Concept
Permitted Payments
Referrals
Permitted Payments
Rule 7.2(b) bans giving anything of value to a person for recommending the lawyer’s services, then lists in the same sentence the payments a lawyer may make anyway.1 Three of those payments cover the ordinary business of running a practice: publishing the lawyer’s own message, paying the usual charges of a legal service plan or lawyer referral service, and buying another lawyer’s practice. Each looks like money spent to win clients, so each needs an explanation of why a ban worded this broadly does not reach it.
The explanation is the same for all three: none of them buys an endorsement. The ban aims at the payment that purchases someone’s vouching for the lawyer, a recommendation the listener trusts because the speaker seems to have nothing to gain. Advertising costs buy distribution of the lawyer’s own message, and the audience can see that the message comes from the lawyer. Plan and referral-service charges buy a place in an organized program that connects people with lawyers under the program’s own rules, so no individual with a private stake is whispering in a prospect’s ear. The price of a practice buys a going concern in a transaction that Rule 1.17 regulates. None of these payments creates the hidden pressure on a lawyer’s judgment that justified the ban.
Each exception also carries conditions, and the conditions track the two worries behind the ban: the lawyer’s independence and the concealed intermediary. A payment that stays inside its exception buys only what the exception describes. A payment that drifts outside can begin to purchase an endorsement again, and then the ban applies in full. For any payment, ask what it buys and whether the exception’s conditions are met.
Paying for Advertising
Rule 7.2(b)(1) lets a lawyer pay the reasonable costs of advertisements or communications that the Rule permits.2 The exception is necessary because the ban, read literally, would otherwise reach it. A newspaper or broadcaster that carries a lawyer’s name for a fee is, in a formal sense, receiving a payment from a lawyer for recommending the lawyer’s services, and the right to advertise would mean little if the lawyer could not pay what advertising costs.3 That right rests on the First Amendment: in Bates v. State Bar of Arizona, the Supreme Court held that lawyers’ commercial speech receives limited but meaningful constitutional protection.4 The Rule therefore removes advertising costs from the ban instead of leaving the two in conflict.
The carve-out is easy to justify once you ask what the payment buys. A medium sells distribution of the lawyer’s own message, and the audience can see that the message comes from the lawyer, so nobody asks a listener to trust a stranger who seems to have nothing to gain. The medium also has little power to bend the lawyer’s judgment: it is paid for the space or airtime whether or not any viewer hires the lawyer, so the lawyer’s caseload does not come to depend on keeping it satisfied. And the medium neither approaches prospects in person nor makes claims in its own voice, which means neither worry behind the ban arises. The word reasonable keeps the exception tied to that purpose, because a sum well above the going price for a placement invites the question whether part of it buys something else.
The covered costs run across the familiar media: directory listings, newspaper advertisements, television and radio airtime, internet advertising, and sponsorship fees.5 A lawyer who pays a television station its standard rate for a thirty-second spot is buying airtime. So is a lawyer who pays to be listed by practice area in a directory that simply lists lawyers, because a listing identifies the lawyer without vouching for the lawyer’s quality. Both payments are ordinary advertising costs, and neither purchases a recommendation.
The exception reaches only communications that the Rule itself permits.6 That limit matters most for in-person contact, which the Supreme Court has called “a practice rife with possibilities for overreaching, invasion of privacy, the exercise of undue influence, and outright fraud.”7 A lawyer who pays a vendor to make in-person pitches to accident victims is not paying for a permitted communication, so the exception gives that payment no protection. The exception attaches to a payment only when the thing purchased is lawful advertising.
The exception also covers the people who help produce and place the message, in addition to the media that carry it. Comment 5 to Rule 7.2 confirms that a lawyer may compensate persons engaged to provide marketing or client development services, such as publicists, public-relations personnel, business-development staff, and website designers.8 Each of these people is paid for labor on the lawyer’s own communications, whether building a website, preparing a press release, or arranging a sponsorship. A salaried business-development employee shows the point most plainly: the pay is a wage for putting the lawyer’s message before the public under the lawyer’s direction, and nothing in it depends on a third party vouching for the lawyer.
