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A South Carolina ethics opinion on fee-sharing highlights a potential obstacle for Avvo’s fixed-fee legal referral service, launched this year in 18 states.

The July 14 advisory opinion—which describes a payment setup like the one used by Avvo Legal Services—is bad news for Avvo, according to Law Sites by Robert Ambrogi.

Avvo’s service matches lawyers willing to provide defined legal services with clients who pay a fee up front, Ambrogi explains in his blog post. Lawyers receive earned fees from Avvo once a month, and Avvo takes its marketing fee from the lawyers’ accounts in a separate transaction. The fee varies based on the type of legal service provided.

The South Carolina ethics opinion targets the variable nature of the marketing fee. The arrangement violates the general ban on sharing fees with nonlawyers, and in the alternative, violates the ban on paying for a referral, the ethics opinion says.

“A lawyer cannot do indirectly what would be prohibited if done directly,” the opinion says. “Allowing the service to indirectly take a portion of the attorney’s fee by disguising it in two separate transactions does not negate the fact that the service is claiming a certain portion of the fee earned by the lawyer as its ‘per service marketing fee.’ ”

In addition, the marketing fee must represent the reasonable cost of the service, according to the opinion. “In essence, the service’s charges amount to a contingency advertising fee arrangement rather than a cost that can be assessed for reasonableness by looking at market rate or comparable services,” the opinion said.

“Presumably, it does not cost the service any more to advertise online for a family law matter than for the preparation of corporate documents,” the opinion continued. “There does not seem to be any rational basis for charging the attorney more for the advertising services of one type of case versus another.”

Avvo’s chief legal officer, Josh King, tells the ABA Journal that the service is signing up lawyers in South Carolina and plans to launch there soon. The lawyer FAQ page is here.

King points out that the opinion is advisory and Avvo disagrees with the conclusions. “We’ve looked at the rules. We have our own interpretation of the rules,” he tells the ABA Journal

King says Avvo Legal Services is a “marketplace,” rather than a referral service, and the fees paid by lawyers to Avvo “scale very directly” with the costs incurred by Avvo. The costs of legal services provided through the marketplace range from $39 to $4,000, and that results in different credit card fees and different risks in the event of refunds, King says.

The ethics rules, King adds, should be interpreted based on potential consumer harm, and lawyer advertising rules should be narrowly tailored to avoid First Amendment violations. “We really built the product looking at the consumer benefit and trying to navigate through the rules,” he said.

When ethics regulators construe ethics rules, consumer harm “should be inquiry No. 1,” King asserts. The ethics opinion is “unfortunate in that it doesn’t consider any consumer benefits.”

Related article:

ABA Journal: “Is Avvo’s fixed-cost service a fee-sharing violation?”

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