NC Legal Ethics

The Ethics Committee is currently considering two inquiries on Internet based pay-per-lead or pay-per-click services.  Less than 10 years ago, these inquiries would not have even made it to the Ethics Committee, as staff counsel likely would have opined that these services violate Rule 7.2(d), which prohibits giving anything of value in exchange for a referral.  On its face, the Rule seems to prohibit the pay-per-lead payment structure.  The idea is that these marketing companies set up a website whereby potential clients can review legal articles, post legal questions, and complete a case evaluation for review by participating lawyers.  Lawyers must sign up with the website before they can view information from potential clients.  If the lawyer is interested in offering services to the potential client, he must pay to receive this lead, which includes the potential client’s contact information.  More than one lawyer may provide any potential client with an offer for services.  This seems like a boon for the website marketing company.  In any case, the website makes clear it is a lawyer advertising vehicle, makes no representation about the quality of the lawyers participating, and lists the participating lawyer profiles on the site.

The issue here is one of payment. Lawyers have been permitted to participate in an on-line directory service, or on-line legal matching services, so long as the lawyer is only paying reasonable cost of advertising and administration of the service, which may include a set monthly fee and/or a yearly registration payment.  Is the pay-per-lead structure really that different?  Perhaps this is the reasonable cost of advertising spread out per use of the website’s services.  The Ethics Committee is also reviewing the pay-per-click structure, whereby the attorney pays a fee based on the number of “hits” on his website link which appears on the marketing company’s website.

What is clear is that the way attorneys advertise or market their services via the Internet is rapidly changing.  Consumers want a fast and convenient way of locating an attorney, and a fast and easy way to have legal services delivered to them.  Inasmuch as the Ethics Committee is taking a close look at this issue, I believe there is the understanding that interpretation of the Rules of Professional Conduct, with respect to attorney advertising, must evolve as well.

We may have a proposed opinion on this issue after the July 2012 Ethics Committee meeting.  Stay tuned.

A client has come to you for help alleging that he tried to rent an apartment, but the landlord was engaging in discriminatory practices and would not rent to him because he was Muslim.  How far can an attorney go in an investigation to try to obtain additional evidence of discrimination?  Can the attorney call up the landlord and feign interest in renting and pose as a person belonging to a minority or other discriminated class of persons?  Suppose you’re investigating fraudulent commercial practices.  Can you call up, pose as someone else, and feign interest in purchasing the product in question, when you have no intention of purchasing the product?  The short answer to both of these questions is no.

The above are examples of conduct that would violate Rule 8.4(c), which prohibits conduct involving dishonesty, fraud, deceit, or misrepresentation.  It also likely would violate Rule 4.1 which requires truthfulness in statements to others when representing a client.  In the second scenario, if you actually purchase the product in question and use your real name, the argument is that you then you become an actual consumer, and there is no misrepresentation.  It is unclear, however, whether you would still violate Rule 4.3, which states that when you are communicating with an unrepresented person whose interests are adverse to your client, if the person misunderstands your role in the matter, you must make reasonable efforts to correct the misunderstanding.

In addition, you cannot ask a third party to do what you could not do.  For example, suppose you are defending an employer against a plaintiff who is claiming injury on the job.  Your client believes that plaintiff is not injured, but you just need proof.  Can you send a private investigator out to “set up” the plaintiff, pose as someone he is not, and catch the plaintiff in the act of exerting himself?  It sure would be great, but you can’t do that either.

The State Bar recently adopted an unpublished opinion, however, that makes exception to this rule for government lawyers if acting in the scope of employment and as part of his official duties.  Basically, this means that attorneys involved in government-sanctioned undercover operations are OK.  All that is to say that the rest of us should abandon thoughts of undertaking our own “sting” operation.

Work from home, your car, or wherever life happens to take you?  The practice of law is forever changing, and so must the interpretation of the Rules of Professional Conduct.  Rule 7.2(c) requires that any communication about the lawyer’s services include an office address.  The State Bar has traditionally interpreted that requirement to mean a physical office address or street address, no post offices boxes.  That meant that your letterhead, advertising materials, website, and business cards could not include solely a post office box, but had to include a physical street address.  This proved to be a tough requirement for persons engaging in a virtual law practice or those choosing to work primarily from home.

