Third-Party Legal Services Hit Road Bump in Virginia – Could Illinois Be Next?

Is Avvo engaging in the practice of law? That is the question being played out in the Virginia state courts.

Avvo and other third-party platforms for the delivery of flat-fee, limited-scope legal services hit a stumbling block in the state of Virginia in late 2017.  The Virginia State Bar’s Standing Committee on Legal Ethics voted to send Legal Ethics Opinion 1885 to the Supreme Court for adoption, a move that effectively blocks such services from operating in the state. Whether that becomes a trend that spreads elsewhere remains to be seen.

The ethics opinion does not name Avvo specifically, and the opinion does lay a path toward partial acceptance of such services while identifying what the state bar sees as several problems with the business model of third-party services, which the public has mostly accepted and which have helped increase access to justice among those with limited means.

The ethics opinion uses the term “attorney-client matching services” (ACMS) to describe Avvo and other similar for-profit services that provide online platforms leading to limited scope fee arrangements in which the client pays the full fee to the third party.  The attorney does not negotiate either the fee or the scope of services, and they are not paid until services have been performed, at which time they receive their full cut of the amount.

The Virginia state bar committee objected to the facts that:

(1) the client fee is held by a third party rather than in an IOLTA account;

(2) the lawyer cannot refund unearned fees since he has no access to the money until he is paid in full by the service;

(3) the lawyer might end up violating ethics rules around inappropriate or inadequate services provided or fees not commensurate with the value of said services, since he does not negotiate the scope or fee;

(4) the payment of the marketing fee to the ACMS means sharing a legal fee with a non-provider; and

(5) payment of that fee amounts to payment for recommending the attorney’s services.

The ethics opinion provides guidance for surmounting at least some of these concerns.  Attorneys can participate so long as they consult with the client beforehand and fees assured that services could be performed competently and ethically, and that the fee involved would be reasonable under the rules.  This would involve some tweaks to an ACMS platform, for example including a phone call upfront between the potential attorney and client before the client’s payment is made. Platforms like Avvo already provide the ability to agree on scope and description of services, and the marketplace should help guard against excessive fees.

But the ethics opinion does not resolve the ethical issues around the payment of fees in online platforms, and in fact the state bar committee saw multiple problems with the client paying fees to a third-party ACMS.  Since an ACMS is not a law firm, it does not have an IOLTA and cannot hold client fees in trust; the lawyers cannot hold the fees, either, because they are not provided to him; and lawyers have an obligation to return unearned fees when a matter concludes.

While fees could be transferred into a lawyer’s account at the outset, it could still be an ethical problem that the fees pass through the third party at all, for any period of time, while platforms like Avvo might not accept being paid at the conclusion of a matter.

Then there’s the matter of fee splitting. “The fact that the ACMS executes a separate electronic debit from the lawyer’s bank account for its ‘marketing fee’ following the firm’s electronic deposit of the full legal fee to the lawyer’s bank account does not change the ethically impermissible fee-sharing character of the transaction,” the state bar committee wrote.

So the fact that the marketing fee is tied to the amount of the legal fees means the arrangement constitutes fee-splitting, the opinion held. But if the lawyer’s fee were tied to something else, such as the number of clients they obtain through the platform or the number of inquiries or clicks on their profile, this might provide a workaround.

In its public comments on the matter, Avvo compared prohibiting a service consumers might like to use in the name of protecting the consumer, to requiring that an extra layer of sugar be served on Virginia ham—despite a consumer preference for less sugar.

This is an issue that will be played out in every state, including Illinois, which prohibits the same conduct that is described in the Virginia courts.   Illinois laws on the unauthorized practice of law are enforced by the Illinois Attorney General, and it will be interesting to see how the Illinois AG tackles this issue and an entire industry that has sprouted under the free-wheeling business activities on the web.