‘Deal of the Day’ Marketing Approved for New York Lawyers – With Caveats

April 17, 2012 | Professional Liability | Appeals | Complex Torts & Product Liability

Lawyers are not immune from the call of the Internet and the growing marketing opportunities that it represents. Lawyers who provide services to small businesses and individuals are particularly attracted to Internet applications that enable them to target potential clients before the client walks in the firm’s door.  Lawyers that use these Internet applications are like plumbers, beauticians and restaurants, competing for the attention of prospective customers, but with one important distinction – all lawyer conduct must meet rigorous ethical standards.

Recently, the New York State Bar Association Committee on Professional Ethics issued an opinion in which it explored whether lawyers can market their services by using a deal of the day or a group coupon website. The committee’s opinion generally supported the use of these websites, offering attorneys yet another avenue to attract clients and develop new business, albeit with caveats and requirement as to how attorneys must conduct themselves in connection with these offerings under the Rules of Professional Conduct.[1]

Background

A growing number of websites offer consumers a “deal of the day” or a “group coupon” that allows them to purchase specified goods or services at a discount. These sites typically invite consumers to purchase a coupon that they can exchange for a certain item or service, such as a treatment at a spa or a meal at a restaurant. Consumers buy coupons from these websites for an amount that can be significantly less than the regular price for the items to which they relate.

One of the most well-known of these kinds of sites is Groupon. Launched in November 2008, Groupon’s website states that it “features a daily deal on the best stuff to do, see, eat, and buy in 48 countries, and soon beyond (read: Space).”[2] Groupon not only markets its daily deals to consumers but specifically seeks to attract business advertisers. Its “GrouponWorks for Businesses”[3] page allows a business to fill out a form electronically requesting to be contacted by Groupon staff.

Groupon contends that it is attractive to businesses for a variety of reasons,[4] including that it guarantees “[v]aluable new customers,” that it leads to “[e]fficient, measurable marketing,” that advertisers will “[b]ecome the talk of the town,” and that it provides “[b]ig [e]xposure, bigger word of mouth.”

Groupon, and other similar websites, negotiate a discount with participating businesses, which agree to provide their products or services in exchange for the coupons or vouchers that consumers purchase at a discounted price. There may be conditions or restrictions on the coupons, and they may be valid only if a certain minimum number of consumers buy them. As with most other coupons, they typically are valid for a specified limited time period, after which they expire and are of no further value.

The daily deal websites make a profit by collecting the cost of the coupons they sell to consumers. When the “deal of the day” closes, the websites deduct a percentage of the gross receipts as their compensation and pay the balance to the respective vendors.

Based upon these facts, the committee opined as to whether an attorney may market legal services by participating in a “daily deal” or “group coupon” website. In its opinion, the committee pointed out that the use of a daily deal or group coupon website by a lawyer as a means of marketing legal services raises a number of issues:

Whether the arrangement is an improper payment for a referral;Whether the amount received by a lawyer could, under certain circumstances, result in a prohibited excessive fee;Whether statements made by or on behalf of a lawyer are false or misleading or otherwise violate rules regarding lawyer advertising; andWhether the logistical arrangement of payment in advance for a legal service, before a lawyer has had the opportunity to check for conflicts or determine whether the lawyer is competent to perform the service and whether the client needs the service, constitutes a premature and improper formation of a lawyer-client relationship.

The committee then proceeded to analyze these issues.

The Referral Issue

The first issue considered by the committee was whether themoney retained by a website constituted an improper payment for a referral under New York Rules of Professional Conduct Rule 7.2(a).[5]

Rule 7.2(a) provides, in pertinent part, that a lawyer “shall not compensate or give anything of value to a person or organization to recommend or obtain employment by a client, or as a reward for having made a recommendation resulting in employment by a client.” The committee observed that Comment 1[6] to Rule 7.2 notes that Rule 7.2(a) “does not prohibit a lawyer from paying for advertising and communications permitted by these Rules….” The question, therefore, was whether the money retained by a daily deal or group coupon website was merely an appropriate payment for a novel form of advertising or was compensation for the referral of a client.

The committee noted that these websites have no individual contact with coupon buyers other than collecting the cost of the coupons and that they do not take any action to refer potential clients to particular lawyers. Instead, the websites carry a particular lawyer’s advertising message to interested consumers and charge a fee for that service.

