At its meeting on July 19, 2019, the State Bar Council adopted the ethics opinion and ethics decisions summarized below:
2018 Formal Ethics Opinion 5
Accessing Social Network Presence of Represented or Unrepresented Persons
Opinion reviews a lawyer’s professional responsibilities when seeking access to a person’s profile, pages, and posts on a social network to investigate a client’s legal matter.
Ethics Committee Actions
The Ethics Committee considered a total of eight inquiries at its meeting on July 18, 2019. Two of those inquiries were returned to subcommittee for further study, including an inquiry on the use of attorney’s eyes only discovery agreements and the previously published Proposed 2019 Formal Ethics Opinion 4 addressing the permissibility of certain communications with judges. Lastly, the committee approved for publication a revised version of Proposed 2018 Formal Ethics Opinion 8 and two new opinions, which appear below.
Rules, Procedure, Comments
All opinions of the Ethics Committee are predicated upon the North Carolina Rules of Professional Conduct. Any interested person or group may submit a written comment – including comments in support of or against the proposed opinion – or request to be heard concerning a proposed opinion. The Ethics Committee welcomes and encourages the submission of comments, and all comments are considered by the committee at the next quarterly meeting. Any comment or request should be directed to the Ethics Committee c/o Lanice Heidbrink at lheidbrink@ ncbar.gov no later than October 4, 2019.
Proposed 2018 Formal Ethics Opinion 8
Advertising Inclusion in Self-Laudatory List or Organization
July 18, 2019
Proposed opinion rules that a lawyer may advertise the lawyer’s inclusion in a list or membership in an organization that bestows a laudatory designation on the lawyer subject to certain conditions.
Editor’s note: 2007 FEO 14 was adopted by the State Bar Council on January 25, 2008. The opinion below incorporates the substance of that opinion’s analysis, and serves as a replacement of 2007 FEO 14. 2007 FEO 14 was withdrawn by the State Bar Council on _______ upon adoption by the council of the opinion below.
Numerous companies and organizations provide lawyers with the opportunity to be included in a list or to become members of a group that describes itself with self-laudatory terms and/or bestows self-provided accolades to its members. Examples of such lists or groups are those that describe their included lawyers as “best,” “super,” and “distinction.” Lawyers then advertise their inclusion in these groups or lists to consumers.
Do the Rules of Professional Conduct permit a lawyer to advertise their inclusion in such self-laudatory groups or lists?
Yes, subject to certain conditions.
Rule 7.1(a) prohibits a lawyer from making false or misleading communications about himself or his services. The rule defines a false or misleading communication as a communication that contains a material misrepresentation of fact or law, or omits a necessary fact; one that is likely to create an unjustified expectation about results the lawyer can achieve; or one that compares the lawyer’s services with other lawyers’ services, unless the comparison can be factually substantiated.
Rule 7.1 derives from a long line of Supreme Court cases holding that lawyer advertising is commercial speech that is protected by the First Amendment and subject to limited state regulation. In Bates v. State Bar of Arizona, 433 US 350 (1977), the Supreme Court first declared that First Amendment protection extends to lawyer advertising as a form of commercial speech. The Court held that a state may not constitutionally prohibit a lawyer’s advertisement for fees for routine legal services, although it may prohibit commercial expression that is false, deceptive, or misleading and may impose reasonable restrictions as to time, place, and manner. Id. at 383-84. Subsequent Supreme Court opinions clarified that the commercial speech doctrine set forth in Central Hudson Gas & Electric Corporation v. Public Service Commission of NY, 447 US 557 (1980), is applicable to lawyer advertising. See In re R.M.J., 455 US 191 (1982). Specifically, a state may absolutely prohibit inherently misleading speech or speech that has been proven to be misleading; however, other restrictions are appropriate only where they serve a substantial state interest, directly advance that interest, and are no more restrictive than reasonably necessary to serve that interest. Id. at 200-04.
Thirteen years after Bates, in Peel v. Attorney Registration and Disciplinary Commission of Illinois, 496 US 91 (1990), a plurality of the Supreme Court concluded that a lawyer has a constitutional right, under the standards applicable to commercial speech, to advertise his certification as a trial specialist by the National Board of Trial Advocacy (NBTA). The Court found NBTA to be a “bona fide organization,” with “objectively clear” standards, which had made inquiry into Peel’s fitness for certification and which had not “issued certificates indiscriminately for a price.” Id. at 102, 110. If a state is concerned that a lawyer’s claim to certification may be a sham, the state can require the lawyer “to demonstrate that such certification is available to all lawyers who meet objective and consistently applied standards relevant to practice in a particular area of the law.” Id. at 109. In concluding that the NBTA certification advertised by Peel in his letterhead was neither actually nor potentially misleading, the Court emphasized “the principle that disclosure of truthful, relevant information is more likely to make a positive contribution to decision-making than is concealment of such information.” Id. at 108.
