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Careful How You Market Yourself

California Join weighs in on the ethical perils of unregistered lawyer referral services

By Ellen R. Peck
©2006. All rights reserved.

Ellen R. Peck
Peck

Cali, I have the most terrific idea for an ancillary business!” Washington Joan, California Joan’s lawyer brother and long-standing client who had a host of ancillary businesses, exclaimed. “I am going to set up a separate heir-finding business. The heir finders will advertise that if the heirs need an attorney, they will be referred to a number of lawyers, including me, who can finish off the legal work to recover the funds for the heir. Any ethical problems?”

“Wash, let me count the violations! Start with the likelihood of unlawful in-person solicitation of legal business, (CRPC 1-400(B),(C)) skipping over other violations, and ending with a violation of Business and Professions Code §6155(a), which regulates lawyer referral services,” Cali started. 

“This is not a lawyer referral service!” Wash protested.

“Au contraire, mon frere!” Cali countered. “Section 6155(a) prohibits an ‘individual, partnership, corporation, association, or any other entity’ from operating ‘for the direct or indirect purpose, in whole or in part, of referring potential clients to attorneys,’ unless the service is registered with the State Bar and the combined charges to referred potential client do not exceed the total cost that the client would normally pay if no referral service were involved,” Cali stated patiently. 

“Wash, as your proposed advertisement demonstrates, an indirect partial purpose of your ancillary heir-finding business is to refer clients to attorneys. It is unlikely that your heir-finding business is going to go through the expensive and time- consuming process of becoming a registered referral service. So, if it is not registered with the State Bar and if you advertise or represent to potential customers that referral to attorneys is one of the services your heir-finding business will provide, it is likely to come within the prohibitions of §6155(a),” Cali continued.

Wash protested. “Lots of businesses are not registered with the State Bar as referral services and advertise and provide referrals to attorneys.”

Cali explained that some types of businesses or services were not included in the broad definition as a “referral service” and therefore were exempt from the registration requirement: “A legal insurance plan defined in Insurance Code §119.6 is excluded (Bus. & Prof. C. §6155(c)(1)) as is a group or prepaid legal plan, such as a union legal services plan that recommends, provides or pays for legal services for its members.” (Bus. & Prof. C. §6155(c)(2))

“What about all of those constitutional rights groups that refer people to lawyers to represent them?” Wash wondered. 

“If the referral service of potential clients to lawyers is on a pro bono basis, then it is not within the scope of the regulation of §6155(a),” Cali answered. (Bus. & Prof. C. §6155(c)(3))

Wash lit up like a light bulb. “So, we will include the legal services in the charge for the heir finding and refer the client to the attorney at no charge. Wouldn’t that be a pro bono service which is excluded.”

“No!” Cali objected. “Among other ethical problems with this proposal, the referred lawyers are not serving pro bono, since the fee comes from the consumer through the service. Your heir-finding business will still be subject to violating §6155.”

“So what’s the risk of operating an unregistered lawyer referral service?” Wash pondered.

“First, any person can obtain an injunction for any violation or threatened violation of the rules governing lawyer referral services.” (Bus. & Prof. C. §6155(e); see also declaratory and injunctive relief procedures for lawyer advertising which can apply to certified lawyer referral services — Bus. & Prof. C. §6158.4(c)). Cali ticked off the list of potential liabilities.

“Second, any person or entity in potential or actual violation of §6155 may be liable for statutory civil penalties. (Bus. & Prof. C. §§17206, 17206.1 and 17536; 6156(a)) Also, the State of California or the State Bar of California can bring an action for statutory civil penalties. (Bus. & Prof. C. §6156(a) & (c))

“Not only is the State Bar entitled to its reasonable expenses of investigation and prosecution of a civil action, such expenses are required to be paid to the State Bar before any civil penalty is collected. (Bus. & Prof. C. §6156(b))

“Finally, any lawyer who operates a referral service in violation of §6155 may be exposed to discipline for failing to support the laws of California.” (Bus. & Prof. C. §6068(a)) 

“Thanks, Cali!” Wash capitulated. “I’m going to re-think my entire strategy and structure of this proposed business. See you soon!”

After her brother hung up, Cali ruminated about the historic reasons for the California legislature’s broad regulation of lawyer referral services. In enacting the regulation, the legislature stated:

“The legislature hereby finds and declares that many of the citizens of the state who are potential consumers of legal services often find it difficult to locate attorneys willing to consult with them for a nominal fee. The legislature further finds and declares that lawyer referral services are of great value, but that because a potential for abuse exists, referral services should be regulated in order to ensure that those services exist for the true benefit of the public.” (§§1 and 5 of Stats.1987, c. 727)

“The need for certification and regulation of lawyer referral service programs arose as a result of consumer confusion from having multiple listings in telephone directories and classified advertisements by competing lawyer referral services and because of the concern over sham referral services, often operated by lawyers referring cases only to themselves.” (Vapnek, et al., 1 Calif. Prac. Guide — Professional Responsibility 1:481 (The Rutter Group 1997-2006)

Cali’s ruminations were interrupted by another phone call.