Comment 5 also lets a lawyer pay another to generate client leads, but the generator works under limits.9 It may not recommend the lawyer to the people it identifies, and it may not create a reasonable impression that it has analyzed the prospective client’s legal problem in selecting which lawyer should receive the referral.10 Each limit keeps the generator from becoming the thing the ban targets. A generator that vouches for the lawyer is a paid recommender, and a generator that appears to have evaluated the problem lends an independent evaluator’s credibility to a choice that the lawyer’s payment actually produced. Prospects would credit the judgment as disinterested while the payment conceals that it is interested, which is the concealed-stake problem that justified the ban.
A third limit protects the lawyer’s independence: the lawyer may not compensate a lead generator, or any other marketing person, by sharing legal fees.11 A nonlawyer paid out of fees earns more when the lawyer’s matters earn more, and that financial stake in a representation is what the rules on fee sharing with nonlawyers exist to keep out. A price for services that is unrelated to the fees a matter produces leaves the lawyer free to run each matter on its merits. Those fee-sharing rules apply on their own terms and are taken up at the end of this chapter.
The first service is a lead generator working inside the exception: the lawyer pays for names, and nobody vouches for the lawyer. The second fails twice. Its statement that this lawyer is the best choice is a recommendation, and its one-third share of the legal fee is fee sharing with a nonlawyer. Curing one defect leaves the other, so a flat price paid to a service that vouches and a fee share paid to a service that stays silent each remain outside the exception.
The edges of the exception vary by state, so the local text controls. Florida’s rule lets a lawyer pay the reasonable cost of advertising or written or recorded communication that its rules permit, and it adds that no lawyer may, directly or indirectly, pay all or part of the cost of an advertisement by a lawyer who is not in the same firm.12 A lawyer practicing there cannot treat the payment of another firm’s advertising bill as an ordinary advertising cost.
One condition survives even when both the payment and the communication are permitted. Rule 7.2(d) requires any communication made under the Rule to include the name and contact information of at least one lawyer or law firm responsible for its content.13 The requirement lets the audience understand a communication as the work of the lawyer or firm being promoted, and it operates independently of the payment rule, because the lawful cost of an advertisement does not make the advertisement itself lawful.14
Legal Service Plans
Rule 7.2(b)(2) allows a lawyer to pay the usual charges of a legal service plan, and it pairs that permission with a parallel one for referral services that the next section takes up.17 A group legal service plan is prepaid coverage for future legal needs, often offered through a union or a large employer, in which members pay a premium or set fee in advance and may then obtain a defined level of legal help from a network of participating lawyers.18 The exception is needed because the plan does steer people to lawyers: a member with a problem is directed to a panel lawyer, and the lawyer pays charges to take part. Read literally, the ban would reach those charges, since they are something of value given to an organization that sends clients to the lawyer. The payment passes because it buys admission to an organized program that members joined openly, so no individual with a private stake is quietly vouching for the lawyer.
The qualifier usual charges keeps the exception tied to that purpose. The rule limits what the lawyer may transfer to the plan to its usual charges, which rules out any arrangement in which the plan profits directly from the lawyer’s provision of legal services.19 The plan may collect set fees or premiums from its members for coverage, but it may not take a percentage or other share of the fees the lawyer obtains from the client for services beyond those the plan directly covers.20 The reason is the independence concern behind the whole ban. A plan whose income rises with the lawyer’s billings becomes a nonlawyer organization with a financial stake in each representation, and it has a reason to press for larger bills or to discourage advice that would shrink them. A flat charge is the same whether the lawyer bills a great deal or very little, so the plan earns its money by selling coverage and the lawyer stays free to run each matter on its merits.
The exam question about any plan payment is whether the amount the plan receives rises and falls with the lawyer’s fee income. Two plans show the line.
The first plan is paid for the place it offers, and that sum does not move with the lawyer’s practice, so the payment is a usual charge. The second plan earns more each time the lawyer bills more, which gives a nonlawyer organization a financial stake in the lawyer’s work and places the arrangement outside the exception. It also raises the separate rule against sharing legal fees with nonlawyers, which the last section of this chapter develops.
A permitted payment does not end the lawyer’s responsibilities toward the plan. Comment 7 to Rule 7.2 requires a lawyer who accepts assignments or referrals from a legal service plan to act reasonably to assure that the plan’s activities are compatible with the lawyer’s professional obligations.21 In practice the lawyer must verify that the plan makes no false or misleading statements and does not engage in the direct solicitation that Rule 7.3 forbids.22 The check has force because the Supreme Court has described face-to-face solicitation as “a practice rife with possibilities for overreaching, invasion of privacy, the exercise of undue influence, and outright fraud,” and the lawyer is the one who gains clients from the plan’s marketing.23 A lawyer cannot collect the benefit of conduct that the lawyer could not engage in directly. The standard is reasonableness, which leaves the lawyer short of an insurer for every statement the plan publishes, yet a lawyer who knows of a problem and does nothing has not acted reasonably.