Ibanez v. Florida Department of Business and Professional Regulation, Board of Accountancy, 512 US 136 (1994), similarly held that a state may not prohibit a CPA from advertising her credential as a “Certified Financial Planner” (CFP) where that designation was obtained from a private organization. As in Peel, the Court found that a state may not ban statements that are not actually or inherently misleading such as a statement of certification, including the CFP designation, by a “bona fide organization.” Id. at 145. The Court dismissed concerns that a consumer will be mislead because he or she cannot verify the accuracy or value of the designation by observing that a consumer may call the CFP Board of Standards to obtain this information. Id.
The question here is whether advertising one’s membership in a group, or inclusion on a list of lawyers that implies that the lawyer is, for example, “best,” or “super,” or “distinguished,” is misleading because the term creates the unjustified expectation that the lawyer can achieve results that an ordinary lawyer cannot or compares the lawyer’s services with the services of other lawyers without factual substantiation. When a potential consumer of legal services sees the words “super” or “distinguished” associated with a lawyer by way of a bestowed award or accolade purporting to pertain to legal services, the consumer may view these awards or accolades as evidence of a lawyer’s competence and achievement. Therefore, to avoid misleading consumers, a lawyer may advertise such accolades or inclusion in self-laudatory groups or lists only when certain conditions are met.
First, no compensation may be paid by the lawyer, or the lawyer’s firm, for the award or accolade being bestowed upon the lawyer or for inclusion in the group or listing. Although a lawyer may pay the reasonable costs of advertisements as a result of inclusion (see Rule 7.2(b) and 2018 FEO 1) marketing or advertising fees that must be paid prior to the lawyer’s inclusion in the group or listing or the lawyer’s receipt of the accolade or award effectively become compensation required from the lawyer for inclusion or for the accolade. As such, the accolade, award, or inclusion is misleading in violation of Rule 7.1(a) because it is bestowed, at least in part, because of a lawyer’s willingness and ability to pay, and not for reasons that are objective, verifiable, and bona fide. After the award, accolade, or inclusion has been granted, a lawyer may pay the reasonable costs of advertisements concerning the inclusion. However, marketing or advertising fees charged by the self-laudatory group that serve as a barrier to the lawyer’s inclusion in the group or receipt of an accolade are not permissible.
Second, before advertising the inclusion or any award associated with inclusion, the lawyer must ascertain that the organization conferring the award is a bona fide organization that made adequate and individualized inquiry into the lawyer’s qualifications for the inclusion or award. The selection methodology must be based upon objective, verifiable, and consistently applied factors relating to a lawyer’s qualifications (including, but not limited to, a lawyer’s years of practice, types of experience, peer review, professional discipline record, publications and/or presentations, and client and other third-party testimonials) that would be recognized by a reasonable lawyer as establishing a legitimate basis for determining whether the lawyer has the knowledge, skill, experience, or expertise indicated by the designated membership.
Third, any advertisement by the lawyer of his inclusion in a self-laudatory group or list must also contain an explanation of the standards for inclusion or provide the consumer with information on how to obtain the inclusion standards. See Bates, 433 US at 375. The explanation of the standards for inclusion—wherever located—must be such that a potential consumer of legal services can reasonably determine how much value to place in the lawyer’s inclusion in such group or list. Additionally, the advertisement must state only that the lawyer was included in the list, and not suggest that the lawyer has the attribute(s) conferred by the group or list. This requirement applies equally to groups or lists that contain a superlative in the name of the group or list itself, such as “super” or “best,” and groups or lists that do not contain superlatives in the name of the group or list, but bestow such superlatives on its included lawyers through the group’s or list’s marketing materials (including its online presence). When the group or list inclusion may create unjustified expectations, such as the expectation that a lawyer obtains a high-dollar verdict in every case, the advertisement must also include a disclaimer providing notice that similar results are not guaranteed, and that each case is different and must be evaluated separately. See 99 FEO 7, 2000 FEO 1, and 2003 FEO 3. Lastly, the advertisement must indicate the year(s) in which the lawyer received the award or was a member of the organization.
A lawyer must determine whether a particular group or list satisfies each of these requirements before advertising their inclusion in the group or list, and a lawyer has a continuing obligation to ensure the group or list remains compliant with the requirements of this opinion upon each renewal. If all requirements are met, the lawyer may advertise his inclusion in the group or list.