A new proposed ethics opinion that changes this interpretation may be coming out soon.  The State Bar staff counsel is recommending that post office boxes listings on attorney communications be sufficient to satisfy Rule 7.2(c).  The opinion has not been finally approved by the ethics committee yet, but it will be on the agenda come April.  The staff proposal would also place limits on the ability of attorneys to include in communications listings of office locations where they do no have a continuous presence.  A number of attorneys lease meeting room space on an as needed basis, just so they can list an office in that locale.  The new opinion, if approved by the Ethics Committee, would say it is misleading for a lawyer to use a leased office address on letterhead or in advertising to infer that the lawyer has a presence in a community when in fact the lawyer only has the ability to lease meeting rooms in that community on an as needed basis.   This restriction would not apply to attorneys who choose to primarily work from home but regularly use nearby office suites or an executive office arrangement to meet with clients.

On March 7, 2012, the subcommittee assigned to review the use of testimonials in advertising met via tele-conference to discuss possible changes to the staff-proposed opinion and to determine what recommendations to make to the full Ethics Committee.  I participated on the telephone conference call.  The long and short of it is that the subcommittee will recommend that testimonials be permitted, even those that refer to results, so long as no specific dollar amounts are included in any such testimonial.  This means that attorneys would be able to have client endorsements on their websites, brochures and other print advertising.  They could also use client videos on their websites, and even include client testimonials in radio and TV ads, so long as an appropriate disclaimer can be prominently and conspicuously displayed so that it may be read by the viewer.  The Ethics Committee will meet in April to discuss the subcommittee’s recommendation.  There’s no guarantee that the subcommittee’s recommendation will be adopted by the Ethics Committee.  We’ll just have to wait and see.

The North Carolina State Bar Council adopted proposed revisions to the opinion concerning the involvement of corporations, title companies and other non-lawyers in real estate closings.   Revised Authorized Practice Opinion 2002-1.  I previously wrote a blog on the proposed revisions to this opinion, which were published after the Bar’s October meeting.  One of the concerns that I raised in that prior blog was that the Bar’s revisions took an overly broad interpretation of its statues in stating that they prohibited anyone from arranging for the services of an attorney in real estate closings.  I believed this would disrupt business as usual for many real estate practices, including regular relationships with real estate and mortgage brokers.

In response to comments submitted about the proposed revisions, including from the NC Bar Association’s Real Property Section, the Bar added an additional sentence to the last footnote that at least partially addresses this concern.  The new sentence clarifies that title companies and others are not prohibited from referring parties to attorneys as long as they are not paid any fee for the referral and they do not require the use of a specific attorney.  While other issues remain with the revised opinion, this addition at least provides some clarification on this one important issue.  The revised opinion does not have to be approved by the Supreme Court and now is in effect.

On January 26, 2012, the North Carolina State Bar Ethics Committee met and finally approved the revised opinion on the use of cloud computing or software as a service.  Of course we’re all using this technology already (do you use a smart phone?), so you might think the Ethics Committee is a bit slow on the uptake.  Believe it or not, other states have been waiting and watching us for guidance.  The newly adopted final ethics opinion, 2011 Formal Ethics Opinion 6, permits the use of cloud computing, or software as a service, so long as the lawyer uses reasonable care to safeguard confidential client information.  This time the opinion really does leave it to the attorney’s discretion and good judgment to determine what cloud vendor to use and how to go about taking precautions to help ensure no client information is lost or taken.  Gone are the 23 questions that a lawyer had to be able to answer about the vendor before proceeding into the cloud.  Instead, the opinion lists a manageable five (5) recommended security measures that a lawyer may consider when shopping around for a cloud vendor.  Given that this is a rapidly changing and evolving technology, the general reasonableness approach makes sense and ensures that the opinion won’t be obsolete in say. . . 28 minutes from now.

At the time of this post, the ethics opinion can be found here.