The first lawyer has done nothing to assure that the plan’s conduct is compatible with the lawyer’s obligations and has put the lawyer’s own license at risk. The second has taken steps that a disciplinary body could readily call reasonable. The enrollment calls matter because the solicitation rules do permit some plan marketing by phone. Under Rule 7.3(d), a lawyer may participate with a prepaid or group legal service plan that uses in-person or telephone contact to solicit memberships from people who are not known to need legal services in a particular matter the plan covers, so long as the organization operating the plan is not owned or directed by the lawyer.24 Calls to people known to have just been injured fall outside that permission. The ownership condition keeps a lawyer from building a plan that serves as the lawyer’s alter ego and using it to evade the ban on direct solicitation.
When a member engages a participating lawyer, the member receiving the services is the client, and the plan entity is not.25 The lawyer also may not permit the plan to control the lawyer’s performance of the legal services.26 The reasoning follows from whose matter is at stake. The plan pays or arranges the lawyer’s work and has its own interest in holding down costs, while the member bears the consequences of how the matter is handled, so the duties of loyalty and confidentiality must run to the member. If a plan administrator tells a panel lawyer to settle a member’s claim quickly to save the plan money, the member decides after the lawyer gives candid advice, and the plan’s preference carries no authority over that decision.
Lawyer Referral Services
The second half of Rule 7.2(b)(2) lets a lawyer pay the usual charges of a not-for-profit or qualified lawyer referral service.29 A lawyer referral service is an intermediary that takes calls from people looking for a lawyer and decides which lawyer to send them to. The fee a lawyer pays for a place on its roster is therefore something of value given to a recommender, and the ban would reach it if the rule said nothing more. The exception sits in the same subparagraph as the one for legal service plans, and usual charges does the same work in both: it describes the ordinary price of taking part in an organized program, which keeps the payment from turning into a share of what the lawyer later earns from the clients the program sends.
The rule screens referral services by type because the intermediary holds a position of trust. A caller who asks for a lawyer cannot see how the intermediary picks one, so the caller takes the pick on faith. If the intermediary is a business that earns more by routing calls to the lawyer who pays the most, the pick follows the intermediary’s revenue and the caller’s needs come second. The paying lawyer has then bought influence over the client’s first contact with the legal system, which is the third-party influence the ban exists to prevent. The exception therefore admits only services that remove that incentive or that a regulator has checked for it.
A service is qualified when an appropriate regulatory authority has approved it. Comment 6 to Rule 7.2 explains what the approval is for: it ensures that the service benefits consumers generally by making unbiased referrals to lawyers with appropriate experience in the subject matter of the representation, and by offering other client protections such as complaint procedures or malpractice insurance requirements.30 Approval stands in for a check the caller cannot make personally. A caller cannot audit how referrals are assigned, but a regulator can require that assignment follow the lawyer’s experience and not the lawyer’s payment, and can require a route for complaints when a referral goes badly.
A service that is genuinely not-for-profit may use the exception without regulatory approval, but the consumer standard still applies to it. Under Comment 6, a non-profit service must meet the same expectation that it operates as a consumer-oriented organization providing unbiased referrals to lawyers with appropriate experience and affording client protections.31 The two labels therefore turn on different facts. Qualified asks whether a regulator has approved the service. Not-for-profit asks whether the absence of a profit motive makes the service’s neutrality credible, and a lawyer relying on that label relies on how the service actually operates, which no regulator has confirmed. A service that calls itself non-profit but steers callers according to who pays is not operating as the comment describes.
A service run by a bar association is the familiar example. A county bar’s service that assigns callers to panel lawyers by practice area on an unbiased basis, for a usual panel fee, charges a permitted price: the fee buys a place in a program whose assignments do not depend on who pays more, so it creates no hidden stake in the caller’s choice. Anything merely labeled a referral service does not earn the same treatment, because participation in a commercial referral service that the jurisdiction’s highest court or bar has not approved would likely not pass muster.32
The first step matters because genuine non-profit legal assistance programs fall outside the problem altogether. A lawyer may participate with and accept referrals from a legal aid office, a public defender office, a military legal assistance office, and similar non-profit organizations, even if the lawyer will not perform the legal services pro bono.33 Without a profit motive distorting the referral, such a program is unlikely to raise troubling questions about how potential clients were attracted or to compromise the independence of the lawyer who receives the referrals. A lawyer paid by clients for matters a county legal aid office sends over therefore stands in a different position from a lawyer who pays a commercial company to send callers, because in the first arrangement nobody is selling a recommendation.