Proposed 2019 Formal Ethics Opinion 5
Receipt of Virtual Currency in Law Practice
July 18, 2019
Proposed opinion rules that a lawyer may receive virtual currency as a flat fee for legal services, provided the fee is not clearly excessive and the terms of Rule 1.8(a) are satisfied. A lawyer may not, however, accept virtual currency as entrusted funds to be billed against or to be held for the benefit of the lawyer, the client, or any third party.
Virtual currency—most notably, Bitcoin—is increasingly used for conducting business and service-related transactions. Although advocates for and users of virtual currency treat these assets as actual currency, the Internal Revenue Service in 2014 classified virtual currency as property, not recognized currency. See IRS Notice 2014-21, irs.gov/pub/irs-drop/n-14-21.pdf. Accordingly, for the purpose of determining a lawyer’s professional responsibility in conducting transactions related to her law practice using virtual currency, this opinion adopts the IRS’s position and views virtual currencies as property, rather than actual currency.
Client wants to retain Lawyer for representation in a pending matter. Lawyer charges Client a flat fee for the representation. Client wants to pay Lawyer using virtual currency. May Lawyer accept virtual currency from Client as a flat fee in exchange for legal services?
Yes, provided the fee is not clearly excessive and the lawyer complies with the requirements in Rule 1.8(a).
A flat fee is a “fee paid at the beginning of a representation for specified legal services on a discrete legal task or isolated transaction to be completed within a reasonable amount of time[.]” 2008 FEO 10. With client consent, a flat fee is considered “earned immediately and paid to the lawyer or deposited in the firm operating account[.]” Id. Rule 1.5(a) prohibits a lawyer from making an agreement for, charging, or collecting an illegal or clearly excessive fee. Comment 4 to Rule 1.5 states that “a fee paid in property instead of money may be subject to the requirements of Rule 1.8(a) because such fees often have the essential qualities of a business transaction with the client.” Rule 1.8(a) prohibits a lawyer from entering into a business transaction with a client unless the following provisions are met:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;
(2) the client is advised in writing of the desirability of seeking, and is given a reasonable opportunity to seek, the advice of independent legal counsel on the transaction; and
(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.
As of the date of this opinion, the value of virtual currencies fluctuates significantly and unpredictably from day to day. Considering this extreme fluctuation, any transaction involving virtual currencies inherently involves a great deal of risk by the parties on the ultimate value of the services rendered. Without an express agreement between Lawyer and Client on when the valuation of the virtual currency is determined, Lawyer could receive an inappropriate windfall in the form of extreme overpayment for legal services. Accordingly, considering the nature of the property at issue in this exchange, Client’s payment of virtual currency to Lawyer for legal services has “the essential qualities of a business transaction with the client.” Rule 1.5, cmt. 4. As such, Lawyer must comply with the requirements of Rule 1.8(a) when conducting a transaction wherein legal services are exchanged for virtual currency. Therefore:
1. Lawyer must ensure the terms of the transaction are fair and reasonable to Client, and Lawyer must fully disclose the terms in writing to Client in a manner that can be reasonably understood by Client. To ensure a flat fee, which is earned upon receipt (see 2008 FEO 10), is not clearly excessive under Rule 1.5, and for the purposes of any potential required refunds following withdrawal or termination from the representation, Lawyer and Client must reach a mutually agreed upon determination of the value of the virtual currency exchanged at the time of the transaction. That valuation must be included as part of the written terms of the transaction;
2. Lawyer must advise Client in writing of the desirability of seeking independent legal counsel on the transaction, and Lawyer must give Client a reasonable opportunity to obtain that counsel; and
3. Lawyer must obtain Client’s written, informed consent to the essential terms of the transaction as well as Lawyer’s role in the transaction. Although Rule 1.8(a)(3) contemplates that Lawyer could represent Client in this transaction, Lawyer’s potentially significant monetary interest in acquiring the virtual currency suggests that Lawyer may not represent Client in the transaction.
This opinion does not reach the legal issues surrounding an individual’s receipt of and transacting in virtual currency. Before transacting in virtual currency, lawyers should apprise themselves of the legal ramifications surrounding the use of virtual currency, including potential tax and criminal implications. As with other forms of payment, lawyers should take the appropriate steps to ensure any virtual currency received is not the product of or otherwise connected to illegal activity.
May Lawyer accept virtual currency from a third party on behalf of Client as a flat fee in exchange for legal services rendered?
