Recent legal developments have brought both good news and bad news for Avvo. Let’s start with the bad news.

Earlier this year, Avvo launched Avvo Legal Services, a service offering fixed-fee, limited-scope legal help through a network of attorneys. In an earlier post, I explained how this works:

Avvo sets the services to be provided and the prices. Attorneys who sign up for the service can choose which legal services they want to offer. When a client buys the service, Avvo sends the client’s information to the attorney. The attorney then contacts the client directly and completes the service.

Clients pay the full price for the service up front. Once a month, Avvo deposits earned fees into the attorney’s operating account. As a separate transaction, it withdraws from the account a per-service marketing fee that the attorney pays to Avvo.

Some commentators and readers expressed concern that this arrangement could constitute inappropriate fee sharing. Avvo’s CEO Mark Britton and General Counsel Josh King dismissed that, maintaining that the arrangement is OK because the marketing fee is paid as a separate transaction.

Now, one ethics panel says otherwise. The South Carolina Bar’s Ethics Advisory Committee issued an opinion last month (Ethics Advisory Opinion 16-06) concluding that Avvo Legal Services violates the prohibition of sharing fees with a non-lawyer.

[T]he service collects the entire fee and transmits it to the attorney at the conclusion of the case. In a separate transaction, the service receives a fee for its efforts, which is apparently directly related to the amount of the fee earned in the case. The fact that there is a separate transaction in which the service is paid does not mean that the arrangement is not fee splitting as described in the Rules of Professional Conduct.

A lawyer cannot do indirectly what would be prohibited if done directly. 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.”

The opinion further holds that the fee arrangement would violate the prohibition against giving anything of value to a person for recommending a lawyer’s services.

The service … purports to charge the lawyer a fee based on the type of service the lawyer has performed rather than a fixed fee for the advertisement, or a fee per inquiry or “click.” 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.

Presumably, it does not cost the service any more to advertise online for a family law matter than for the preparation of corporate documents. 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.

A disclaimer attached to the opinion notes that the Ethics Advisory Committee has no disciplinary authority and that its opinion is purely advisory.

(H/T to Christopher Miller for bringing this to my attention.)

Now On to Avvo’s Good News

A California attorney has dropped his putative class action against Avvo in which he claimed that by using attorneys’ names and likenesses on its website, Avvo was violating California’s laws on rights of publicity and unfair competition.

Aaron H. Darsky, a San Francisco litigator, agreed to dismiss the case after Avvo brought a motion to strike the complaint under California’s anti-SLAPP law, according to Avv0’s press release.

Courthouse News Service, quoting Avvo GC Josh King, reports that Darsky agreed to dismiss the case to avoid paying Avvo’s attorneys’ fees after a judge indicated his claims couldn’t hold up. U.S. District Judge Haywood Gilliam made “very, very clear” that he would rule in Avvo’s favor, King told Courthouse News.

The order of dismissal was entered by Judge Gilliam on Aug. 2.

A similar class action remains pending in Illinois, according to Courthouse News.

  • “[T]he service collects the entire fee and transmits it to the attorney at the conclusion of the case. In a separate transaction, the service receives a fee for its efforts, which is apparently directly related to the amount of the fee earned in the case.” – Sounds like what credit card payment processing services do.

    • Bob Ambrogi

      Yes, but credit-card services aren’t delivering clients. That’s the issue here.

  • Josh King

    Bob, thanks for the post. You won’t be surprised to hear that Avvo’s opinion differs from that of South Carolina. Although South Carolina’s opinion seems to have changed over time (compare opinion 11-05 with this new one), so who knows? In any event, this changes nothing about our plans to make Avvo Legal Services available to consumers in South Carolina.

    • Bob Ambrogi

      Josh, The opinion seems to say that if you charged a fixed marketing fee “per inquiry,” that would lessen the ethical concern. Have you thought about changing to a fixed marketing fee?

      • Josh King

        Yes, and we rejected the idea. First, doing so wouldn’t mollify the bars. Second, our costs – credit card processing, customer care, refunds/voids/re-dos, etc. – scale with the cost of the underlying service (as does the cost of advertising in other media). Finally, attorneys really appreciate the efficiency of having their marketing spend tied directly to the acquisition of new business.

        Bottom line: we built Avvo Legal Services at every turn to delight consumers. We’re happy to entertain any feedback from Bars if they think we are doing something that is hurting consumers. But we’re not going to hobble the product just to comply with misguided regulatory interpretations.

        • Bob Ambrogi

          Thanks Josh.

  • Rob L.

    The main issue here is that you are responsible for your own license. Avvo is not the one who gets suspended or disbarred. Pretty much any “pay per lead” or “pay per client” fee should be looked at with extreme scrutiny until such time the bar decides these types of arrangements are not necessary to protect clients.

    The reason Avvo and other “marketing” companies will never go to a flat per month fee is simple: they will make less money. If a lawyer is not getting his money’s worth on a fixed monthly rate, he/she quits the service. If the lawyer is making good money, Avvo is “missing out.”

    When I first read this arrangement when it was sent to my email, alarm bells instantly rang in my head about “fee sharing.” What difference does it make if Avvo gets paid from the fixed fee paid by the client or whether it gets paid in a separate transaction. The fee is still based on the service provided to the client.

    So more lawyers get disciplined and “legal marketers” move on. Until things change that is.

  • Putting aside the debate of whether fee splitting with non-attorneys should be allowed, this particular AVVO product is pretty clearly fee splitting. There just isn’t any getting around that.

  • bgary

    Lead generation seemed of less import to the So. Carolina Bar than did the marketing fee being tied proportionately to the legal fees received by the lawyer. I tend to agree. As stated by the Bar, it does not cost the marketing firm more to advertise for corporate legal services than it does to advertise for family law services. Pay per job, pay per click or flat fee structures are the only manner in which this does not appear to be fee splitting for legal services.

    Avvo’s argument against is even more troubling. Avvo essentially justifies charging more based upon increased transaction fees based upon the overall cost of the services being provided by the lawyer. A simple rebuttal to Avvo is simply, stop collecting fees on behalf of the lawyer. We all understand why Avvo does this, because they want to make sure they are paid. However, if transaction fees are the reason why Avvo’s marketing fee needs to be proportionate to the legal fee, then Avvo should account for the increased transaction fees and deduct them from the legal fee, providing the performing lawyer an itemized statement for those increased transaction fees.

    Avvo won’t do this however because Avvo’s true intent was to benefit from the legal work of the lawyer, and to justify this benefit based upon their advertisement services, while also charging the lawyer for their advertisement services.

    True the lawyer wouldn’t have the business without Avvo’s advertisement. But Avvo wouldn’t be in business without the services of lawyers.

    Avvo should charge a reasonable advertisement fee, making itemized increases (or decreases) in “transaction fees” incurred in the processing of larger (or smaller) payments from Avvo-sourced clients.

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