Lawyers should stay away from ‘daily deals’

A question from a northern Indiana attorney about using online group coupons for advertising spurred a legal ethics opinion from the Indiana State Bar Association in March warning lawyers against using such offers as they are “fraught with peril.” Doing so could put a lawyer in violation of Indiana’s Rules of Professional Conduct.

South Bend attorney Jonathan Watson, who practices at Wandling & Associates, turned to an ISBA listserv for solo and small firms to pose the question: Does anyone know if using Groupon or LivingSocial for an estate package special would run afoul of any ethics rules?

When he posted the question in January 2011, Watson had his own firm offering estate planning, small business legal services, and general litigation. He’s always been up on the latest technology, so when Groupon and other ‘daily deal’ companies started to take off a couple years ago, he considered whether it would be a good way to offer his estate planning services that are flat-fee based.

Online group coupon deals offer customers the chance to purchase goods or services at a discounted rate as long as a certain number of people purchase the same deal. Once that tipping point has been reached, the deal can move forward and people can purchase and redeem their coupons. The business offering the goods or services works with the online coupon company to make the deal happen; both share in the money generated from the sale.
 

Watson said he heard back from several people who were interested in what he found out regarding usage, but no one mentioned considering the issue from an ethics standpoint.

The post caught the eye of members of the ISBA’s Legal Ethics Committee, which decided to write an opinion on the matter. That decision came on the heels of changes to advertising rules, Indiana Rules of Professional Conduct 7.1 to 7.5, that took effect in January 2011. This issue can be considered an advertising one, noted Ted Waggoner, a committee member and attorney with Peterson Waggoner & Perkins in Rochester.

Olmstead

Patrick Olmstead Jr., an Indianapolis attorney with Hoover Hull and member of the committee, added that after the advertising rules were amended, the Legal Ethics hotline started fielding more calls that were Internet related with questions about creating referral websites and what one can write in a blog.

The committee investigated how one enters into a group coupon arrangement, what kind of promises the attorney makes as the one offering the service, and what kind of promises the companies arranging the online deals make. Once the committee understood the inner workings of the deals, it compared them to the Professional Rules of Conduct and found problems in four different areas, Waggoner said.

Those four areas are the issues of lawyer-client engagement; safekeeping of property; duties to a prospective client; and fee sharing and channeling clients. The committee concluded that a lawyer using a group coupon-style arrangement may violate Professional Conduct Rules 1.15, 1.16, 5.4 and 7.2.

Why be concerned?

At first blush, Olmstead and Waggoner thought that an attorney could use these kinds of deals with no issues, but a little digging changed their minds. The turning point for Olmstead was reading a copy of a Groupon contract.

“It really does concern me that Groupon takes 50 percent no matter what it is,” he said.

It took about nine months for the committee to release its opinion, but Watson came to the conclusion that it was something attorneys couldn’t use about a week after posting his question. He zeroed in on the issue of fee splitting with nonlawyers.

“(A prohibition against) fee sharing with a nonlawyer is intended to prevent law practices from being influenced improperly from outside considerations,” Watson said. “When we advertise on Groupon, sending a percentage of fees to an outside entity could look like its influencing us in some way that’s not proper.”

Rule 5.4 prohibits fee sharing with nonlawyers except in specific circumstances.

“By the process of the advertising companies creating buying groups, the online providers such as the Company are being paid to channel buyers of legal work to the specific lawyer, in violation of the advertising and fee sharing rules,” the ethics opinion states. “We believe this is comparable to the situation analyzed in Opinion 3 of 2008, in which we concluded that there is a prohibition on the fee sharing between a brokerage firm and an attorney.”

The idea of using group coupons for legal services isn’t unique to Indiana’s legal community. Several bar associations across the country have issued their own opinions as to whether one can use online coupon deals. Indiana’s seems the most decisive in its conclusion that the deals just shouldn’t be done based on our Rules of Professional Conduct. In fact, the opinion released by ISBA’s Legal Ethics Committee, warns that “such social media marketing is fraught with peril …”

Waggoner said the opinions from the state bars of South Carolina and New York had some influence, but every state’s Rules of Professional Conduct can differ. The South Carolina bar’s opinion found the use of these coupons doesn’t violate its Rule 5.4(a) prohibition on sharing of legal fees.

Another issue that arises out of these deals is being able to control the content of the coupon advertising. The social media site has its own advertising writers, and the attorney may not have input on what the deal specifies or if it includes the term “advertising material,” Olmstead said.

“Something that simple could get someone disciplined,” he said.

Watson said he thought it was unfortunate that he couldn’t use the online group coupon deal as he thought it would be an interesting way to advertise. Watson, Olmstead and Waggoner are unaware of any Indiana attorneys who have used the service. Last year, a Missouri attorney offered to provide a will and durable power of attorney for $99 through a group coupon deal. Missouri has no formal ethics opinion on the matter, but did give the attorney the go-ahead for the agreement.

Indiana attorneys can utilize coupons or other deals to stand out when marketing their services; they just cannot involve an intermediary like these social media companies. An attorney in California last year offered $99 misdemeanor DUI defense on Cyber Monday to the first three people who contacted him.

While the Indiana opinion warns against using group coupon deals, Olmstead and Waggoner encourage anyone who is considering it to reach out to the ethics committee or other counsel before entering into such an agreement.

“If you really want to do this, let us know and we’ll help guide you through this,” Olmstead said. “I believe in that on a gut level. If you’re trying to make money, make your business more profitable through advertising, part of the cost of doing that is making sure that you’re doing it right.”•