By Gary Blankenship
A querulous Supreme Court interrogated a Florida Bar representative during an April 5 oral argument about the Bar’s proposed amendments to existing rules that create the new term “qualifying providers” for entities that seek to link lawyers and clients. The justices also pressed the Bar on why it ignored a 2015 directive from the court that Bar members should own or manage all private lawyer referral services.
But justices also closely questioned Avvo’s general counsel about the company’s services, including one that gives the company a split of a fixed fee paid to lawyers by customers for specific legal services.
In September 2015, the court rejected the Bar’s proposed rewrite of lawyer referral service rules that stemmed from a special committee’s investigation of for-profit referral services. Instead, the court asked for a rule that would require all such services be “owned or operated” by Bar members.
Justices also appeared to support a recommendation from the special commission that was rejected by the Board of Governors to ban lawyers from participating in referral services that send callers to lawyers and other services, such as medical care, stemming from the same incident. The Bar had said any potential conflict could be handled by disclosures to the client who would then give written consent.
But the Bar’s subsequent filing did not include a proposed rule requiring lawyer ownership or management of private referral services. Instead it clarified Bar rules using the term “qualified providers,” that covers not only traditional referral services but online service providers such as Avvo, LegalZoom, RocketLawyer, and others who offer “matching services” to connect consumers with lawyers.
At the April 5 oral argument, justices questioned Board of Governors member Carl Schwait, chair of the Board Review Committee on Professional Ethics and who headed up the rewriting of the referral rules, about why the Bar failed to submit the rule they wanted and instead offered a more expansive regulatory scheme.
“We sent this back because the court was very clear…what we wanted. We did not want these referral services owned by nonlawyers that were referring people to lawyers and doctors,” Justice Barbara Pariente said. “You come back with a whole revamping without really even beginning, as we read everything, to explain what a matching service is, what this issue is…nationally. Why shouldn’t we do that in two separate steps?”
Schwait explained that while the Florida Supreme Court is concerned with consumer protection, the Bar was worried the regulations might not pass muster with federal courts, which emphasize free speech and free commerce. He also said the Bar was trying to respond to, and get ahead of, a rapidly evolving legal marketplace where nonlawyer companies offer legal forms and are beginning to match lawyers and consumers for a wide variety of legal work.
Justice Fred Lewis challenged Schwait’s assertion about federal courts.
“What case says that what we’ve asked you to do is in violation of some law or constitutional provision?” he asked.
“Well, I don’t have a case,” Schwait replied. But he later added, “In reviewing your direct order and then spending the year discussing this, we believe . . . that a federal court would not sustain us.”
As for the more expansive rewrite, Schwait argued the Bar was actually being more restrictive in that it now was bringing regulations — and consumer protection — to lawyers involved with any entity, regardless of what it calls itself, that seeks to link consumers and lawyers.
“We’ve solved the definitional problem that we had last year. What we’re doing today is say, ‘You can call yourself anything you want. You want to call yourself a directory; you want to call yourself a lawyer referral service.’ What The Florida Bar wants to do is to say, ‘You’re a qualifying provider, and if you match for-profit lawyers with a consumer or client, then you are now regulated,’” he said. “That’s why we’re tougher now because times have actually changed where we do have these companies coming everywhere and trying to match clients and attorneys.”
If justices grilled Schwait, they also closely questioned Josh King, general counsel for Avvo, who appeared to speak against the Bar rules. King explained that Avvo began as a service that rates lawyers using an algorithm and makes most of its money by selling ads to attorneys, which show up when users search for attorneys in certain areas. He also said Avvo recently started a program that offers a fixed fee for a specific legal service with the basic service being a $39 charge for a 15-minute consultation with a lawyer. The lawyer gives Avvo $10 of that fee.
“Avvo is not a lawyer referral service, and we are not a matching service,” King said.
“…Avvo launched as a legal directory that includes virtually every lawyer in the country…. It is broadly a consumer resource that has become the most widely used consumer legal resource in the country, where consumers can go and research lawyers, research their legal problems, find a lawyer to help them with their case.”
A minor part of the company’s income, King said, comes from the recently launched Legal Marketplace that offers the fixed-fee services from participating lawyers. Justice Lewis asked how the company’s fee was calculated, and King said the fees ranged between 18 and 30 percent — depending on the service and were determined by market testing.
