited fee-sharing with nonlawyers, or permissible payment for advertising costs. Rule 5.4 prohibits the sharing of legal fees with nonlawyers (except under limited circumstances not relevant here). Rule 7.2(b)(1) permits lawyers to pay the reasonable cost of advertisements or communications permitted by the Rules. The Committee does not believe that the retention by the group coupon service of a portion of the funds collected from the subscriber constitutes prohibited fee-sharing. This is especially so in the case of a coupon deal, where the funds collected by the group coupon service are not the fees for the legal services subsequently provided by the lawyer and separately paid for by the client. The portion of the payment retained by the group coupon service is fixed in advance and does not depend upon whether the services are actually rendered, making it more akin to a fee for advertising. Assuming that the amount retained by the group coupon service is a reasonable payment for the advertisement, it would not violate Rule 7.2(b)(1). In its opinion, the ABA noted that the cost of alternate advertising, and the services provided by the group coupon service could be factors contributing to whether the advertising fee is reasonable.
Accounting for Unearned Legal Fees
Lawyers must comply with ethical rules governing the safeguarding of client property. Rule 1.15(a) requires that unearned legal fees must be deposited into designated trust accounts that comply with New Hampshire Supreme Court Rules. Rule 1.15(d) requires that legal fees and expenses paid in advance be deposited into a client trust account, to be withdrawn by the lawyer only as fees are earned and expenses incurred. Given the way that many group coupon services operate, it is unlikely that a lawyer would be able to comply with these requirements in connection with a prepaid deal. As observed by the ABA in its opinion, group coupon services typically collect fees from all participating subscribers, withhold the service’s share, and pay the remainder to the vendor in a single lump sum, without identifying who the funds came from. Before offering a prepaid deal, a lawyer would need to carefully review the group coupon service’s policies and practices to ensure that the lawyer will be able to timely obtain advance legal fees collected by the group coupon service, and properly account for them in the lawyer’s trust account. It is the sense of the Committee that the difficulty of accomplishing this makes the offering of a prepaid deal unworkable. With regard to a coupon deal, no legal fees are collected by the group coupon service, and this concern is not implicated.
Competence, Conflicts and Duties to Prospective Clients
A lawyer offering legal services through a group coupon service does not have the opportunity to talk to subscribers, or even know who they are, before they accept and pay for the deal. As a result, a lawyer’s use of a group coupon service raises issues of competence, conflicts of interest and the duties to prospective clients.
Rule 1.1 requires lawyers to provide competent representation to their clients. In part, the obligation to provide competent representation requires the lawyer to gather sufficient facts regarding the client’s problem, and to develop a strategy, in consultation with the client, for addressing that problem. The group coupon business model prevents the lawyer from undertaking these steps prior to the subscriber accepting the offer. As a result, as soon as the subscriber presents the coupon or voucher, the lawyer must make the determination as to whether it is possible to provide competent representation. It may be that the service offered is not appropriate for the subscriber, or that the lawyer is unable to provide the services that the subscriber needs. In such a case, the lawyer must decline the representation pursuant to Rule 1.16 and give the subscriber a full refund pursuant to Rule 1.5(a), as explained below.
Similarly, because the lawyer will not know who the subscribers are before they accept the services offered, the lawyer will not have the opportunity to check for conflicts. There is a risk that the lawyer will be prevented by Rule 1.7 or Rule 1.9 from providing the legal services offered through the group coupon service due to the representation of a current or former client. The New York Bar Association notes that such conflicts can be addressed by notifying subscribers in advance that the group coupon offer is conditioned upon a conflict check prior to providing any legal services. If a conflict is found, the lawyer must decline the representation and give the subscriber a full refund.
In its opinion, the ABA concluded that the mere purchase of a coupon deal does not make the buyer a current or prospective client. However, depending upon how the group coupon service is structured, there is a possibility that the buyer could be a prospective client if the buyer has provided the lawyer with information regarding the possibility of forming a lawyer-client relationship. In that case, the buyer would be entitled to the protections afforded by Rule 1.18. The Committee therefore agrees with the advice in the ABA opinion that a lawyer offering a coupon deal through a group coupon service should include in the communication relating to the deal an explanation that, until a consultation between the buyer and the lawyer takes place, no client-lawyer relationship exists, and may never exist if the lawyer is unable to provide the representation, or otherwise declines the representation.
After a group coupon offer for legal services is purchased, there is always a possibility that the services associated with that offer may never be rendered. This may be as a result of the buyer deciding not to redeem the coupon, forgetting about it, or failing to redeem it before the expiration date, if there is one. It may also be as a result of the lawyer being unable to provide the representation due to a conflict, or otherwise declining the representation.
Rule 1.5(a) prohibits lawyers from entering into an agreement for, charging, or collecting an illegal or unreasonable fee. As observed by the North Carolina Bar Association’s Ethics Committee, a fee retained by a lawyer for “doing nothing” would be “inherently excessive” and a violation of Rule 1.5(a).
In the case of a prepaid deal, the buyer is entitled to a refund whenever services are not rendered, regardless of whether it was due to the buyer choosing not to or otherwise failing to redeem the offer, or the lawyer being unable to provide the services, or choosing not to. The ABA opinion suggests that, if the communication accompanying the offer properly explains that the portion of the deal purchase price attributable to advertising costs is non-refundable, the lawyer may choose to refund only the portion of the price attributable to the legal fees when the services are not provided because the buyer chose not to obtain the services. If, however, the legal services are not provided as a result of the lawyer’s inability or decision not to provide them, then the buyer is entitled to a full refund of the purchase price, without regard to whether the lawyer can recoup the portion of the purchase price retained by the group coupon service.
In the case of a coupon deal, because no legal fees have been collected until the deal is redeemed, the lawyer need not provide a refund if the buyer does not redeem the deal, so long as the communication accompanying the offer properly explains that the coupon purchase price is non-refundable. If however, the legal services are not provided because the lawyer cannot, or chooses not to, provide them, the buyer is entitled to a full refund of the purchase price, again, without regard to the lawyer’s ability to recoup any funds from the group coupon service.
Finally, a lawyer using a group coupon service must observe the rules concerning lawyer advertising. In particular, a lawyer must not make an offer through a group coupon service that is false or misleading in violation of Rule 7.1. As observed by the North Carolina State Bar, an offer for discounted legal services made through a group coupon service cannot be illusory – it must be an offer to provide legal services at an actual discount from the lawyer’s established standard fees. Moreover, the offer should expressly state what specific services are being offered, any conditions that may affect how and whether the services are rendered, whether the offer has an expiration date, and a statement regarding the terms and conditions under which the buyer will receive a refund if the buyer does not redeem the deal.
As observed by the Indiana Bar Association in its opinion, offering legal services through a group coupon deal is “fraught with peril.” The Committee agrees, but believes that a lawyer may offer a coupon deal through a group coupon service, if the lawyer carefully reviews the policies and practices of a group coupon service, and ensures that the offer can be made consistent with the applicable ethical obligations, as discussed above. The Committee believes that it is unlikely that a prepaid deal can be structured in such a way as to permit it to comply with a lawyer’s ethical obligations, in particular, the obligations under Rule 1.15(a).