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Council Actions

At its meeting on July 28, 2017, the State Bar Council adopted the ethics opinions summarized below:

2017 Formal Ethics Opinion 3
Advertisement with URL and No Other Identifying Information

Opinion rules that a billboard advertisement need not contain the lawyer’s name, firm name, or the firm’s office address if the URL address on the advertisement lands on the lawyer’s website where such information can be easily found.

2017 Formal Ethics Opinion 4
Settlement Funds Subject to Statutory Lien

Opinion rules that a lawyer is prohibited from disbursing settlement funds pursuant to the client’s directive if the funds are subject to a perfected lien.

Ethics Committee Actions

At its meeting on July 27, 2017, the Ethics Committee voted to continue to table proposed 2016 Formal Ethics Opinion 1, Contesting Opposing Counsel’s Fee Request to Industrial Commission, pending the conclusion of appellate action in a case that is relevant to the proposed opinion. The committee also voted to revise and republish proposed 2017 Formal Ethics Opinion 2, and two new proposed opinions. All appear below.

The comments of readers on proposed opinions are welcomed. Comments received by October 12, 2017, will be considered at the next meeting of the Ethics Committee. Comments may be emailed to ethicsadvice@ ncbar.gov.

Proposed 2017 Formal Ethics Opinion 2
Maintaining Fiduciary Account in Accordance with Rule 1.15
July 27, 2017

Proposed opinion rules that a lawyer representing an estate must maintain the checking account for the estate in accordance with Rule 1.15 consistent with the extent to which the lawyer has control over the account.

Background:

On June 9, 2016, the North Carolina Supreme Court approved amendments to Rule 1.15, Safekeeping Property, and its subparts (frequently referred to as the “trust accounting rules”). The following opinion concerns a lawyer’s obligations with respect to a fiduciary account, such as an estate account. Inquiries are answered based upon the rule as amended.

Inquiry #1:

A’s will names Lawyer as executor. After A dies, Lawyer opens a client file for the estate in his law office and begins serving as the personal representative for the estate. Lawyer intends to seek compensation for his services. Lawyer opens a checking account for the estate, makes himself the signatory on the account, and manages the checking account throughout the administration of the estate. What are Lawyer’s management obligations for the account under Rule 1.15?

Opinion #1:

The checking account must be established as a lawyer’s fiduciary account and managed in accordance with the provisions of Rule 1.15 and its subparts.

As the personal representative for the estate, Lawyer will serve in the role of a fiduciary and provide professional fiduciary services. The phrase “professional fiduciary services” is defined and explained in Rule 1.15-1(l) and cmt. [6] as service by a lawyer in any one of the various fiduciary roles undertaken by a lawyer that is not, of itself, the practice of law, but is frequently undertaken in conjunction with the practice of law. This includes service as a trustee, guardian, personal representative of an estate, attorney-in-fact, and escrow agent, as well as service in other fiduciary roles “customary to the practice of law.” Rule 1.15, cmt. [6].

The funds Lawyer receives for the benefit of the estate are fiduciary funds and must be deposited in a fiduciary account. Fiduciary funds, another term defined in Rule 1.15-1, denotes funds belonging to someone other than the lawyer that are received by or placed under the control of the lawyer in connection with the performance of professional fiduciary services. Rule 1.15-1(g). A “fiduciary account,” also defined in Rule 1.15, is “an account, designated as such, maintained by a lawyer solely for the deposit of fiduciary funds or other entrusted property of a particular person or entity.” Rule 1.15-1(f).

Any property belonging to the estate received by or placed under the control of the lawyer in connection with the lawyer’s furnishing of legal services or professional fiduciary services must be handled and maintained in accordance with all of the applicable provisions of Rule 1.15, including but not limited to:

• Rule 1.15-2: General Rules

• Rule 1.15-3(a): Check Format

• Rule 1.15-3(b) or (c)(as appropriate): Minimum Records

• Rule 1.15-3(f): Accountings for Fiduciary Property

• Rule 1.15-3(g): Minimum Record Keeping Period

• Rule 1.15-3(i): Reviews

See Rule 1.15, cmts. [2], and [6]-[9].