“Cali, I just got offered the most wonderful deal that is going to double the clients coming into my new practice!” exclaimed Newton Newlawyer, who had been admitted to the State Bar for two years and had been one of California Joan’s best students when she taught professional responsibility in law school.

“Let me guess!” Cali intuited. “An Internet referral service will match you with as many prospective clients in your field as you can take, costs you no more than $2,500 per month, and promises you that if you do not get double the amount in legal fees as you expend, they will give you your money back.”

“Yes. It’s so cool. A consumer goes to the referral service Web site, feeds in information about his or her legal needs and is matched up with a lawyer who practices in the area of the prospective client’s needs. Usually, the consumer does not have to pay the service, because the lawyers pay the cost,” Newt remarked.

“Newt, because of the potential for abuse, lawyer referral services are closely regulated by statute and must be organized and operate in strict conformity with State Bar rules and regulations. (Vapnek, et al., 1 Calif. Prac. Guide — Professional Responsibility 1:480 (The Rutter Group 1997-2006.) Is your Internet referral service registered with the State Bar?” Cali asked.

Newt checked with the service, who first told him that they were obtaining registration; but after calling the State Bar, he found that there was no registration application pending. When he confronted the service with this information, the service manager told him that registration was not required because the service was Web based. Newt advised Cali of his findings and asked whether he could still participate and get referrals from the service.

“Section 6155 does not expressly exempt Internet lawyer referral services, so I believe it must be registered and otherwise comply with the law,” Cali opined.

“But I should not have any liability for participating in a non-complying referral service, should I?” Newt asked.

“Even though the service is in non-compliance, as a participating lawyer you have duties, too. Section 6155(a) expressly prohibits a lawyer from accepting referral of a client from a lawyer referral service that does not comply with that section. So you could face discipline, even if the referral service is never held accountable,” Cali answered.

“This is a real trap for the unwary lawyer!” Newt exclaimed. “I’m a sole practitioner. Doesn’t this limit my ability to advertise in any meaningful fashion?”

“Newt, there are a number of ways you can market yourself. First, you can join referral services that are in conformance with the law. Most local bar associations or other conforming entities run excellent lawyer referral services, many of which may be accessed through the Internet or have Internet Web sites with consumer information,” Cali said.

“What have the registered referral services got to offer the consumer that the non-complying referral services do not?” Newt asked skeptically.

“One of the biggest protections is financial responsibility for mistakes,” Cali said. “Lawyers who participate in certified lawyer referral services must maintain a minimum errors and omissions insurance policy or alternative financial responsibility. (Bus. & Prof. C. §6155(f)(6).)

“My favorite ethics source also reports that a qualified lawyer referral service serves several important functions:

• It helps the public find qualified lawyers. A certified referral service provides a way for the public to find qualified, insured lawyers to render legal services. [State Bar Lawyer Referral Service Rules, Rule 5.1(a)]

• It provides information about lawyers. A certified referral service provides information about lawyers and the availability of legal services to aid the public in selecting lawyers. [State Bar Lawyer Referral Service Rules, Rule 5.1(b)]

• It informs the public. A certified referral service informs the public when and where to seek legal services. [State Bar Lawyer Referral Service Rules, Rule 5.1(c)]

• It provides general legal information. A certified referral service provides the public with general, legal and dispute resolution information. [State Bar Lawyer Referral Service Rules, Rule 5.1(d)]

• It improves the quality of legal services. A certified referral service improves the quality of legal services available to the public by requiring the participating lawyers to demonstrate levels of experience and strict adherence to the professional standards. [State Bar Lawyer Referral Service Rules, Rule 5.1(e)] (See also Bus. & Prof. C. §6155(f)(6).)

• It offers access to affordable services. A certified referral service provides access to legal services at an affordable cost to the public. [State Bar Lawyer Referral Service Rules, Rule 5.1(f)] (Vapnek, et al., 1 Calif. Prac. Guide — Professional Responsibility  1:483 (The Rutter Group 1997-2006.)

“Well, I certainly will pursue that option,” Newt said. “What else can I do?”

“You may legally have your own Web site or other Internet advertising, so long as it complies with minimal regulations established by statute and rule.” (CRPC 1-400; Bus. & Prof. C., §6157-6158)

Newt protested, “As a solo practitioner, I can’t afford the time and the money to set up my own Web page or Internet advertising. Plus, I am technologically challenged.”

