Avvo and the Ethics of ‘Lead Generation’

Effective January 1, Illinois lawyers can pay others for generating client leads, and lead-generating services are proliferating. But take care not to step onto ethical thin ice.

Everyone's talking about Avvo. Again. (For more about Avvo, see page 12.) This time, Avvo is offering a new attorney-client matching service called "Avvo Legal Services." This new feature, like a host of other for-profit counterparts, aspires to fall within the scope of ethically permissible lead generation.

Avvo says its new service is ethical. Many lawyers disagree. Because the idea of lead generation is new to Illinois - and the promise of paying clients can be so very strong, especially for new lawyers starting out - it makes sense to look at the ethical issues surrounding it.

'Lead generation' defined

The term lead generation is common in various industries but relatively new to the legal profession. Around 2012, the ABA began using it in conjunction with its Ethics 20/20 Commission proposals, which were designed to update the Model Rules of Professional Conduct to better address technological advancements affecting the legal profession.

In the legal context, lead generation applies to a host of platforms, typically Internet based, such as matching services, referral services, bidding sites, directories, deal-of-the-day promotions, and others. In October 2015, the Illinois Supreme Court adopted (in large part) the ABA's Ethics 20/20 proposals. As a result, effective January 1, 2016, it became ethical for Illinois lawyers to pay others for generating client leads. Illinois Rules of Professional Conduct ("IRPC") 7.2, Comment [5].

With respect to Avvo's new service, consumers go to the Avvo website, select one of several legal services (such as "file for uncontested divorce") available at a set price (determined by Avvo), and choose a geographical area. A list of participating lawyers who offer that legal service in that geographical area are presented to the consumer.

The consumer selects a lawyer and pays Avvo the set fee for the legal service. Avvo then notifies the selected lawyer and provides any documents the consumer has given Avvo. The selected lawyer is encouraged - upon threat of being excluded from future participation for refusing - to contact the consumer within 24 hours and accept or reject the representation.

If the representation proceeds and is completed, Avvo deposits the total set fee into the lawyer's business account. Avvo then automatically withdraws a "marketing" fee (ranging from 15 to 30 percent of the total) from the lawyer's business account.

What's ethical, what isn't?

Can a lawyer participate in a lead-generation service like Avvo's? The rapidity with which new (some might say innovative), largely unregulated lead-generation services are emerging poses a challenge to lawyers. Given Illinois' very recent adoption of the lead-generation language in the IRPC, it is not surprising that Illinois authority on this subject is sparse.

Nevertheless, other states have provided guidance in the form of bar association ethics opinions. These opinions, viewed together with the IRPC, establish the critical questions to ask.

No 'recommending.' First, a lawyer can't pay a lead generator to recommend the lawyer. IRPC 7.2(b). Comment [5] to IRPC 7.2 defines a recommendation as a communication that "endorses or vouches for a lawyer's credentials, abilities, competence, character or other professional qualities."

The mere presentation of a lawyer's name in response to a consumer's search for a lawyer in a specific geographic and practice area is likely not an impermissible recommendation, even if that lawyer has paid a fee. However, if the lawyer's name is presented based on subjective criteria, perhaps such as positive reviews, that could be considered a recommendation or endorsement. Washington State Bar Association Advisory Opinion 201401 ("If the lead generation service makes subjective decisions in order to match the client to the lawyer, then the lawyer's payment constitutes an impermissible giving of value for recommending the lawyers services.")

The need for disclaimers. Second, a lawyer can't pay a lead generator that states, implies, or creates a reasonable impression that it is recommending the lawyer, is making the referral without payment from the lawyer, or has analyzed a person's legal problem when determining which lawyer should receive the referral. IRPC 7.2, Comment [5]. A protection from violating these prohibitions, as well as others that might make participation in the lead-generation service misleading to a consumer, is the use of disclaimers.

Many state bars require that all aspects of a lead-generation service, including the methodology of how lawyers are presented to the consumer and how fees are paid, be plainly and conspicuously set out. E.g., Arizona Ethics Opinion, 11-02 ("if the disclosures are difficult to find, read, or understand; are contradicted by other messages on the website; or are made so late in the process that the customer is unlikely to read them before contacting participating lawyers; then the service will lose the protection afforded by these disclosures…").

No fee sharing. Third, a lawyer can't pay a lead generator whose service is inconsistent with IRPC 5.4 (fee sharing and professional judgment) or 7.1 (false or misleading communications). IRPC 7.2, Comment [5]. State bars that have looked at the question have opined that where the fee paid by a lawyer to a lead generator is contingent on work a lawyer receives, it's fee sharing. E.g., Michigan Ethics Opinion RI-365 (2013); ABA Ethics 20/20 Commission Report (2012) (The Ethics 20/20 Commission noted that the reference to RPC 5.4 in the description of lead generation "is intended to remind lawyers that, although the lawyer can pay a fee to a nonlawyer for a client lead, the fee should typically not be contingent on a person's use of the lawyer's service. Such a fee would constitute an impermissible sharing of fees with nonlawyers…").

Conversely, paying a nominal amount, or a flat or monthly fee that is paid regardless of whether it results in any work for a lawyer, is typically viewed as appropriate. E.g., Utah Ethics Opinion 15-05.

In connection with their fee-sharing analysis, state bars often consider whether the fee paid by a lawyer to a lead generator falls within Rule 7.2's safe harbor of paying the "reasonable costs of advertisements." IRPC 7.2(b)(1). Many lead generators couch the fees paid to them by lawyers as "advertising" or "marketing" fees in an effort to take advantage of this safe harbor.

According to the ABA, however, the fee paid to a marketer must be reasonable in comparison to alternative costs of advertising. ABA Formal Opinion 465 (October 21, 2013). State ethics opinions vary, but many have embraced the ABA's "reasonableness" approach in evaluating whether a fee is an advertising fee or impermissible fee sharing. E.g., North Carolina Formal Ethics Opinion 10 (2013).

Other issues. Finally, a number of other ethical issues may be raised by any given lead generation service. For instance, if the service sets a lawyer's fee for a specific legal task, is that interfering with the lawyer's professional judgment? See Thomton, Sperry & Jensen v. Anderson, 352 N.W.2d 467 (Minn. Ct. App. 1984) ("Ordinarily, the exercise of professional judgment in setting a fee should not be delegated to a layman.").

And, if the lead generator holds the fee, does that implicate the lawyer's obligations under IRPC 1.15 with respect to protecting and segregating client property and ensuring that the funds otherwise comply with IOLTA requirements? The answers to these questions are necessarily determined on a case-by-case basis.

Is the service ethical? You make the call

Lead generation is complex and evolving and its regulation is not well defined. The stakes involved are high for both the lead generators who hope to profit from connecting clients with lawyers and the lawyers who may envision a pipeline of paying clients. For the lawyers, it also poses the risk of professional discipline if they participate in a lead generation service found to be inconsistent with the lawyer's professional obligations.

In today's business environment, paying for leads can now be a part of every lawyer's business model. As the scope of permissible lead generation is better defined - or, especially, if it isn't - lawyers must be aware of the ethical pitfalls.

Just because it's available on the Internet doesn't mean it's proper. Just because a lead generator says its service complies with ethical requirements doesn't make it so. The one constant in this evolving area, as made clear by the IRPC, is that observance of ethics rules is a nondelegable duty and that reliance upon any given lead-generation service's claims of ethical propriety is a poor (and likely indefensible) substitute for the lawyer's own careful review and judgment.

Charles J. Northrup is the ISBA general counsel.
cnorthrup@isba.org