The State Bar has proposed amending its formal opinion concerning the involvement of nonlawyers in real estate closings, Authorized Practice Advisory Opinion 2002-1.  The original opinion was adopted approximately nine years ago, under accusations from the US Department of Justice and the Federal Trade Commission that the Bar’s opinions in the real estate area at the time illegally restrained trade on companies and non-lawyer competitors in providing real estate closing services.  I served as in-house co-counsel to the special committee that drafted and recommended the original opinion in 2003.

The current proposed revisions to the opinion were published in the winter 2011 edition of the State Bar Journal and are posted on the Bar’s website, although a bit difficult to find.  From an initial review of the proposed revisions, most changes may appear cosmetic.  However, there are at least two substantive changes to the opinion that would have significant practical ramifications for attorneys, entities and nonlawyers providing closing-related services, and other professionals in the real estate industry.

First, the Bar has added three related tasks to the list of legal services that only lawyers can perform in a closing.  The revised opinion would require a lawyer to determine that: (1) all contract and closing conditions have been satisfied, (2) the deed and deed of trust can be recorded after a title update; and (3) the funds for the closing can be disbursed pursuant to the NC Goods Funds Settlement Act.  The practical effect of these proposed changes, if adopted, would be to make it difficult to impossible for nonlawyers and entities to provide closing services in competition with attorneys.  As noted above, this competition was the original impetus for the threats from the USDOJ and FTC, which led to the Bar’s adoption of the original opinion and superseded prior inconsistent opinions.  The proposed revisions also would make it impractical for nonlawyers to receive and disburse closing funds without the
involvement of an attorney.  This was one of the two closing-related services that the original opinion specifically stated nonlawyers and companies could provide when not acting under the supervision of a lawyer.

Second, the Bar has added language that states that nonlawyers may not “handle” closings and cannot advertise that they do so.  The linchpin for the Bar’s proposed revision and conclusion is that “N.C. Gen. Stat. § 84-5 prohibits nonlawyers from arranging for or providing the lawyer or any legal services.”  In my opinion, there is nothing in the language of N.C. Gen. Stat. § 84-5 that prohibits a non-lawyer from “arranging for” the lawyer or legal services as long as the entity or non-lawyer is not actually performing or being hired to perform legal services.  If the prohibition against corporations and other nonlawyers “handling” closings means that they cannot “arrange for” lawyers or legal services, then this proposed revision is problematic.

Other real estate professionals and even real estate attorneys should be concerned about the rationale for this new conclusion.  If adopted, this prohibition against arranging for attorneys or legal services in a closing would have to be applied uniformly to all.  Realtors and mortgage brokers routinely “arrange for” a closing attorney with whom they regularly do business.  From years of representing real estate attorneys, realtors and brokers, it has been my experience that these nonlawyer professionals often do much more than simply recommend an attorney.  They often make the initial contact with the lawyer, provide him or her the contract and other documentation, and in many instances act as the intermediary between the joint client and the real estate attorney.  Under any reasonable interpretation, these activities constitute “arranging for the lawyer or any legal services.”  The proposed opinion could unintentionally interfere with these established relationships and the regular dealings between
real estate attorneys and these professionals.

While there is nothing in NC statues to prohibit such conduct in my view, the State Bar’s proposed revisions rely and rest upon the conclusion that “arranging for an attorney” is illegal if you are a corporation or other non-lawyer.  The proposed opinion therefore is expanding its interpretation of the statute beyond its language and in a way that would have much wider and presumably unintended implications than would appear from the text of the opinion.

The State Bar should accept comments to the proposed revisions through its quarterly meetings later this month from January 25-27.   If you are interested, it is worth your time to write to the State Bar about this proposed opinion, whether or not you agree with my opinions expressed herein.

I believe the use of client testimonials or endorsements is one of the most effective ways that lawyers can market themselves.  I know that when I want to buy a new product, especially a costly one, the first thing I do is read the reviews online.  I want to know what others think — everyone does.  Client testimonials are like reviews about your product– that is, your legal services.  Can you ethically include client testimonials on your website or in other  lawyer marketing?  If the testimonial is a truthful ”soft endorsement,” (i.e. “He treated me with respect,” or “They took the time to explain everything to me,” etc.) that only describes the characteristics of your services but does not describe the results you achieved, then you can ethically post the testimonial.   See 2007 FEO 4.

