Legal Ethics

Can lawyers use Groupon-type marketing? ABA ethics opinion sees problems with prepaid deals

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Lawyers who offer prepaid deals through daily deal or group-coupon offers are treading on ethically precarious ground, according to an ABA ethics opinion.

The opinion (PDF) doesn’t specifically mention Groupon, probably the best-known group coupon website, except in a footnote referencing a state bar opinion. But its description of the typical arrangement has Groupon-like characteristics: Daily deals are advertised on a website, and consumers who want deal notifications can sign up to receive them in emails. After a threshold number of people purchase a deal, the marketing organization and the business share the proceeds. The buyers get a voucher, code or coupon.

The ethics opinion says these deals may be structured in two ways. In coupon deals, a lawyer might sell a $25 coupon for a 50 percent discount on up to five hours of legal services, for example. In prepaid deals, a lawyer might charge $500 for up to five hours of legal service, a value of $1,000. The money is collected up front by the marketing organization. It’s the latter structure that is particularly troubling to the ABA Standing Committee on Ethics and Professional Responsibility.

“The committee believes that coupon deals can be structured to comply with the Model Rules,” according to Formal Opinion 465. “The committee has identified numerous difficult issues associated with prepaid deals, especially how to properly manage payment of advance legal fees, and is less certain that prepaid deals can be structured to comply with all ethical and professional obligations under the Model Rules.”

In coupon deals, the legal opinion says, no legal fees are involved unless and until a lawyer-client relationship is formed, time is spent and the discounted fees are collected. As a result, the aggregate amount collected from coupon sales may be deposited into a lawyer’s general account.

But the money collected in prepaid deals amounts to advance legal fees that need to be identified by purchaser name and deposited into a trust account, the ABA opinion says. The lawyer will have to obtain sufficient information about deal buyers to comply.

What if a deal is purchased and never used? The lawyer can retain the proceeds of a coupon deal, the opinion says, as long as the offer explains there will be no refunds. But money collected in a prepaid deal likely needs to be refunded to avoid the ban on unreasonable fees in the ABA Model Rules of Professional Conduct.

If a lawyer cannot perform legal services because of a conflict of interest or other ethical impediment, the opinion says, a full refund is required, even if the deal is structured as a coupon. In such instances, the lawyer must refund the full amount paid, including the fee retained by the marketing organization. “The committee bases this opinion on the fact that it would be unreasonable to withhold any portion of the amount paid by the purchaser if the lawyer is precluded from providing the proffered services through no fault of the purchaser,” the opinion says.

The opinion notes several other ethical issues, including the need to make sure the marketing statements are accurate. The scope of services offered must be clearly defined and the circumstances for refunds described, the opinion says. And the ad should explain that no client-lawyer relationship exists until a consultation takes place.

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