The committee opined that, assuming that the percentage amount retained by these various websites was a “reasonable payment for this form of advertising,” it could find no violation of Rule 7.2.

Excessive Fee

The committee next addressed whether the amount received by a lawyer could, under certain circumstances, result in a prohibited excessive fee.

It noted that some coupon buyers may not receive all or any of the legal services to which the coupons entitle them, for various reasons. New York Rules of Professional Conduct Rule 1.5 prohibits excessive legal fees,[7] and, as the committee observed, fee arrangements also are subject to other rules. To apply these rules, the committee considered the various reasons that legal services may not be delivered in these circumstances.

First, the committee pointed out that a lawyer’s portion of the gross amount of a website’s coupon sales receipts is paid to the lawyer shortly after the offer closes and before the individual buyers receive services. In some cases, when the buyer comes to receive the service, the lawyer may determine that he or she is unable to render the described services, either because of a conflict of interest or because the lawyer is not able to deliver competent services that are appropriate for the client. In such a case, the lawyer cannot provide what the coupon buyer purchased, and the committee declared he or she must give the buyer a full refund.

In other cases, the committee continued, a coupon buyer, having changed his or her mind about going forward with the representation, may discharge the lawyer. If that occurs, the lawyer must again give a full refund, subject to any quantum meruit claim for services rendered prior to the termination of the representation, according to the committee.[8]

The committee also pointed out that some buyers might purchase a coupon from a daily deal or group coupon website and then never seek the discounted services from the lawyer. Other buyers might wait too long to use a coupon, which has a stated expiration date, and try to use it after that date. In either case, the committee declared, the lawyer is entitled to treat the advance payment received as an earned retainer for being available to perform the offered service in the given time frame.

Advertising Rules

Then, the committee considered whether statements made by or on behalf of a lawyer in these circumstances are false or misleading or otherwise violative of the rules regarding lawyer advertising.

As the committee explained, like all lawyer advertising, a daily deal or group coupon advertisement must not be false, deceptive, or misleading.[9] A lawyer must comply with Rule 7.1(j), requiring the availability to the public of a written statement describing the scope of the service advertised for a fixed fee.[10]

In addition, having offered a particular service for a fixed fee, the lawyer must provide the service for the advertised fee if the coupon purchaser seeks that service within the specified time frame.[11]

Likewise, the offered discount must not be illusory, but must represent an actual discount from an established fee for the named service; otherwise the advertisement would be misleading.[12] Additionally, the advertisement must include the words “Attorney Advertising” on the web page and in the subject line of any related email, as required by Rule 7.1(f).[13] If the specific language of the advertisement makes it “targeted,” then the advertisement is a solicitation and must comply with Rule 7.3 as well.[14]

The Lawyer-Client Relationship

Finally, the committee analyzed whether a daily deal or group coupon could lead to a premature and improper formation of a lawyer-client relationship.

It explained that the purchase of a coupon entitles a consumer to the described legal service. The danger, according to the committee, was that the arrangement could be taken to establish a lawyer-client relationship before the lawyer has had any opportunity to check for conflicts or determine whether the described legal services were appropriate for the consumer or whether the lawyer was competent to provide those services.

The committee concluded, however, that the problem could be avoided with proper logistical arrangements and disclosures. In particular, it explained that, to avoid the premature and improper formation of a lawyer-client relationship, a lawyer’s advertisement on a deal-of-the-day website must make clear that the offer made on the website is subject to a number of conditions, including that before such a relationship is formed, the lawyer will check for conflicts and determine that the lawyer is competent to provide legal services that are appropriate to the consumer. The committee added that if a lawyer determines that the lawyer-client relationship is untenable for these reasons, the lawyer must give the coupon buyer a full refund.

Additionally, the committee said that this arrangement should be disclosed as part of the coupon offer on the website, along with any other information needed to avoid making the offer misleading in any way.

Finally, the committee concluded that if a lawyer-client relationship is formed, the lawyer must promptly describe the scope of the services to be performed and the fee arrangement as required by Rule 1.5(b).[15]

Conclusion

It is worth noting that the committee’s opinion was fraught with assumptions, limitations and disclosure requirements that lawyers must undertake to ethically participate in daily deal advertising.  A number of states have considered whether lawyers may market services on a deal-of-the-day or group coupon website, and not all have agreed with New York.[16]  Lawyers involved in multi-state marketing therefore should consider the implications of these other ethical opinions. But in New York, at least, lawyers who believe that their legal services are suited to this kind of discounted marketing may do so within the qualifications of the opinion.

