Everybody loves a deal. From outlet malls to Overstock.com, Americans enjoy the prospect of getting something at a “discount.” Recently, the model used by companies like Groupon has become popular: get companies to offer discounts to customers, but make the customers purchase the right to the discount. The marketer plays middle-man, organizing the discounts, and collecting the payments.
And just like every advertising medium known to man, everything went smoothly (joking) until a lawyer wanted in (not joking about that part).
The result: mass confusion…
… at least that’s what the ABA’s new opinion on the issue would have you believe.
Several states, including New York, North Carolina, and Arizona, among others, have already issued ethics opinions regarding lawyers on Groupon-type services. Without the ABA’s help. (As I’ve said before, the existing rules still apply!)
Those opinions, while slightly different, each provided a framework for attorneys in those states to use Groupon-type advertisements ethically.
I suppose in an attempt to rectify differences between the various state opinions, the ABA decided to issue an opinion of its own. “Much better to have one rule, even if it is confusing, vague, and provides little actual guidance, than several clear-cut rules that vary slightly” is what I imagine the justification was. Here’s what they came up with:
The opinion’s first step towards ambiguity was identifying two different types of advertising to be addressed in one opinion (BAD IDEA):
The first, described as a “Coupon Deal,” involves purchasing a coupon for a discounted rate on legal services (e.g. pay $25 now, get five hours for 50% off). The defining characteristic of a Coupon Deal is the purchaser paying a portion up-front for the RIGHT to get a discount when redeemed. The majority is collected by the lawyer when the coupon is used.
The second, described as a “Prepaid Deal,” involves purchasing a set amount of legal services at a discount (e.g. pay $500 for 5 hours, usually priced at $1000). The defining characteristic of a Prepaid Deal is the collection of the entire fee up front by the marketing company, not by the lawyer.
Regarding the deals, the ABA states:
- All of the general rules that apply to marketing your firm apply here. (For help, click here)
- For either deal, if the services requested cannot be performed by the attorney, the ENTIRE price paid must be refunded (including amount kept by advertiser), even if advertised as “non-refundable.”
- May be transferrable, but ABA isn’t sure. (Seriously)
- Money paid to the attorney by marketing company from proceeds of coupons are NOT considered prepayment of legal fees, and can go directly into the firm’s general bank account… except
- … if the attorney is unable to perform the legal services the customer requests, a full refund of the ENTIRE coupon price (including amount kept by marketing company) is likely required. (See next paragraph)
- … possibly if the lawyer fails to include non-refundable language in the coupon. (The opinion speaks favorably of including non-refundable language for this purpose, but nowhere requires it.)
- However, if the coupon is never redeemed, the payment does not need to be returned.
Question: What if a person presents a coupon but requests a legal service not subject to the deal? The opinion says that refusal on competency grounds ALWAYS requires a full refund. But what if the lawyer refuses because the customer’s request isn’t listed on the coupon… (Not addressed ANYWHERE in the opinion)
Another question: After the coupon expires, is the customer entitled to a credit for the amount paid? For the amount kept by the law firm? A little help! Still, it’s better than saying Prepaid Deals may be non-refundable, under circumstances the opinion wouldn’t identify. (Again, seriously. Check out footnote 20 for some hilarious suggestions.)
- Probably not transferrable, but who knows. (In fact, the opinion states, more than once, that it’s “not clear a prepaid deal can be structured to be consistent with the Model Rules.” Huh?)
- Money paid to the attorney by marketing company constitutes legal fees, and must go into the trust account for that particular client (marketer needs to collect client info).
- If the prepaid deal is never redeemed, the funds “likely” need to be refunded.
Oh yeah, then there’s this:
“In addition, the lawyer must be careful in establishing the maximum number of deals to be sold… Businesses have been harmed by overselling deals and then struggling to meet the ensuing demand. For a lawyer, setting too high a cap on the number of deals sold could lead to a violation of the Model Rules if the result is excessive work that the lawyer cannot handle promptly, competently, and diligently.”
To sum up, accidentally selling too many coupons may be an ethical violation.
(Photo credit: Alex E. Proimos)
My Problem With the ABA’s Opinion:
The purpose of an ethics opinion is to provide guidance for how attorneys to comply with the ethical rules. The best opinions use real-life situations to define whether a particular activity is or is not an ethical violation. The ABA’s opinion fails to do that in any meaningful way. Instead, it poses hypothetical questions and admits it has no answer.
The opinion states that neither deal makes the purchaser a “prospective client,” but then gives different status to the purchasers of different deals. The proceeds are refundable, except when they’re not. When are they not refundable? We’re not sure. Are they transferrable? Some might be, but others really aren’t. Except even those might still be. WHAT THE HOLY AMBIGUITY?!?
The desire to appear flexible takes what should be a relatively simple rule and turns it into a confusing, unclear mess. Nothing like giving it the good old college try!
(And as an aside, since the ABA’s opinion was released, several commentators, including those who know better, have taken to declaring that now attorneys can use Groupon. Once again, why non-lawyers shouldn’t comment on legal ethics.)
— SmallFirmInnovation (@sfinnovation) October 23, 2013