“Another alternative is to have joint advertising programs with other lawyers. Joint lawyer advertising is outside the scope of the referral service definition. (Bus. & Prof. C. §6155(h)(2))

“‘Legitimate lawyer cooperatives or group advertising programs typically involve a pooling arrangement by lawyers or law firms for paid advertising on television or radio, in print media or on the Internet,’” Cali explained. (Vapnek, et al., 1 Calif. Prac. Guide — Professional Responsibility 1:491 (The Rutter Group 1997-2006)) “Lawyers participating in joint advertising programs must be careful not to have their joint program become a subterfuge for referral activities to lawyers who are not named on the site.” (Bus. & Prof. C.§6155(h)(2))

Newt decided to explore the options of signing up with a certified referral service and to explore group advertising with other solo practitioners in his suite.

A week later, Newt was back. “Cali, I have found the most wonderful Web-based joint lawyer advertising program! Take a look at the Web site and tell me what you think. The Web site gets tons of clients to my suite mates, John Doe, Rachel Roe and the Smith & Jones Law Firm,” Newt said.

After reviewing the Web site, Cali got back to Newt with some bad news. “Newt, the joint advertising program you want to join has some major defects! In order not to violate §6155, the joint advertisement must name all of the participating lawyers with whom the consumer will have contact. Doe, Roe, Smith & Jones were not named on the Web site. Therefore, the joint advertising program is in violation of §6155(h)(1). Moreover, any referrals of prospective clients who are not named on the site are in violation of §6155(h)(2).

“Unless the Web site is changed to show all of the lawyers who are jointly advertising and to whom referrals would be made, you should not participate,” Cali opined.

“Thanks, Cali! Once again you have saved me from a trap for the unwary,” Newt said.

California Joan gratefully acknowledges the assistance of Arthur L. Margolis, Esq., of Los Angeles, and Robert Hawley, Esq., of San Francisco in the preparation of this article.

Ellen R. Peck, a former State Bar Court judge, is a sole practitioner in Escondido and a co-author of The Rutter Group California Practice Guide: Professional Responsibility.

Certification

  • This self-study activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour of legal ethics.

  • The State Bar of California certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.

Self-Assessment Test

Indicate whether the following statements are true or false after reading the MCLE article. Use the answer form provided to send the test, along with a $25 processing fee, to the State Bar. If you do not receive your certificate within four to six weeks, call 415-538-2504.

  1. A non-lawyer heir finder orally recommends Lawyer to an heir, pursuant to a prior agreement with Lawyer. Lawyer may be disciplined for unlawful in-person solicitation of legal business.
  2. A lawyer referral service is an association that has an indirect purpose of referring potential clients to attorneys for other than pro bono services.
  3. A lawyer referral service that is Web-based and may refer consumers to lawyers for paid legal services in California, Oregon and Washington need not be registered with the State Bar of California. 
  4. As long as a lawyer referral service is registered with the State Bar of California, the combined charges to the referred potential client may exceed the total cost that the client would normally pay if no referral service were involved.
  5. A lawyer’s ancillary business that represents that if its customers need legal services, the customers will be referred to the lawyer’s law firm, may be within the definition of a lawyer referral service.
  6. Legal insurance plans defined in Insurance Code §119.6 must be registered with the State Bar as lawyer referral services.
  7. A union legal services plan that recommends, provides or pays for legal services for its members is not within the definition of a lawyer referral service.
  8. A referral service that refers potential clients to lawyers who only serve on a pro bono basis need not register with the State Bar.
  9. Any person can enjoin a lawyer referral service for any threatened violation of the rules governing lawyer referral services.
  10. No declaratory and injunctive relief procedures regarding lawyer advertising apply to certified lawyer referral services.
  11. A person in actual violation of §6155 is only subject to injunction, not to civil penalties. 
  12. The State Bar is the only governmental organization that is authorized to bring an action against an entity violating §6155 for civil penalties.
  13. The State of California is the only governmental organization that is authorized to bring an action against any person violating §6155 for civil penalties.
  14. The State Bar may recover its reasonable expenses of investigation and prosecution of a civil action.  
  15. The State Bar must be paid its expenses before any civil penalty is collected.
  16. A lawyer who operates a referral service in violation of §6155 may be exposed to discipline.
  17. Because a potential for abuse exists, the legislature has determined that referral services should be regulated in order to ensure that those services exist for the true benefit of the public.
  18. A lawyer who participates in receiving referrals from a lawyer referral service operating in violation of law is not violating the law. 
  19. Lawyers may engage in joint advertising on the Internet without being considered a lawyer referral service.
  20. A lawyers’ joint advertising Web page need not identify all the lawyers who are participating in the joint advertising or to whom consumers would be referred.
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