These duties include promptly depositing all fiduciary funds received by or placed under the control of the lawyer in a fiduciary account. Rule 1.15-2(c). They also include (1) review of the monthly bank statements and canceled checks for the account each month (the “monthly review”); (2) for each quarter, review of the statement of costs and receipts, client ledger, and cancelled checks of a random sample of representative transactions completed during the quarter (the “quarterly review”); (3) resolution within ten days of any discrepancies found during the monthly or quarterly reviews; and (4) preparation of a signed and dated report on each monthly and quarterly review. Rule 1.15-3(i). This list is not exhaustive and Lawyer is obligated to review Rules 1.15-2 and 1.15-3 to ensure compliance.

Inquiry #2:

Lawyer represents Estate of B and the personal representative of Estate of B in her official capacity. Lawyer opens a checking account for the estate and designates the personal representative as the signatory on the account. The personal representative will receive the bank statements. Lawyer, however, intends to retain possession of the checkbook, preparing checks for the personal representative’s signature as needed and depositing estate funds into the account when obtained. What are Lawyer’s obligations for the account under Rule 1.15?

Opinion #2:

The requirements of Rule 1.15-2 and 1.15-3 apply only to the extent that the lawyer has control over the estate account. In the instant inquiry, Lawyer has possession of the checkbook, but does not have signatory authority. Therefore, Lawyer is not obligated to follow the requirements of Rule 1.15 and its subparts that apply to the maintenance and disbursement of funds by one having signatory authority over the account, or with the review and reconciliation requirements of Rule 1.15-3. Lawyer, however, is obligated to follow the requirements of Rule 1.15 as applicable to items over which Lawyer has possession or control, such as properly safeguarding checks received for the estate, properly safeguarding the checkbook for the estate account, and not using any debit card received for the estate account to withdraw funds from the estate account.

For example, if Lawyer receives a check or other entrusted property for the benefit of the estate, Lawyer must comply with the provisions of Rule 1.15 governing the handling of entrusted funds, including Rule 1.15-2(a), which sets forth the duty to identify, hold, and maintain entrusted property separate from the property of the lawyer and to deposit, disburse, and distribute only in accordance with Rule 1.15. This would include labeling a check or funds as property of the estate, and placing the check or funds in a suitable place of safekeeping until deposited in the estate account. Notice must be promptly given to the personal representative if the personal representative is responsible for depositing funds to the account.

Lawyer represents the estate and the personal representative in her official capacity. RPC 137. Therefore, Lawyer has a duty to provide competent and diligent representation. Rule 1.1 and Rule 1.3. Competent and diligent representation requires Lawyer to advise the personal representative of her fiduciary responsibilities relative to the safekeeping of the funds of the estate and her duty to administer the estate in compliance with the law. See generally 2002 FEO 3 (lawyer for estate may seek removal of personal representative if the personal representative’s breach of fiduciary duties constitutes grounds for removal under the law). To ensure that the estate account is properly managed, checks are not written against insufficient funds, and estate funds are protected from theft, competent and diligent representation dictates that Lawyer periodically meet with the personal representative to review the estate account documents, including the bank statements and canceled checks. If Lawyer prepares checks for the personal representative’s signature, Lawyer must conduct a periodic review of the balance for the estate account sufficient to guard against the preparation of a check for the personal representative’s signature that would exceed the balance of the account.

Inquiry #3:

Lawyer represents Estate of C and the personal representative of the Estate of C in her official capacity. Lawyer opens the checking account for the estate. Lawyer and the personal representative are designated as signatories on the estate account. Lawyer has the checkbook for the account and receives the bank statements. Although Lawyer is the person primarily responsible for depositing funds into the estate account and writing checks, the personal representative may also deposit funds into the estate account and write checks. What are Lawyer’s duties with regard to the estate account?

Opinion #3:

As stated in Opinion #2, the requirements of Rule 1.15-2 and Rule 1.15-3 apply only to the extent the lawyer has control over the estate account. Because Lawyer has signatory authority, has possession of the checkbook, and receives the bank statements, Lawyer has control of the estate account and is, therefore, obligated to follow the requirements of Rule 1.15-2 and Rule 1.15-3. Lawyer must open the estate account as a lawyer’s fiduciary account and review the estate account in accordance with Rule 1.15-3(i): Reviews. Furthermore, Lawyer must advise the personal representative of her fiduciary responsibilities relative to the safekeeping of the funds of the estate and her duty to administer the estate in compliance with the law. See Opinion #2.

