Can a Washington lawyer join a nationwide, internet-based bankruptcy lawyer referral service when the per-client fee and listing fee are paid to a for-profit company, not the nonprofit?

Plain-English summary

The inquiring attorney asked about participating in Consumer Legal Referrals (CLR), a California nonprofit corporation that had applied for but not yet received 501(c)(3) status and planned to operate a nationwide, internet-based referral service for consumers seeking bankruptcy counsel. CLR would give consumers up to three lawyer names free of charge, with the consumer choosing whom to retain. To participate, a lawyer placed a listing in a directory accessible from CLR's website but maintained by a separate company, First Global Management; the listing was free initially but could rise to $1,000 per year, with any advertising revenue going to First Global Management rather than CLR. Lawyers would also pay $100 to a third-party transmission provider to forward leads, a fee waived if the lead did not convert into an engagement.

The committee applied WRPC 7.2(b)(2), which permits a lawyer to pay the usual charges of a legal services plan or a not-for-profit lawyer referral service. Drawing on ABA Model Rule 7.2 Comment 6 (which Washington's proposed Comment 6 adopts), the committee described a qualifying not-for-profit referral service as a consumer-oriented organization that provides unbiased referrals and affords client protections such as complaint procedures or malpractice-insurance requirements. The committee concluded that CLR was not such a service, because the $100 fee a lawyer pays when a referred client retains the lawyer goes to a third-party transmission provider that appears to be a for-profit corporation, not to CLR. It added that the potential $1,000 annual listing fee also appeared to violate RPC 7.2(b)(1), because it is not a reasonable cost of advertising and may be intertwined with the referral fee paid to a for-profit corporation.

In practice

Under this opinion, and under the referral rules as they stood in 2006, the committee focused on where the money goes. The opinion holds that an organization does not qualify as a not-for-profit lawyer referral service under RPC 7.2(b)(2) when the per-client fee is routed to a for-profit third party rather than to the nonprofit itself, and that a substantial annual listing fee paid to that for-profit, potentially intertwined with the referral fee, appears to violate RPC 7.2(b)(1) as something other than a reasonable advertising cost. The opinion is tied to the specific payment structure described and to Washington's RPC 7.2 as it stood in 2006; the advertising rules were restructured in a comprehensive 2006 revision, so current numbering should be checked.

Common questions

Q: Can a Washington lawyer pay to participate in a bankruptcy lawyer referral service?

A: Only if it qualifies as a legal services plan or a not-for-profit lawyer referral service under RPC 7.2(b)(2). The committee found this particular service did not qualify as structured.

Q: Why didn't Consumer Legal Referrals qualify?

A: Because the $100 fee a lawyer paid when a referred client retained the lawyer went to a for-profit third-party transmission provider, not to the nonprofit, so the payment was not the "usual charges" of a not-for-profit lawyer referral service.

Q: What was the problem with the listing fee?

A: The committee said the potential $1,000 annual listing fee appeared to violate RPC 7.2(b)(1) because it was not a reasonable cost of advertising and could be intertwined with the referral fee paid to a for-profit corporation.

Q: What makes a referral service "not-for-profit" for this rule?

A: Citing ABA Model Rule 7.2 Comment 6, the committee described a consumer-oriented organization that provides unbiased referrals and affords client protections such as complaint procedures or malpractice-insurance requirements.

Background and rules framework

The opinion interprets Washington RPC 7.2 (the counterpart to Model Rule 7.2), specifically RPC 7.2(b)(2) (permitting payment of the usual charges of a legal services plan or not-for-profit lawyer referral service) and RPC 7.2(b)(1) (reasonable cost of advertising). It relies on ABA Model Rule 7.2 Comment 6, which Washington's then-proposed Comment 6 adopted, to define a qualifying not-for-profit lawyer referral service.