What fun is that?  That’s like reading a review on a laptop that says, “The laptop was so nicely packaged in an easy to open, convenient brown box.”  What everyone really wants to know is does the laptop work and how well does it work?  Likewise, potential clients are mostly interested in whether the lawyer has achieved good results for others.  The Ethics Committee has determined that discussions about results in marketing materials may create unjustified expectations and therefore, can be misleading under Rule 7.1.  The Committee has issued a limited opinion, however, permitting attorneys to include case results on websites so long as there is an appropriate disclaimer conspicuously located in the immediate vicinity.  2009 FEO 16.  There is no similar opinion permitting client testimonials which refer to or describe results.  In January, the Ethics Committee will be reviewing an inquiry about testimonials (yes, I submitted it) and will hopefully issue an opinion that will provide guidance on whether testimonials which either imply results (He did a good job) or specify results (He got me my social security benefits) can be used, either on websites, printed marketing materials, TV commercials or radio ads, and if so, whether disclaimer language is required.  If an attorney can include case results on his website so long as there is a disclaimer, should truthful testimonials mentioning results be treated any differently? I’ll let you know what the Ethics Committee says about it.

In the meantime, if you have client testimonials on your website, you might want to include a disclaimer, like the one on our testimonial page.

The N.C. State Bar Ethics Committee met last week, and they are still grappling with the Google Adwords opinion.  If you’re not familiar with this issue, it originally arose as a grievance that was filed against an attorney for purchasing the other attorney’s name as a Google Adword.  This means that Attorney A pays for a preferential position on the search results page whenever someone Googles Attorney B’s name.  Attorney A, who is buying the name for ad placement, does not receive exclusive rights to the name, but if he is the highest bidder on Attorney B’s name, he gets the priority advertising.

The question is whether this practice violates the Rules of Professional Conduct.  I’ll be honest, I don’t like it.  My gut tells me that it should not be permitted and there’s something wrong about someone using my name (and my professional reputation) to launch their advertising.  Say it’s my sense of fair play.  But is it misleading to the consumer?   Nope, I can’t say that it is.  The average person running a search of my name would not assume that because another attorney appears in Google’s sponsored links or preferential ad space, that there is any affiliation between us.  Although a prior version of the opinion found that the practice did not violate the Rules, the current proposed ethics opinion on this issue prohibits the practice on the basis of a Rule 8.4(c) violation; that is, the act of purchasing the other attorney’s name, itself, is dishonest.   The majority of the Ethics Committee agreed with the proposed opinion, but there were not enough votes to republish the revised opinion for comment.  As it stands, the opinion is tabled until the January meeting.  In the meantime, the State Bar staff is also looking into the constitutionality of prohibiting this kind of conduct.  Stay tuned…

Legal document provider, LegalZoom.com, Inc., filed suit against the N.C. State Bar in state court on September 30.  In the suit, LegalZoom challenges the State Bar’s interpretation that its online “self-help” legal document production constitutes the unauthorized practice of law (UPL).  LegalZoom also asserts that the State Bar violated its constitutional rights by previously issuing it a cease and desist letter and by failing to register prepaid legal plans sponsored by it.  The suit filed by LegalZoom may allow NC courts to set important precedent in this rapidly evolving area where the practice of law intersects with technology.

In addressing complaints against LegalZoom and others, the State Bar’s Authorized Practice Committee has opined that legal document production software programs, including those online, constitute UPL.   The UPL statutes define as the practice of law preparing or aiding in the preparation of various legaldocuments.  The State Bar has interpreted this statute to prohibit preparing legal documents even when they are produced by a customer’s direct input of information into an automated document creation software program and no person is involved in preparing or providing documents to the consumer.

Not much case law exists on this issue.  As a result, this suit is likely to draw interest around the country.  Google recently announced the launch of an online legal document production service, which will compete with LegalZoom and others in this market.  Part of the competing interests on this issue are the State Bar’s obligation to assure competent legal representation to NC consumers versus the public’s right to access affordable legal assistance.  One thing seems certain – many interested legal observers and lawyers will be watching this suit and the decision could have a significant impact on the public.