Inquiry #4:

Lawyer represents Estate of D and the personal representative of Estate of D in her official capacity. The personal representative opens the checking account for the estate and manages the account, including the preparation of checks at Lawyer’s direction. What are Lawyer’s obligations for the account under Rule 1.15?

Opinion #4:

Lawyer is not obligated to follow Rule 1.15. See Opinion #2.

Inquiry #5:

Lawyer represents Estate of E and the personal representative of Estate of E in her official capacity. The personal representative opens a checking account for the estate and manages the account, including receipt of the bank statements and the preparation of checks. The personal representative is the only signatory on the estate checking account. The personal representative, however, asks Lawyer’s paralegal to take possession of the checkbook. Each month, the personal representative goes to Lawyer’s law firm, writes checks, and gives the bills and the checks to paralegal. Paralegal then mails out the checks. What are Lawyer’s obligations to the estate account under these circumstances?

Opinion #5:                                                

See Opinion #2. Additionally, under Rule 5.3(b), Lawyer must make reasonable efforts to ensure that the paralegal’s conduct is compatible with the professional obligations of Lawyer. This includes making reasonable efforts to ensure that the paralegal understands and complies with the professional obligation of Lawyer to safeguard the checkbook under Rule 1.15-2(d) as well as with the professional obligation of Lawyer under Rule 8.4(b) and (c) not to misappropriate fiduciary funds by means of forged checks or other methods.

Inquiry #6:

Did the June 2016 amendments to Rule 1.15 change or add to the obligations of a lawyer with respect to a fiduciary account, or otherwise change the answers to Inquiries #1 and #2 above?

Opinion #6:

Yes. The 2016 amendments found in Rule 1.15-3(i) now require monthly and quarterly reviews for fiduciary accounts as well as general trust accounts.

Inquiry #7:

In the representations described in Inquiries #1 and #2 above, may Lawyer delegate the management of the fiduciary account to a nonlawyer assistant?

Opinion #7:

Day-to-day management of the account may be delegated to a nonlawyer assistant. However, the responsibility for conducting the monthly and quarterly reviews required by Rule 1.15-3(i) may not be delegated. The rule specifies that “the lawyer” shall review the records. To fulfill the intended purpose of this provision, the lawyer, rather than an assistant, must conduct these reviews. Lawyer must periodically review underlying bank records, independently of any records prepared or provided by the assistant, to ensure that the nonlawyer’s conduct is compatible with the professional obligations of the lawyer. As explained in comment [23] to Rule 1.15:

The mandatory monthly and quarterly reviews and oversight measures in Rule 1.15-3(i) facilitate early detection of internal theft and early detection and correction of errors. They are minimum fraud prevention measures necessary for the protection of funds on deposit in a firm trust or fiduciary account from theft by any person with access to the account. Internal theft from trust accounts by insiders at a law firm can only be timely detected if the records of the firm’s trust accounts are routinely reviewed. For this reason, Rule 1.15-3(i)(1) requires monthly reviews of the bank statements and cancelled checks for all general, dedicated, and fiduciary accounts.

 Although Lawyer may delegate day-to-day management of the account to a nonlawyer assistant, Lawyer remains professionally responsible for compliance with the requirements of Rule 1.15 and its subparts. Therefore, the assistant must be appropriately instructed, trained, and supervised concerning the requirements of the rule. Rule 5.3.

Inquiry #8:

If Lawyer delegates the day-to-day management of a fiduciary account to a nonlawyer assistant, may that assistant be a signatory on the account?

Opinion #8:

The trust accounting rules do not prohibit this. However, the practice increases the risk of internal fraud. See, e.g., Rule 1.15-2(s) (prohibiting an assistant responsible for reconciling a trust account from being a signatory on the account). A lawyer should not permit an assistant to be a signatory on a fiduciary account unless the lawyer or law firm has established fraud prevention procedures that will protect the fiduciary funds from internal theft. See Rule 1.15, cmt. [25].

