Our opinion on South Carolina Advisory Opinion 16-06

Posted in Avvo, Avvo news

A recent advisory opinion from the South Carolina Bar Ethics Advisory Committee has determined that a “fixed-fee legal referral service” offered by “an attorney directory website” violates South Carolina ethics rules related to advertising and splitting fees.

The service referred to is a thinly veiled reference to Avvo Legal Services, making Avvo the “attorney directory website.” It’s probably no surprise that we at Avvo disagree. The opinion misunderstands Avvo Legal Services and fails to account for First Amendment constraints on lawyer regulation.

The FTC and DOJ

In June of 2016, the Federal Trade Commission and the Department of Justice sent a detailed letter in response to an inquiry from North Carolina Senator Bill Cook. The subject? The impending enactment of North Carolina House Bill 436, legislation that would exclude online interactive legal forms from the definition of “the practice of law.” Providers of such forms would be required to meet a number of regulatory requirements, including extensive disclaimer and disclosure terms.[1]

These federal agencies have no small amount of consumer protection expertise. The FTC also has a long history of calling out state attorney regulators for employing overreaching advertising rules to hamper the free flow of information about legal services. In the letter, the FTC and DOJ quickly emphasized their point:

“The Agencies recommend that any consumer protections, such as requiring disclosures, be narrowly tailored to avoid unnecessarily inhibiting competition and new ways of delivering legal services that may benefit consumers.”

The message here is clear: don’t create regulatory requirements without carefully considering costs in the way of inhibiting competition and benefits to consumers of such requirements, and whether there might be less-intrusive alternatives.

South Carolina Advisory Opinion 16-06

Ironically, shortly after the FTC-DOJ joint letter was issued, another state’s attorney regulators took precisely the sort of step the federal consumer protection agencies had counseled against. On July 14, 2016, the South Carolina Bar issued Advisory Opinion 16-06. While the opinion doesn’t call out Avvo Legal Services directly, it clearly takes aim at the service, opining that the structure violates fee-splitting and “reasonable cost of advertising” restrictions.

Consumers First?

While we understand the mission of the South Carolina Bar Ethics Advisory Committee, the opinion is notable for its complete lack of recognition of the needs of consumers. Yet access to legal services is a widely acknowledged problem. The Supreme Court of South Carolina has had, for nearly a decade, a comprehensive Access to Justice Commission. Less than two years ago, the court reinvigorated the Commission via administrative order. That order noted the scope of the problem and the need for communication and collaboration to address deep and abiding access problems. The report also recommended expanding access to services, enhancing technology, and developing assisted pro se programs.

Avvo has moved to address these issues, offering fixed-price, limited scope services designed with the needs of the legal consumer in mind. South Carolina’s opinion contains no recognition of these consumer interests or the pressing need to address the access-to-justice gap. It simply offers up a reactionary, mechanistic reading of its rules (a reading that also runs directly contrary to an earlier South Carolina Bar opinion[2]).

We have heard the issues raised in the recent opinion before. They demonstrate a clear lack of understanding of the mechanics of Avvo Legal Services and our commitment to building products that provide for broader legal access while also offering a high level of consumer protection. The opinion also suffers from a fundamental failure to consider the First Amendment constraints on RPCs related to lawyer advertising, or the federal agencies’ guidance. Once again, I return to the FTC-DOJ letter regarding North Carolina:

“The Agencies have generally encouraged legislatures, courts, and state bars to avoid restrictions on the performance of legal-related services that are not necessary to address legitimate and substantiated harms to consumers, and recommended that any such restrictions be narrowly drawn to minimize their anticompetitive impact.

The Agencies recognize the important role of state legislatures, courts, and bar associations in protecting consumers of legal services from harm. The Agencies have previously noted, however, that unnecessarily broad [regulatory interpretations] can impose significant competitive costs on consumers of legal services, restrict access to legal services, and inhibit the development of innovative ways to deliver legal services to consumers.”

The Rules of Professional Conduct are intended to ensure that consumers and clients are protected. However, interpreting the rules broadly, and applying them mechanically – without considering the impacts on competition and the significant consumer benefit that comes from greater information – fundamentally fails to meet the regulatory objectives or the law. As the federal agencies note, regulatory interpretations like this one are bad for consumers. In a more perfect world, the South Carolina Bar Ethics Advisory Committee would have spoken to Avvo about its concerns before issuing its opinion. It also would have applied its rules in a fashion that recognized and embraced the opportunities presented by services such as ours, rather than reflexively interpreting the rules in a fashion that’s maximally risk-adverse and detrimental to consumers.

It’s a good thing the opinion is only “advisory.” As should be abundantly clear, our opinion differs.

[1] HB 436 shouldn’t be seen as a recognition by North Carolina that a narrower definition of “the practice of law” would be useful to attorneys and beneficial to consumers; rather, it was the product of the settlement of a lawsuit filed against the state by LegalZoom.

[2] South Carolina Ethics Advisory Opinion 11-05, see, e.g. “Even where a website retains a portion of each fee paid for services to be subsequently rendered by an attorney, the use of such websites as a marketing tool does not violate Rule 5.4(a), provided the website does not have the ability to exercise any control over the services which are to be subsequently rendered by the attorney.  Without the ability to exercise such control, there does not appear to be any possibility of encroachment on the lawyer’s independent judgment and therefore, Rule 5.4(a) prohibiting the sharing of legal fees with a non-lawyer is not violated.”