“In order to participate in that service, does the lawyer have to have a high review from clients [on Avvo]?” Justice Alan Lawson asked.
“They do not,” King replied, although he added clients are free to research any attorney’s rating on Avvo.
“What is wrong with what the Bar is proposing . . . to generally expand the Bar regulations to a company such as yours?” Justice Pariente queried.
“The fundamental problem with it is that it’s overly expansive, which hurts both access to justice and violates the law,” King replied. “Lawyers are conservative, and if we look at something and they say all of a sudden this form of regulation applies to every form of online legal marketing, there’s going to be some percentage of them who are similarly going to opt out and not do it.”
Justice Ricky Polston and Justice Lewis asked King if taking a fixed percentage of the fee amounted to prohibited fee-splitting, with Lewis noting Bar rules prohibit sharing a fee with a nonlawyer in exchange for referring a case.
“Isn’t it just semantics if you say, ‘I’m going to charge you $10 of your $30 fee or 5 percent of your recovery?’” Lewis asked. “That, to me, is just playing with words, isn’t it?”
King replied that the intent of the fee-sharing rules is to prohibit any impingement on a lawyer’s independent, professional judgment. He said the Bar went far beyond the special committee’s concerns and proposed sweeping rules that include online companies, referral services, and lawyers.
“We are not matching [clients] with a lawyer,” King said. “We are showing them the lawyer’s background. They can choose from any participating lawyer.”
The court also heard from three other objectors.
Broward County Bar Association President Charles Morehead said the court should enforce its 2015 order on the Bar and then worry about other issues. He said there are still instances where services refer callers to a doctor, and then they’re told at the doctor’s office they must sign up with an attorney.
He also criticized the proposed rules for dropping the requirement that attorneys belonging to a referral service carry $100,000 in malpractice insurance.
In response to questions from the justices, Morehead said he had explored Avvo, both as a potential consumer and participating lawyer, and found the company didn’t distinguish between the qualities of the lawyers in their marketplace service.
Tampa attorney Bill Wagner said the issue should be referred to a special committee outside the control of the Bar, which he said pursues the economic interests of lawyers instead of protecting the public and the legal system.
Tim Chinaris, representing the 1-800-411-PAIN referral service, which does both legal and medical referrals, said the company supported most of the Bar’s proposals, especially extending the rules to online legal service companies. He argued, though, that the rule sought by the court in its 2015 order was unnecessary.
He said problems identified by the special committee came mostly from complaints by lawyers who compete with attorneys using referral services, and that the special committee relied on only a handful of anecdotes that came almost seven years ago and have not been repeated. He noted advertising by referral services is reviewed and approved by the Bar, while ads from the online companies are not.
“What the Bar is asking this court to do is to reasonably regulate the conduct of lawyers who use third parties to get clients, and whether the third party advertises on billboards or the internet, whether the contact with the lawyer is made by telephone or online. The third party’s function is the same: to match or connect prospective clients with lawyers,” Chinaris said.
During rebuttal, Justice Quince asked Schwait what would be different for Avvo and similar companies if the court approved the Bar’s proposed rules.
“All their advertisements would have to be OK’d by the Ethics Department with a letter of approval,” Schwait replied. “The lawyers would understand that now they are working with an oversight through the Bar with Avvo, that they cannot have fee-splitting, that there cannot be pressure on them to make certain referrals, that their independent judgment is important….
“We don’t care who you are. If you match a client with a lawyer, then lawyers who work with you are to be regulated.”
“Is it wrong for us to address the one problem [lawyer referral services] first, get a better understanding and handle on this internet deal that’s coming up, and approach it in that fashion rather than all of a sudden?” Justice Lewis asked.
“I appreciate the problems involved with all that, but maybe we ought to take it step-by-step rather than throwing everybody into one bucket at one time and addressing it.”
Lewis added, “I must tell you when I came in this morning, I was a little more opposed to this [the Bar’s proposal] than I am going out.
“I may not be as opposed going out after all this, but it just seems to me that we are operating with so many things now, so many moving parts that I don’t know that that is really the best thing.”
The oral arguments came in Case No. SC16-1470, In Re: Amendments to the Rules Regulating The Florida Bar – Subchapter 4-7(Lawyer Referral Services).