Proposed 2017 Formal Ethics Opinion 5
Agreement Not to Solicit or Hire Lawyers from Another Firm As Part of Merger Negotiations
July 27, 2017

Proposed opinion rules that an agreement between law firms engaged in merger negotiations not to solicit or hire lawyers from the other firm for a relatively short period of time after expiration of the term of the agreement is permissible because it is a de minimis restriction on lawyer mobility that does not impair client choice and is reasonable under the circumstances.

Inquiry:

Law Firm A entered into an agreement with Law Firm B to explore merger of the two law firms. In addition to provisions addressing non-disclosure of confidential client and proprietary firm information, the agreement included the following provision:

Non-Solicitation. During the term of this Agreement and, should Law Firm A and Law Firm B decide not to merge, for a period of two (2) years after termination of this Agreement (the “Non-Solicitation Period”), (i) Law Firm A agrees that it shall not induce or solicit any of the partners, associates, or other employees of Law Firm B to join Law Firm A; and (ii) Law Firm B agrees that it shall not induce or solicit any of the partners, associates, or other employees of Law Firm A to join Law Firm B. The foregoing restriction shall not apply to (i) associates or other employees who are hired through a party’s recruiting efforts resulting from the placement of general media advertisements or the retention of “headhunters” (provided that the headhunters are not specifically directed to solicit associates or other employees from the other party), or (ii) the hiring by a party of the other party’s associates or other employees who make unsolicited contacts seeking employment so long as such individuals did not directly participate in meetings, negotiations, or similar discussions between the parties concerning the terms of the potential merger. Each party agrees not to hire or engage as partners or counsel any individual who is currently a partner or counsel with the other party to this Agreement for a period of two years from the termination of this Agreement.

The term of the agreement is one year, but is subject to early termination based upon ten days’ notice by a party. Therefore, the potential period of restriction may be as long as three years.

Attorney X is a partner in Law Firm A and is interested in joining Law Firm B. She did not participate in meetings, negotiations, or discussions between the law firms relative to the agreement or to a potential merger with Law Firm B. Nevertheless, the managing lawyers for Law Firm B have refused to talk to her about becoming a partner because the period of restriction has not expired. Law Firm B will talk to Attorney X about joining the firm if she obtains a waiver of the restriction from Law Firm A.

Is this provision of the agreement prohibited under Rule 5.6(a)?

Opinion:

No, because it imposes a de minimis restriction on the mobility of the lawyers in the firms, does not impair client choice, and is reasonable under the circumstances.

Rule 5.6(a) prohibits a lawyer from participating in offering or making a partnership, shareholder, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement. As explained in 2012 FEO 12, “[t]his prohibition on restrictive covenants protects the freedom of clients to choose a lawyer and promotes lawyer mobility and professional autonomy.” Rule 5.6, cmt. [1].” Ethics opinions interpreting the rule usually address the former concern. For example, three State Bar opinions evaluate whether financial disincentives upon departure from a law firm are disguised penalties for competition because “firm” clients will follow the departing lawyer. See 2007 FEO 6, 2008 FEO 8, and 2012 FEO 12. There are no opinions that provide insight into agreements that solely restrict the mobility of lawyers as does the agreement at issue. Therefore, this is a matter of first impression.

Restrictive covenants are not, however, foreign to the Rules of Professional Conduct. Rule 1.17, Sale of a Law Practice, permits a lawyer to sell a law practice or an area of law practice, including good will, if a number of conditions are satisfied, including the following: “the seller ceases to engage in the private practice of law, or in the area of practice that has been sold, from an office that is within a one-hundred (100) mile radius of the purchased practice...” Rule 1.17(a). Where a reasonable business purpose exists, the Rules permit some limitations on lawyer mobility.

Similarly, 2007 FEO 6 and 2008 FEO 8 recognize that a financial disincentive upon the departure of a lawyer may be permissible. Those opinions permit partnership, shareholder, or other similar agreements to include a post-departure repurchase, buy-out, or fee division provision if the provision is fair, takes into account the loss in firm value generated by the lawyer’s departure, and is not based solely upon loss in value due to the loss of client billings. Again, if there is a reasonable business purpose, a restriction that impacts lawyer mobility may be permissible.