Citations and references

Rules of Professional Conduct:

• Model Rule 7.2 / Washington RPC 7.2, 7.2(b)(1), 7.2(b)(2) (paying for recommendations; advertising costs; legal services plan or not-for-profit lawyer referral service)

Other opinions cited:

• ABA Model Rule 7.2 Comment 6 (definition of a not-for-profit lawyer referral service)

See also

• WSBA Ethics Op. 2110: Referral 'Donations' to a Nonprofit
• WSBA Ethics Op. 2123: Joining a Networking Group
• WSBA Ethics Op. 1071: Paid Lawyer Referral Service

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1574

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 2116
Year Issued: 2006
RPC(s): RPC 7.2(b)(2)
Subject: A lawyer`s participation in a bankruptcy lawyer referral program.

The inquiring attorney requests an opinion from the WSBA Rules of Professional Conduct Committee regarding his participation in a lawyer referral service. The lawyer referral service, Consumer Legal Referrals, is a California nonprofit corporation created in 2005. CLR currently operates only in five Southern California counties, North Carolina, and Florida, but plans to expand into a nationwide internet-based referral service. CLR currently provides two services: lawyer referrals and low-cost pre-petition bankruptcy counseling to consumers. CLR has applied for, but not yet received, 501(c)(3) status.

For consumers looking to find legal bankruptcy representation, CLR will supply them, free of charge, with the names of up to three lawyers. It is up to the consumer to decide which, if any, of the lawyers, to retain. Each lawyer sets his or her own fees, but has agreed that the fees charged to clients obtained through CLR will not be higher than the fees charged to clients who did not go through CLR. Each lawyer has certified that he or she has sufficient expertise and experience in the subject matter, and carries malpractice insurance.

In order to participate in CLR, a lawyer agrees to place a listing which complies with applicable lawyer advertising rules in a directory. The directory is accessible from CLR’s website but is maintained and operated by a third party company, First Global Management. Currently the inquirer states there is no charge for listing in the directory, but in the future the cost may go up to $1,000 per year. Any advertising revenue would go to First Global Management, not to CLR. In addition, lawyers will pay a fee of $100.00 to a third party transmission provider to forward leads from CLR to both the lawyer and the consumer. This third party transmission provider may or may not be the same entity that owns the directory but will not be owned by CLR, any owner of CLR, or any member of the CLR Board of Directors. The $100 fee is waived if the lawyer does not convert a lead it received from CLR into an engagement.

The inquiring attorney wishes to know whether the Consumer Legal Referral arrangement is permissible under Washington rules relating to legal referral services and the payment of fees associated with a lawyer obtaining new clients.

The Committee reviewed your inquiry concerning your participation in a nationwide, internet-based, not-for-profit lawyer referral service for consumers seeking bankruptcy counsel. Lawyer referral services are governed by WRPC 7.2(b)(2): (b) A lawyer shall not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may: (2) pay the usual charges of a legal services plan or a non-for-profit lawyer referral service;

Comment No. 6 to the American Bar Association (ABA) Model Rules of Professional Conduct further clarifies the definition of a not-for-profit lawyer referral service. Washington’s proposed Comment No. 6 adopts the ABA language: “A lawyer referral service… is any organization that holds itself out to the public as a lawyer referral service. Such referral services are understood by laypersons to be consumer-oriented organizations that provide unbiased referrals to lawyers with appropriate experience in the subject matter of the representation and afford other client protections, such as complaint procedures or malpractice insurance requirements. Consequently, this Rule only permits a lawyer to pay the usual charges of a not-for-profit lawyer referral service.” Based upon the information provided by you, the Committee believes Consumer Legal Referrals is not a nonprofit lawyer referral service within the definition of Rule 7.2(b)(2). The $100 fee paid by the lawyer to the service when a referred client retains the lawyer is paid to a third party transmission provider, not Consumer Legal Referrals. That third party transmission provider appears to be a profit corporation.

Further, you note that while there is currently no fee to place a listing in the lawyer directory, Consumer Legal Referrals has indicated that in the future it may charge up to $1,000 annually to maintain the listing, potentially with the same company that the referral fee is paid to. This fee also appears to be a violation of RPC 7.2(b)(1) as it is not a reasonable cost of advertising and may be intertwined with the referral fee that is also paid to a profit corporation.