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Ethics Opinion

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RI-17

January 24, 1989

SYLLABUS

    A profit-making entity which markets lawyers' services to a defined interest group, for a fee to be paid by the lawyers participating, constitutes a legal referral service, participation in which violates MRPC 7.2(c).

    A marketing arrangement, whereby participating lawyers are contractually obligated to accept cases on a contingency fee basis, in whole or in principal part, violates the proscription in MCR 8.121(E) against entering into a contingency fee arrangement without first advising the client that lawyers' services may be procured under other fee arrangements, in which the lawyer is compensated for the reasonable value of the services performed, such as on an hourly or per diem basis.

    References: MRPC 1.6, 7.2, 7.4, 8.4(c); MCR 8.121.

TEXT

A business entity, organized for profit, herein referenced as "the Network," publishes a directory containing the names of lawyers who subscribe to the Network, and who purport to have expertise or at least interest in collection work. It appears that the directory is sold among business enterprises having need of professional collection work, in conjunction with which the Network furnishes professional service vouchers. The vouchers are used to offset a portion of the participating lawyer's fees. A Network lawyer who has received these vouchers in payment for services rendered is entitled to receive, from the Network, cash equivalents for the vouchers, at an agreed, defined exchange rate.

Each subscribing lawyer pays an annual fee to join the Network. There is also a fee to be paid if the lawyer exercises the option, on a subscription anniversary, to terminate membership in the Network. Each subscribing lawyer agrees to accept collection work on a contingency fee basis, charging 25% for collections which result without instituting litigation, 30% otherwise. The lawyer also has the option of demanding a "litigation fee" of up to 7.5% of the claim, payable in advance, the precise amount being a matter for negotiation between lawyer and client.

A lawyer asks whether participation with the Network would be proper under ethics rules.

MRPC 7.2(c) provides:

    "A lawyer shall not give anything of value to a person for recommending the lawyer's services, except that a lawyer may pay the reasonable cost of advertising or written communication permitted by this rule and may pay the usual charges of a not-for-profit lawyer referral service or other legal service organization."

The subscription fee paid by a lawyer to participate in the Network is not strictly for an unadorned listing in a directory of a type which might be construed to be merely an advertising medium. Rather, the subscription payment involves the lawyer in a complete marketing arrangement, one which fixes the parameters of the professional service contract within narrow limits. As the term is generally used, the overall plan constitutes a "lawyer referral service" squarely within the prohibitions of MRPC 7.2(c), since the plan financially aggrandizes the Network, a profit-making enterprise.

The underlying rationale of MRPC 7.2(c) reflects the historical antipathy toward solicitation of clients. The rule has been ameliorated to reflect a modernized attitude toward media advertising, which in general enjoys First Amendment protection. See, Bates v. State Bar of Arizona, 433 US 350 (1977); In re Primus, 436 US 412 (1978); Ohralik v. Ohio State Bar Ass'n, 436 US 447 (1978), reh den., 99 S Ct 266; Woll v. Attorney General (on remand), 116 Mich App 791 (1982).

Bates established that media advertising, so long as it is truthful and not misleading, is "free speech" for First Amendment purposes. Primus held that what might constitute solicitation or barratry otherwise nonetheless enjoys First Amendment protection where the lawyer provides representation without charge, through an established nonprofit group, to persons who otherwise might be unaware that legal redress for some wrong may be available to them, and whose claims fall within a general civil or constitutional rights rubric. Ohralik and Woll reaffirm the principle that direct solicitation of fee paying clients is beyond the pale of First Amendment protection. But see Shapero v. Kentucky Bar Ass'n, 486 US 466 (1988).

MRPC 7.2(c) appears to go further than what is mandated by Primus, removing restrictions with respect to subject matter and organizational history that might be discerned from the language of the opinion, as well as any restriction on whether the lawyer directly profits from an association with the organization. The sole restriction is that the lawyer referral service or other legal service organization involved in marketing lawyer services not be organized for profit.

The Network does not fit within either exception recognized in MRPC 7.2(c). It is operated for profit, and it is not a mere advertising medium only. While the Network itself may be violating no law or regulation in its operations, a lawyer who subscribes would be in contravention of MRPC 7.2(c), and subject to discipline.

Additionally, the Network subscription agreement makes no provision for a lawyer and client to negotiate for a fee to be paid on other than a contingency basis, except for the possible addition of a "litigation fee" not to exceed 7.5% of a claim. MCR 8.121(E) provides:

    "An attorney must advise a client, before entering into a contingent fee arrangement, that attorneys may be employed under other fee arrangements in which the attorney is compensated for the reasonable value of the services performed, such as an hourly or per diem basis."

In the absence of any indication that the Network so advises creditors before they utilize Network services, a subscribing lawyer who accepted a creditor-client on a contingency fee basis in accordance with the contractual obligation of the lawyer to the Network would be in violation of MRPC 8.4(c), which proscribes engaging in conduct that is prejudicial to the administration of justice. Adhering to MCR 8.121(E) would place the lawyer in breach of contract; conforming to the contractual obligation would be grounds for discipline.

This Committee does not express views on legal questions. However, MCR 8.121 constitutes, by its express terms, an interpretive and mandatory guide to construction of the Rules of Professional Conduct. Indeed, the MRPC are rules of court, which must be read in conjunction with other court rules.

MCR 8.121 also contains restrictions on the maximum fees that may be charged in certain circumstances; by its terms, however, this portion of the rule applies only to personal injury and wrongful death cases. MCR 8.121(A), subrule (E), is not so limited. The title of the rule, provided by the publisher, is irrelevant to its construction. See MCR 1.106. In contrast to MCR 8.121(A), MCR 8.121(E) applies on its terms to all contingent contracts, not just those arising in personal injury and wrongful death cases.

A lawyer participating in the Network would have to be cognizant of the manner in which the organization advertises the lawyer's services. Representations of expertise, as contrasted with empirically verifiable parameters of experience or interest, could run afoul of MRPC 7.1. If the operation of the Network involves an exchange of information among participating lawyers, precautions must be taken to avoid breaching confidentiality. MRPC 1.6; Colton v. US, 306 F2d 633 (CA 2 1962); Sawabini v. Desenberg, 143 Mich App 373 (1985).

Therefore, a profit-making entity which markets lawyers' services to a defined interest group, for a fee to be paid by the lawyers participating, constitutes a legal referral service, participation in which violates MRPC 7.2(c). Further, a marketing arrangement, whereby participating lawyers are contractually obligated to accept cases on a contingency fee basis, in whole or in principal part, violates the proscription in MCR 8.121(E) against entering into a contingency fee arrangement without first advising the client that lawyers' services may be procured under other fee arrangements, in which the lawyer is compensated for the reasonable value of the services performed, such as on an hourly or per diem basis.

 
     

 

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