The company’s name does not change the analysis. Without approval it cannot be a qualified service, and because it is run for profit it cannot be a not-for-profit one. What it sells is a steered recommendation, which is exactly the purchase the ban targets, so the lawyer has promised something of value to a person for recommending the lawyer’s services and the exception has nothing to protect.
Paying a permitted charge does not end the lawyer’s responsibility. Comment 7 extends to referral services the duty already described for legal service plans: a lawyer who accepts referrals from a lawyer referral service must act reasonably to assure that the service’s activities are compatible with the lawyer’s professional obligations.34 The lawyer who receives the clients is the one who benefits from the service’s marketing, and a lawyer cannot collect the benefit of conduct that the lawyer could not engage in directly.
State versions differ in wording, so the local text controls. Florida’s rule allows a lawyer to pay the usual charges of “a lawyer referral service or other legal service organization,” and the text quoted there does not repeat the Model Rule’s not-for-profit or qualified wording.35 A lawyer practicing in a state with different wording must read that state’s own definition of an eligible service instead of assuming the Model Rule’s two routes.
Buying a Law Practice
Rule 7.2(b)(3) completes the list by letting a lawyer pay for a law practice in accordance with Rule 1.17, the rule that governs the sale of a practice.38 This payment differs from the ones before it. Advertising, plan, and referral-service payments buy something other than an endorsement, whereas the price of a practice buys the seller’s clients and their goodwill, and the transfer of those clients effectively obtains a recommendation of the buyer’s services.39 The seller’s clients learn from the seller that their matters are moving to the buyer, and the buyer has paid the seller to make that move happen.
Read literally, the ban would reach this payment, since the buyer gives something of value to a person whose handoff of clients operates as a recommendation of the buyer. The clients keep the right to move their matters elsewhere, and the sale rule requires the seller to give them written notice of the transfer, yet many of them will stay once the practice passes to the buyer.40 That likely outcome is why the payment cannot be waved through as harmless. The rules nevertheless recognize the legitimacy of selling a practice, subject to safeguards, and Rule 7.2(b)(3) accordingly excludes payments for a practice under Rule 1.17 from the prohibition.41 The justification admits that a recommendation is being bought and rests instead on the regulation of the transfer, which protects the clients who receive it.
The four conditions answer different dangers. Written notice and the right to choose cure the problem that made the ban necessary in the first place, the hidden stake. A client who is told in writing that the practice has been sold, and who remains free to hire someone else or collect the file, can discount the buyer’s pitch accordingly, so the purchased recommendation cannot pass as disinterested. Because many clients will stay with the buyer anyway, notice and choice also turn that staying into a decision by the client instead of an assumption by the lawyers.42
The requirement that the whole practice or practice area be sold, and that the seller leave it, addresses a separate danger. A sale confined to selected matters would let the buyer pay for the seller’s best clients while the seller stays in practice and keeps a continuing reason to hand over valuable matters for money, which is a purchase of referrals without any of the safeguards. A complete sale with the seller’s exit ties the exception to a genuine transfer of a practice. The fee condition protects clients from financing the transaction, since a buyer who could raise fees to recover the purchase price would be charging clients for a deal they never chose.
The first transaction fails the first and second checks, because only selected matters change hands and the seller never leaves the field. The payment buys particular client relationships, not a practice, so Rule 1.17 does not govern it, and what remains is something of value given to a person for recommending the buyer’s services with no exception to protect it. The second transaction passes every check: a whole practice moves, the seller exits, each client is told and free to choose, and fees stay put, so the buyer’s payment is made in accordance with Rule 1.17 and is permitted. The tempting error is to treat any payment connected to client matters as the purchase of a practice, but the exception covers only a payment made in accordance with Rule 1.17, and a deal that falls short of that rule falls back under the ban.43
State versions track the same structure but point to their own sale-of-practice rules. Florida’s provision lets a lawyer purchase a law practice in accordance with the state’s Rule 4-1.17, so the safeguards that control there are those of Florida’s version of the sale rule.44