The non-solicitation provision in this inquiry is primarily a restriction on the law firms that are a party to the agreement in that it restricts the recruiting activities of the firms. To the extent that the provision restricts the mobility of lawyers in the two firms, the restriction is for a relatively short, defined period of time and only with regard to employment with one other law firm; the lawyers in the firms are free to seek employment with any other law firm. In addition, the provision does not prevent or inhibit a client from following a lawyer who departs one of the firms for employment with a firm not subject to the agreement. Thus, the provision imposes a de minimis restriction on lawyer mobility and does not impair client choice

As noted in the Scope section of the Rules, “[t]he Rules of Professional Conduct are rules of reason. They should be interpreted with reference to the purposes of legal representation and of the law itself.” Rule 0.2, cmt. [1]. It is surmised that the non-solicitation provision was included in the agreement to foster the trust necessary for both firms to disclose financial information about the productivity of the lawyers in the firms without fear that, should the merger negotiations be abandoned, the other firm would attempt to lure highly productive lawyers or “rainmaker” lawyers away from the other firm. The provision was reasonable1 under the circumstances and, given its limited duration and effect, does not violate Rule 5.6(a).

No opinion is expressed on the legal enforceability of the provision in this inquiry or other similar provisions.

Endnote

1. Whether a restriction on lawyer mobility in an agreement between law firms engaged in merger negotiations is reasonable will depend on various factors, including the specific terms of the restriction, the number of law firms involved in the merger negotiations, and the likelihood of employment opportunities with law firms not involved in the merger negotiations.

Proposed 2017 Formal Ethics Opinion 6
Participation in Online Platform for Finding and Employing a Lawyer
July 27, 2017

Proposed opinion rules that a lawyer may participate in an online platform for finding and employing lawyers subject to certain conditions.

Introduction:

Avvo, Inc. operates an online platform for accessing legal services. Its website includes a directory of United States lawyers that was derived from public records and the membership lists of licensing agencies. Lawyers listed in the directory are rated by Avvo using a rating system developed by the company. Lawyers do not pay to be included in the directory, and consumers do not pay to obtain access to the directory.

Avvo also 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. Lawyers in private practice agree to participate in the program and to comply with Avvo’s terms of service. Avvo determines the legal services that will be offered and the fee that will be charged for each service. It charges participating lawyers a percentage of the legal fee earned by the lawyer for each service. This charge to the lawyer is called a “marketing fee.” The marketing fees vary depending upon the 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. After a lawyer is selected, the charge for the service is displayed. The page also displays the following “important information:”

• Additional legal services—If you want additional legal services beyond the purchased service, you can make arrangements directly with the attorney.

• Attorney-client relationship—Once your phone call begins, everything you discuss is protected by attorney-client privilege, meaning what you share is confidential; this relationship does not exist until your call takes place.

• Representation—The attorney-client relationship may not be formed if the attorney is unable to help you. This can happen if the lawyer feels they [sic] are not qualified to answer your questions or if there’s a conflict of interest.

• Representation agreement—For some legal services, the attorney could require that you sign a representation agreement before proceeding with the service.

• Attorney advertising—Attorneys participating in Avvo Legal Services pay Avvo a marketing fee for each legal service provided.

The consumer then provides the information necessary to pay online by credit card. Once the credit card information is confirmed by Avvo, the consumer is advised that the selected lawyer will call the consumer within a specified period of time. Avvo provides the potential client’s identifying information and a description of the legal matter to the chosen lawyer. The lawyer is also given a tracking phone number to use to call the consumer. When the lawyer places the phone call over this designated line, Avvo tracks the call to confirm that the call was completed and its length. Avvo states that it does not monitor the content of the phone call and has no ability to do so. Upon confirmation that the phone call has occurred for a designated length of time, the consumer’s credit card is charged the full amount for the legal service purchased. 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.

The credit card funds are deposited in an Avvo bank account. On a monthly basis, Avvo pays the participating lawyer for all ALS legal fees generated by the lawyer in the preceding month. The lawyer designates the bank account (trust or operating account) into which the fees will be deposited. Also on a monthly basis, Avvo collects its marketing fees for the legal services provided by the lawyer in the preceding month by debiting the operating account designated by the lawyer.

Inquiry:

May a lawyer participate in ALS or other similar online platforms for consumers to identify, select, and employ a lawyer?

