NYCLA REPORT ENCOURAGES LEGAL MATCHING SERVICES BY PROPOSING COMMON SENSE ETHICS RULES CHANGES

This article was originally published on March 29, 2020.

On March 3, 2020, the New York County Lawyers’ Association issued a detailed report (the “NYCLA Report”) on for-profit online legal matching services (“FPLMSs”). Many New York lawyers participate in FPLMSs, but the legal and ethical guidelines are murky at best, discouraging at worst. The 53-page NYCLA Report investigates the public policy, legal and ethical issues raised by FPLMS, and recommends important changes to the New York Rules of Professional Conduct (the “Rules”) and the Judiciary Law to encourage lawyers to participate.

The NYCLA Report, of which I was a co-author, found two reasons to support FPLMSs. First, the “access to justice” gap. According to several studies cited in the Report, between 60% and 90% of legal problems for indigent and middle-class individuals are either ignored, go unrecognized or are handled by the individuals themselves because they cannot find an affordable attorney. Though at least some indigent people can avail themselves of free legal services, those with slightly higher incomes do not even have that option. They are left on their own to find lawyers, and many do not know how.

Second,

there is the “client gap.” Solo and small firm lawyers often struggle to find clients, particularly if the lawyers live in rural areas or are just starting their practice. The Report cites studies showing that over the past 40 years, the legal marketplace has markedly shifted, with more and more legal spending devoted to businesses rather than individuals. This has created a capacity utilization problem, with solo practitioners working on average just 2.3 hours per day, of which only 1.6 hours are billable. These lawyers need to find clients.

Clients need lawyers. Lawyers need clients. As they say in “Fiddler on the Roof,” a perfect match! In 2020, instead of the village matchmaker, we have legal referral services, both not-for-profit and for profit (FPLMS). Local and state bar associations have provided these referral services on a not-for-profit basis for many years at a modest charge. New York alone has approximately 30 such services throughout the state, some with distinct territories (Westchester, Brooklyn), some more overlapping (New York City). But the growing “justice gap” is one indication that these not-for-profit services have not come close to meeting the need, while lacking the resources and technical prowess to expand their reach. Many prospective clients have turned to the growing tech marketplace, where FPLMSs such as LegalZoom, Total Attorneys and (formerly) Avvo, have started to proliferate, putting those needing help with landlord-tenant, matrimonial, criminal and consumer law problems together with lawyers.

The problem is that the current ethics rules make it difficult for FPLMSs to sustain a profitable business model. Under Rule 7.2(a), for example, “a lawyer shall not compensate or give anything of value to a person or organization to recommend or obtain employment by a client.” While Rule 7.2(a) has exceptions – legal services organizations, bar association referral services, labor unions and the like – they do not include FPLMSs. A handful of bar ethics opinions (see, e.g., N.Y. State 1031 (2017); Nassau Co. Bar Op. 01-04 (2001) do allow online FPLMSs, but require, inter alia, that they charge a flat fee for all referrals, no matter how much work they generate. This is because of another ethics rule, Rule 5.4, which prohibits sharing legal fees with non-lawyers; a fee structure by which a non-lawyer FPLMS earns more if the lawyer receiving a referral performs more work but could be seen to violate this Rule.

According to the NYCLA Report, these Rules, as well as N.Y. Jud. Law § 491, which prohibits referral fees in certain litigated matters, discourage FPLMSs from investing in the legal marketplace and, more to the point, discourage lawyers from participating in FPLMSs. The NYCLA Report concluded that these Rules and statutes, to the extent applied to online referrals, had become outdated in light of newer technological models, and needed to be changed in order to encourage the use of FPLMSs so they and their lawyer participants can help fill the “access gap.”

The NYCLA Report recommends the following changes:

Amending Rule 7.2(b) to create an exception allowing lawyers to participate in FPLMSs that: (a) fully disclose the criteria used to match lawyers to clients; (b) comply with the other Rules governing attorney advertising; (c) require the lawyer receiving the referral to be competent in the relevant area of law; (d) do not use rating systems based on “pay-to-play” or other forms of favoritism; (e) prohibit the FPLMS’s fee from being dependent on whether a referral is made; and (f) allow the FPLMS’ s fee to be dependent on the amount of legal work performed, as long as the lawyer’s professional independence is not compromised.
Amending Rule 5.4 to have an exception allowing FPLMSs to be paid based on the legal work generated; and
Either amend N.Y. Jud. Law § 491 or eliminate it entirely so that FPLMSs will not be hamstrung by its limitations.

By making these recommendations, and in particular by broadening Rules 5.4 and 7.2 to allow a more liberal fee structure for FPLMSs, the NYCLA Report recommends a fee model that will provide financial incentives for the development of new and technologically innovative FPLMSs, ones with the potential to reach those whose legal needs currently are not being met. As the Report says, this will be a win for FPLMSs, a win for the lawyers who want to participate in them, and most importantly, a win for the public and legal system, which always benefits when people are using lawyers to solve their legal problems.