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Applying ethics rules to ‘daily deals’

By: DOLAN MEDIA NEWSWIRES//April 3, 2013//

Applying ethics rules to ‘daily deals’

By: DOLAN MEDIA NEWSWIRES//April 3, 2013//

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By Thomas Spahn
Dolan Media Newswires

State ethics committees have struggled for decades with applying traditional ethics rules to new forms of electronic communications. Among other things, early bar opinions condemned lawyers’ use of cellphones and unencrypted email.

Even though a consensus has developed in favor of allowing such communications, new issues constantly arise. For example, no consensus has developed on whether a lawyer receiving an electronic document from an adversary can search for hidden “metadata.” Despite the American Bar Association’s fairly early opinion finding such “mining” ethically acceptable, the states continue to split nearly 50/50 on that issue.

States bars have recently been forced to address lawyers’ use of the “daily deal” type of e-commerce marketing. As most consumers know, that type of marketing involves local service providers offering temporary special pricing, usually publicized on social media sites or via email.

The deal company charges the interested consumer’s credit card, retains a percentage of that amount, and sends the remainder to the service provider. The deal company then sends a coupon or a proof of purchase to the consumer, who takes it to the service provider when the consumer is ready to use the service.

From the beginning, states took widely divergent views about the ethical propriety of daily deal marketing. And what makes this phenomenon interesting is that the states disagree even about some of the most basic concepts.

Some state bars quickly approved such marketing under most circumstances. In New York (N.Y. LEO 897 (12/13/11)), the state bar held that a lawyer may properly use such marketing as long as the advertising complies with the ethics rules for marketing, the lawyer advises the would-be client that a formal attorney-client relationship will not exist until after the lawyer has checked for conflicts, and the lawyer provides the buyer with a full refund if the lawyer does not provide the services.

North Carolina and South Carolina issued bar opinions at about the same time reaching identical conclusions. (N.C. LEO 2011 10 (10/21/11), S.C. LEO 11 05 (2011)).

In 2012, Maryland and Nebraska took the same approach. (Md. LEO 2012 07 (2012), (Neb. LEO 12 03 (2012)).

These states all found that the arrangement did not amount to unethical fee splitting, even though the deal company receiving a client’s credit card payment kept a portion of it. The states analogized the situation to a lawyer paying a television station or newspaper for its role in the lawyer’s marketing.

However, about the same number of bars has found such marketing unethical or potentially unethical.

In 2011, the Pennsylvania Bar held that the deal company’s retention of some of the client’s payment constitutes prohibited fee splitting. (Pa. LEO 2011 027 (7/27/11)). Pennsylvania also found that lawyers participating in such an arrangement could not adequately check for conflicts, and would almost by definition be engaged in deceptive conduct by using undefined terms in their advertising, such as “a simple will.”

In 2012, the Alabama Bar agreed with the Pennsylvania Bar’s criticism, and also found that the lack of any meaningful input control meant that a lawyer might accept a matter that he was not competent to handle. The Alabama opinion even held that a lawyer engaging in such marketing might be overwhelmed by a case load that would prevent him from diligently representing all of his clients. (Ala. LEO 2012 01 (2012)).

At about the same time, the Indiana Bar considered the issue, and while it did not condemn “daily deals” marketing per se, it warned that such an arrangement is “fraught with peril and is likely not permitted in its current form under the Indiana Rules of Professional Conduct.” (Ind. LEO 1 (2012)).

These completely divergent state bar approaches are frightening to any lawyer practicing in the states that have condemned “daily deals” marketing. To make matters worse, the ease of access to electronic forms of marketing means that lawyers living near such states might find themselves in trouble because residents of those states have signed up. Most lawyers apparently have not yet added disclaimers to any “daily deal” marketing (such as “This Offer Available in [add state name] Only”), but that approach might become popular or even necessary if one state’s disciplinary authority reaches across state lines to punish another state’s lawyer.

In some situations, state bars addressing forms of electronic communication have eventually reached a consensus — as with the now permissible use of cellphones for client communications.  However, in the case of metadata the states continue to line up on both sides of the issue. It looks as if the “daily deal” marketing issue might be heading for a similar deadlock.

Tom Spahn practices as a commercial litigator at McGuireWoods in McLean, Va. He regularly advises a number of Fortune 500 companies on issues involving ethics, conflicts of interest, the attorney-client privilege and corporate investigations.


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