Opinion:

Yes, subject to certain conditions which are addressed below. Although this opinion references Avvo or ALS throughout, it is applicable to any other similar online platform for marketing legal services.

Unauthorized Practice of Law

NC Gen. Stat. § 84-5 makes it unlawful for a corporation to practice law or to “hold itself out to the public or advertise as being entitled to practice law.” Rule 5.5(f) prohibits a lawyer from assisting in the unauthorized practice of law by another. Therefore, a lawyer participating in ALS must determine that Avvo is not engaged in the practice of law and is  not holding itself out as able to do so. To this end, Avvo’s advertising and website must make abundantly clear that Avvo does not provide legal services to others and that its only role is as a marketing agent or platform for the purchase of legal services from independent lawyers. In addition, there may be no limitations placed on the consumer’s right to engage a participating lawyer to provide different or additional legal services outside of the ALS platform.

Lawyer Referral Service

Rule 7.2(d) prohibits a lawyer from participating in a lawyer referral service that is operated for a profit or that collects any sums from clients or potential clients for use of the service. If ALS, which is operated for a profit, is a lawyer referral service, North Carolina lawyers may not participate. A lawyer referral service is defined in 2010 FEO 4 as “a service that purports to screen the lawyers who participate and to match prospective clients with suitable participating lawyers” (citing 2004 FEO 1). The opinion holds that a for-profit barter exchange is not a lawyer referral service, and North Carolina lawyers may participate where the barter service “provides a complete, impartial list of all participating lawyers, does not purport to recommend or select a lawyer for an exchange member seeking legal services, and does not restrict the number of participating lawyers.” Similarly, ALS is not a lawyer referral service if, after indicating the type of service desired, the consumer has the ability to select a lawyer from the list of all participating lawyers in a particular geographic area who are willing to provide the selected service. As long as ALS does not exercise discretion to match prospective clients with participating lawyers, the requirements of Rule 7.2(d) are not implicated.

Independent Professional Judgment and Non-interference in the Professional Relationship

The exercise of independent professional judgment by a lawyer is an essential feature of the client-lawyer relationship. See e.g., Rule 1.8(f) and Rule 5.4(c). If a third party interferes in the lawyer’s professional judgment, the lawyer is not fulfilling his duty to the client to provide competent, independent legal advice, free of conflicts of interest, and the third party may be engaged in the unauthorized practice of law. Comment [11] to Rule 1.8, which addresses third party payment for a lawyer’s services, is instructive:

Because third-party payers frequently have interests that differ from those of the client, including interests in minimizing the amount spent on the representation and in learning how the representation is progressing, lawyers are prohibited from accepting or continuing such representations unless the lawyer determines that there will be no interference with the lawyer’s independent professional judgment and there is informed consent from the client. See also Rule 5.4(c) (prohibiting interference with a lawyer’s professional judgment by one who recommends, employs, or pays the lawyer to render legal services for another).

Rule 1.8(f), cmt. [11].

Similarly, Avvo has business interests that differ from the interests of the consumers who use its website. Therefore, once a consumer selects a lawyer using the ALS platform, there can be no interference by Avvo in the lawyer’s professional judgment or with the professional relationship between the consumer (now client) and the lawyer. For example, Avvo may not limit a participating lawyer’s freedom to advise a consumer that the legal service selected on the ALS platform is not appropriate given the consumer’s stated legal problem. Similarly, Avvo may not limit the lawyer’s authority to recommend different or additional legal services not offered on the ALS platform. In addition, Avvo may not make recommendations to the lawyer relative to the legal representation of the client, including the nature and extent of the legal services that the lawyer determines are appropriate, and may not have a policy or practice of threatening to remove or removing a lawyer from the list of participating lawyers for the exercise of independent professional judgment as described above.

Non-interference is particularly important with regard to confidential communications between the lawyer and the client, including the transmission via Avvo’s website of documents by the consumer to the lawyer and the use of the tracking phone line. Rule 1.6(a) requires a lawyer to maintain the confidentiality of any information learned during the professional relationship. To preserve confidentiality, Avvo may not be a party to client-lawyer communications about the substance of the representation.

It is recommended that Avvo’s non-interference in a participating lawyer’s professional judgment or with client-lawyer relationship be confirmed in writing.