Yes. Lawyer may receive compensation from a third party for the benefit of Client provided that a) Client provides informed consent to Lawyer regarding the third party’s virtual currency payment, b) there is no interference with Lawyer’s independence of professional judgment, or with the client-lawyer relationship, and c) information obtained by Lawyer during the client-lawyer relationship remains confidential and protected in accordance with Rule 1.6. See Rule 1.8(f). See also Opinion #1.
Client wants to retain Lawyer for representation in a pending matter. Lawyer plans to charge Client an hourly rate for the representation, and Lawyer wants Client to deposit a set amount of virtual currency with Lawyer to be billed against as work is completed by Lawyer. May Lawyer accept virtual currency from Client as an advance payment, against which Lawyer will bill Lawyer’s hourly rate?
No. An advance payment is “a deposit by the client of money that will be billed against, usually on an hourly basis, as legal services are provided[.]” 2008 FEO 10. The advance payment is “not earned until legal services are rendered,” and therefore must be deposited in the lawyer’s trust account, with the unearned portion of the advance payment refunded to the client upon termination of the client-lawyer relationship. Id. Virtual currency is property and not actual currency; accordingly, virtual currency cannot be deposited in a lawyer trust account or fiduciary account in accordance with Rule 1.15-2. Instead, virtual currency—and all other non-currency property received as entrusted property—must be “promptly identified, labeled as property of the person or entity for whom it is to be held, and placed in a safe deposit box or other suitable place of safekeeping.” Rule 1.15-2(d).
Generally, virtual currency is received, held or maintained in, and distributed from an individual’s computer (referred to as “cold storage”) or in a digital “wallet” typically maintained by an individual through a digital asset exchange. Deidre A. Liedel, The Taxation of Bitcoin: How the IRS Views Cryptocurrencies, 66 Drake L. Rev. 107, 111-12 (2018). Holders of virtual currency access and exchange their virtual currency through the use of the holder’s public and private keys associated with their virtual currency activity. See generally Lisa Miller, Getting Paid in Bitcoin, 41 Los Angeles Lawyer 18, 19-20 (December 2018); Carol Goforth, The Lawyer’s Cryptionary: A Resource for Talking to Clients about Crypto-transactions, 41 Campbell L. Rev. 47, 112-13 (2019). Due to the decentralized nature of virtual currency, exchanges of virtual currency from one account to another cannot be reversed, and a virtual currency holder cannot recover a lost private key to access his or her virtual currency.
The methods in which virtual currency are held are not yet suitable places of safekeeping for the purpose of protecting entrusted client property under Rule 1.15-2(d). Rule 1.15-2(d)’s reference to “a safe deposit box or other suitable place of safekeeping” demonstrates that the “suitable place of safekeeping” referenced in the Rule is one that ensures confidentiality for the client and provides exclusive control for the lawyer charged with maintaining the property, as well as the ability of the client or lawyer to rely on institutional backing to access the safeguarded property through appropriate verification should the lawyer’s ability to access the property disappear (be it through the lawyer’s misplacement of a physical key, or the lawyer’s unavailability due to death or disability). The environment in which virtual currency presently exists, however, does not afford similar features that allow clients to confidently place entrusted virtual currency in the hands of their lawyers. A February 2019 report found that even knowledgeable users of virtual currency experienced a variety of complications and concerning issues in exchanging virtual currency that threatened the execution of and confidence in the exchange, including sending virtual currency to the wrong individual by inputting the wrong public key, losing their own private key (thereby rendering the user’s virtual currency permanently inaccessible), or being subject to phishing attacks or other attempted hacks to illegally access their digital wallets. See Foundation for Interwallet Operability, Blockchain Usability Report (February 2019), fio.foundation/wp-content/themes/fio/dist/files/blockchain-usability-report-2019.pdf (“While the blockchain industry has grown dramatically over the last year, usability is clearly still an ongoing struggle, and the use of blockchain in actual commerce and utility is still very limited. Blockchain transactions are, by definition, immutable. With immutable transactions, users must have extremely high confidence that transactions are occurring as intended, with the right counter party, for the right amount and for the right type of token. Today, blockchain is still far from achieving that high standard.”). Any virtual currency received from a client by a lawyer—including lawyers who are experienced in handling and exchanging virtual currency—is subject to being permanently lost with no recourse available to secure the client’s property as a result of a lawyer’s private key becoming inaccessible, a lawyer’s mistaken input of a public key destination for a transfer of virtual currency, or a sophisticated hack of the lawyer’s virtual wallet.