[1] N.Y.S. Bar Ass’n Comm. on Prof. Ethics,Op. 897 (Dec. 13, 2011), available at http://www.nysba.org/Content/ContentFolders/EthicsOpinions/Opinions825present/EO_897.pdf.

[2] See http://www.groupon.com/about.

[3] See http://www.grouponworks.com/.

[4] See http://www.grouponworks.com/why-groupon/comparison-guide.

[5] See http://www.nysba.org/Content/NavigationMenu/ForAttorneys/ProfessionalStandardsforAttorneys/NYRulesofProfessionalConduct4109.pdf, at 31.

[6] See http://www.nysba.org/AM/Template.cfm?Section=Professional_Standards_for_Attorneys&Template=/CM/ContentDisplay.cfm&ContentID=53625, at 172.

[7] Rule 1.5(a) states that a lawyer “shall not make an agreement for, charge, or collect an excessive or illegal fee or expense.” See

http://www.nysba.org/Content/NavigationMenu/ForAttorneys/ProfessionalStandardsforAttorneys/NYRulesofProfessionalConduct4109.pdf, at 4.

[8] See Rule 1.16(e) (providing that upon termination of representation, lawyer must promptly refund any part of a fee paid in advance that has not been earned); N.Y.S. Bar Ass’n Comm. on Prof. Ethics,Op. 599 (March 16, 1989) (citing case law for proposition that a client “may always discharge his attorney, with or without cause, and in the absence of a contract providing otherwise an attorney discharged without cause is entitled to be compensated in quantum meruit”).

[9] See Rule 7.1(a)(1), available at http://www.nysba.org/Content/NavigationMenu/ForAttorneys/ProfessionalStandardsforAttorneys/NYRulesofProfessionalConduct4109.pdf, at 29.

[10] Rule 7.1(j) provides: “A lawyer or law firm advertising any fixed fee for specified legal services shall, at the time of fee publication, have available to the public a written statement clearly describing the scope of each advertised service, which statement shall be available to the client at the time of retainer for any such service. Such legal services shall include all those services that are recognized as reasonable and necessary under local custom in the area of practice in the community where the services are performed,” available at id. at 30-31.

[11] See Rule 1.7(l), which provides: “If a lawyer or law firm advertises a range of fees or an hourly rate for services, the lawyer or law firm shall not charge more than the fee advertised for such services. If a lawyer or law firm advertises a fixed fee for specified legal services, or performs services described in a fee schedule, the lawyer or law firm shall not charge more than the fixed fee for such stated legal service as set forth in the advertisement or fee schedule, unless the client agrees in writing that the services performed or to be performed were not legal services referred to or implied in the advertisement or in the fee schedule and, further, that a different fee arrangement shall apply to the transaction,” available at id. at 31.

[12] See N.Y.S. Bar Ass’n Comm. on Prof. Ethics,Op. 563, n.2 (Oct. 1, 1984).

[13] Rule 7.1(f) provides, “Every advertisement other than those appearing in a radio, television or billboard advertisement, in a directory, newspaper, magazine or other periodical (and any web sites related thereto), or made in person pursuant to Rule 7.3(a)(1), shall be labeled ‘Attorney Advertising’ on the first page, or on the home page in the case of a web site. If the communication is in the form of a self-mailing brochure

or postcard, the words ‘Attorney Advertising’ shall appear therein. In the case of electronic mail, the subject line shall contain the notation ‘ATTORNEY ADVERTISING,’ available at http://www.nysba.org/Content/NavigationMenu/ForAttorneys/ProfessionalStandardsforAttorneys/NYRulesofProfessionalConduct4109.pdf, at 30.

[14] Id. at 33-34.

[15] Id. at 4-5.

[16] See, e.g., South Carolina Op. 11-05, available at http://scbar.org/MemberResources/EthicsAdvisoryOpinions/OpinionView/ArticleId/1012/Ethics-Advisory-Opinion-11-05.aspx(generally approving of daily deal website marketing); Indiana State Bar Ass’n Legal Ethics Comm. Op. No. 1, 2012, available at http://www.inbar.org/Portals/0/downloads/appellate/Legal_Ethics_Committee_Op-1-2012.pdf(method is “fraught with peril and is likely not permitted”).

This article is reprinted with permission from the April 17, 2012 issue of the New York Law Journal. Copyright ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.

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