Determination of the Amount of the Legal Fee and Resolution of Fee Disputes

Rule 1.5(a) requires a lawyer to charge and collect only legal fees that are not illegal or “clearly excessive.” The rule lists non-exclusive factors to be considered when determining whether a fee is clearly excessive. Thus, a lawyer must exercise professional judgment when establishing an hourly rate or setting a fee for a particular legal service.

Although Avvo establishes the fees for all of the legal services offered on the ALS platform, to comply with Rule 1.5, a participating lawyer is still obliged to evaluate the fee that will be charged for any legal service that the lawyer agrees to provide via ALS. If a participating lawyer determines that a fee charged by Avvo for a particular legal service is clearly excessive, the lawyer must decline to offer that legal service until Avvo reduces the fee to an amount that complies with the lawyer’s duty under Rule 1.5(a). Similarly, if a participating lawyer determines that there are statutory limitations on a particular legal fee or prior approval of a tribunal is required, the lawyer must decline to offer the legal service unless the statutory limitations are satisfied or payment of the fee is deferred until the approval of the tribunal is obtained.

Rule 1.5(f) requires a lawyer having a dispute with a client regarding a fee for legal services to advise his client of the North Carolina State Bar’s program of fee dispute resolution and to participate in good faith in the resolution process if the client submits a proper request. Avvo may not participate in a fee dispute between the lawyer and the client. However, Avvo’s response to complaints about its process for enabling consumers to identify and hire a lawyer does not implicate this prohibition. Moreover, if Avvo provides a “money-back guarantee” of its service, a refund by Avvo of the fee paid by a consumer may resolve the dispute with the lawyer and is permissible.

Collection and Disbursement of the Legal Fee

The ALS model calls for the consumer’s credit card to be charged for the full amount of the fee for a chosen legal service as soon as the tracked phone call between the participating lawyer and the consumer (now client) is complete. The money remains in Avvo’s bank account until the following month when the legal fee is transferred by Avvo to an account designated by the lawyer.

Rule 1.15-2(a) requires an unearned legal fee to be deposited to a lawyer’s trust account and withdrawn from the trust account once the fee is earned. To comply with Rule 1.15-2(a), a trust account must be the designated repository for a legal fee collected and forwarded to a participating lawyer by Avvo unless the lawyer is confident that the legal services will be complete and the fee earned by the time that the fee is transferred by Avvo to the lawyer’s account. In the alternative, the ALS website must fully disclose that the fee is a flat fee for legal services that is earned by the lawyer immediately (and in advance of the full provision of legal services). See 2008 FEO 10.

Nothing in the Rules of Professional Conduct requires a lawyer to collect a fee directly from a client or prohibits the use of an intermediary to collect a fee. Nevertheless, a lawyer may not participate in or facilitate the collection of fees by an intermediary that is unreliable or untrustworthy. See Rule 8.4(g). Therefore, before participating in ALS, or a similar online platform that collects legal fees from consumers and holds them for a period of time, the lawyer must make a reasonable investigation into the reliability, stability, and viability of the operating company, to determine whether reasonable measures are being taken to segregate and safeguard consumer funds against loss or theft and, should consumer funds be lost inadvertently, that the company has the resources to compensate the consumer. Further, the funds, once collected, must be transferred to the lawyer’s designated account within a reasonable period of time so as to minimize the risk of loss while the funds are in the possession of another, and to enable the collection of interest on the funds for the IOLTA program or the client as appropriate. See 27 N.C.A.C. 1B, Sect. 1300. If the lawyer cannot, in good faith, conclude that payments for legal services will not be at risk, the lawyer may not participate in the online platform.

Sharing a Legal Fee with Nonlawyer

Rule 5.4(a) sets forth the “traditional limitations” on sharing legal fees with a nonlawyer which limitations are “to protect the lawyer’s professional independence of judgment.” Rule 5.4, cmt. [1]. Although Avvo has taken care to separate the transfer of the intact legal fee for a particular legal service to the lawyer from the payment of the marketing fee to Avvo from the lawyer’s operating account, the fact that the marketing fee is a percentage of the legal fee implicates the fee-sharing prohibition. Nevertheless, similar arrangements have been approved when the nonlawyer exercised no influence over the professional judgment of the lawyer and the fee was a reasonable charge for marketing or advertising services.