This opinion does not preclude the possibility that, in time, digital wallets and other methods in which virtual currency may be held and exchanged could improve in terms of security and accessibility. Such improvements may warrant reconsideration of this opinion. This opinion also does not address the difficulty in reconciling the frequent and significant fluctuation in value of virtual currency while held by a lawyer during the representation, nor does the opinion address the need to segregate clients’ virtual currency or the difficulty associated with investigating claims of lawyer misappropriation of a client’s virtual currency. These concerns may present further barriers to a lawyer’s ability under the Rules of Professional Conduct to handle virtual currency in an entrusted capacity. However, as of the date of this opinion, and with the primary interest of the State Bar being the protection of the public, the methods in which virtual currency are held and exchanged are not yet suitable places of safekeeping as required by Rule 1.15-2(d) for the proper safeguarding of virtual currency as entrusted client property. Accordingly, a lawyer may not receive, maintain, or disburse entrusted virtual currency.
Client has retained Lawyer for a pending matter. Client and opposing party settle their dispute. As part of the settlement, Client agrees to provide opposing party with a set amount of virtual currency. Client and opposing party ask Lawyer to hold Client’s virtual currency in trust for the benefit of opposing party via Lawyer’s digital wallet until all settlement terms are satisfied, at which point Lawyer will transfer Client’s virtual currency to opposing party. May Lawyer accept virtual currency as entrusted property to be held for the benefit of a third party?
No, a lawyer may not receive, maintain, or disburse entrusted virtual currency. See Opinion #3.
Proposed 2019 Formal Ethics Opinion 6
Offering Incentive to Engage with Law Practice’s Social Networking Sites
July 18, 2019
Proposed opinion rules that, depending on the function of the social media platform, offering an incentive to engage with a law practice’s social media account is misleading and constitutes an improper exchange for a recommendation of the law practice’s services.
Lawyer maintains an account for his law practice on various social media platforms. These platforms allow social media users to “connect” with other users, including both individuals and business-related entities, through the use of “likes,” “follows,” and “subscriptions.” Some platforms also allow users to comment on posted content or share posted content on their own social networks.
To increase his social media exposure, Lawyer wants to offer a prize incentive to anyone who connects or interacts with any of his social media platforms. All users who connect or interact with Lawyer’s law practice social media account will be entered into a drawing for a prize. The giveaway is open to all users of the social media platform used by Lawyer.
May Lawyer offer an incentive to all social media users to connect or interact with Lawyer’s law practice social media account?
No. If a social media platform will broadcast or display a user’s connection or interaction with Lawyer’s law practice social media account to other users of the platform, Lawyer may not offer prize chances in exchange for activity on or with his social media accounts.
Generally, lawyers may not give anything of value to a person for recommending the lawyer’s services. Rule 7.2(b). Certain social media platforms, such as Facebook, allow users to connect with or otherwise follow a business or service entity’s social media account by “liking” the entity on the social media platform. Similarly, users may also comment on or share social media posts made by the business or service entity’s account. The user’s decision to “like” or follow the entity, and the user’s comments on the entity’s posts, are then displayed not only within the user’s social media feed, but can also be displayed on the feeds of other users who have previously connected with that user. Also, when an individual “likes” a business’s social media page, that business’s posts/advertisements may appear in the individual’s social media feed and may appear in the news feeds of the individual’s other “friends” or connections with a caption such as “Jane Smith likes No Name law firm.”
Without further context, other users could interpret an individual “liking” a law practice as a personal endorsement and recommendation of that law practice. If the social media platform broadcasts the user’s “like” of the law practice on other users’ social media feeds, Lawyer’s offer of an entry in a giveaway for a prize to social media users in exchange for the user “liking” the law practice’s social media account violates Rule 7.2(b).
Additionally, a lawyer may not make a false or misleading communication about the lawyer or the lawyer’s services. Rule 7.1(a). A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading. Id. The purpose behind Rule 7.2(b)’s prohibition on offering something of value in exchange for recommending services is to ensure that recommendations for a lawyer’s services are based upon actual experiences or legitimate opinions of the lawyer’s service, rather than financial incentive. The displayed “like” of a law practice may indicate some prior experience with the law practice or the personnel associated with the practice upon which the user’s “liking” of the practice is based. Similarly, the credibility attributed to a particular social media account could be influenced by the number of account followers or subscribers. When the “like” or follow of a law practice’s social media account is based upon the user’s interest in a prize giveaway, the incentivized “like,” follow, or other interaction received by Lawyer and displayed on social media is misleading in violation of Rule 7.1(a).
This opinion does not prohibit a lawyer or law firm from having a social media presence, or encouraging or inviting other users to like, share, follow, or otherwise interact with the lawyer’s or law firm’s social media account. Non-incentivized social media interactions are not prohibited.