In 2010 FEO 4, the fee structure of a barter exchange was found not to constitute fee-sharing in the following passage:

The manager of the barter exchange charges a cash transaction fee of 10% on the gross value of each purchase from a member through the exchange. The transaction fee is paid by the recipient of the services; the lawyer is not required to give 10% of his fee to the exchange manager...The use of credit cards to pay for legal services has long been allowed, although credit card banks routinely charge a “discount fee” that is a percentage of the legal fee charged to the credit card. See CPR 129 (lawyers may accept payment of legal fees by credit card). Paying a percentage fee to a barter exchange manager is no different than paying a discount fee to a credit card bank. The fee is a surcharge on the transaction and is not fee sharing with a nonlawyer.

In 2011 FEO 10, participation in an online group coupon website was permitted although the website company retained a portion of the fee paid by a purchaser for an anticipated legal service. The opinion holds that the fee retained by the website company was the cost of advertising on the website and did not violate Rule 5.4(a). Stating that “the purpose for the fee-splitting prohibition [protection of independent professional judgment] is not confounded by this arrangement,” the opinion explains:

There is no interaction between the website company and the lawyer relative to the legal representation of purchasers at any time after the fee is paid online other than the transfer of the proceeds of the “daily deal” to the lawyer. Rule 7.2(b)(1) allows a lawyer to pay the reasonable cost of advertisements. As long as the percentage charged against the revenues generated is reasonable compensation for the advertising service, a lawyer may participate.

Similarly, if there is no interference by Avvo in the independent professional judgment of a participating lawyer and the percentage marketing fees paid by the lawyer to Avvo are reasonable costs of advertising as allowed by Rule 7.2(b)(1), the lawyer is not prohibited from participating in ALS on the basis of the fee-sharing prohibition.

Truthful and Non-Misleading Communications

Rule 7.1 prohibits a lawyer from making a false or misleading communication about the lawyer or the lawyer’s services. If a lawyer participating in ALS provides information to Avvo for inclusion in the lawyer’s profile or the lawyer exercises any control over the content of the lawyer’s profile or of the website, the lawyer is professionally responsible for that content. The lawyer may not submit untruthful or misleading information to the website. A participating lawyer is responsible for monitoring information on the Avvo website about the lawyer and his services. If Avvo posts information about the lawyer or the lawyer’s services that the lawyer knows is false or misleading, the lawyer must demand its removal or, if given the opportunity, post a disclaimer or corrective information. If neither is possible, the lawyer must cease to participate in ALS.

Similarly, if Avvo posts false or misleading generic statements about all participating lawyers, the lawyer must demand that the statement be clarified, corrected, or removed as appropriate to render the statement truthful and not misleading. If Avvo is unwilling to do so, the lawyer may not participate in ALS.

With regard to user-generated content (i.e., online reviews), a lawyer may not solicit or submit false or “fake” reviews for inclusion in his profile.

“Satisfaction guaranteed” is prominently displayed on the website landing page for ALS. Because it is impossible to guarantee the outcome of a legal matter, an outcome guarantee by a lawyer is prohibited under Rule 7.1(a) as a misleading communication. However, it appears that Avvo guarantees consumer “satisfaction” with its process for identifying and hiring a lawyer; Avvo does not guarantee a particular outcome or resolution of the consumer’s legal matter. If Avvo abides by its representation and, without dispute, refunds a consumer’s fee payment upon receiving a complaint of dissatisfaction with the service, the guarantee does not constitute a false representation by an agent of the lawyer about the lawyer’s services.

Conflicts of Interest and Other Professional Duties

The fact that a client-lawyer relationship is initiated via ALS does not relieve the lawyer of the responsibility for complying with all of the lawyer’s duties to a client including, but not limited to the following: (1) ensuring the limited scope of the representation is reasonable under the circumstances (Rule 1.2(c)); (2) checking for conflicts of interest upon initial contact with a prospective client (Rules 1.7, 1.8, and 1.9); (3) keeping the client reasonably informed about the status of the matter (Rule 1.4); and (4) protecting confidential client information from unauthorized disclosure (Rule 1.6).

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