Last month, the South Carolina Bar issued an advisory ethics opinion that, while it didn’t name Avvo, squarely took aim at its new Avvo Legal Services, referring to “[a]n attorney directory website [that] released a new fixed-fee legal referral service.” According to the ethics opinion, here’s how the service works:

* Attorney signs up for the service by agreeing to offer certain flat fee services.
* The fee for the service is set by the internet advertising directory website(service).
* The service makes the referral to the attorney, who then contacts the client to arrange a meeting and begin the representation.
* The service handles payment processing from the client and holds the funds until the service is completed.
* Upon completion of the work, the service transfers the full amount of the fee to attorney’s account.
* Upon completion of the work, the service charges the attorney a “per service marketing fee” which seems to be based upon the service provided and is only incurred when the lawyer provides the service. For example, the fee for an uncontested divorce may be $995, and the fee is $200, while the fee to start a single member LLC is $ 595, and the fee is $125.

South Carolina found that this arrangement violates Rule 5.4(a) of the South Carolina Rules of Professional Conduct, which says that a “lawyer or law firm shall not share legal fees with a nonlawyer.”1 According to South Carolina, there’s just no way around the fact that ultimately, a chunk of the fee goes to Avvo. And that fee, South Carolina notes, can’t be considered advertising because it is only incurred if the service is provided.

Avvo is, understandably, less than thrilled about this.

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.

So who is right?

South Carolina is likely correct that its rules prohibit Avvo’s arrangement. Rule 5.4(a) has some very narrow exceptions, such as purchasing the practice of a deceased attorney and paying the estate the purchase price or including non-lawyer employees in a retirement plan. Avvo doesn’t fall under those, so it’s tough to see how they get around that violation. That said, Avvo isn’t wrong. The prohibition against splitting fees with non-lawyers is both protectionist and, to put it bluntly, dumb. It’s based on the “fear of Sears”—the notion that if you allow attorneys to share fees with non-attorneys, the next step is that Wal-Mart runs all the law firms, and independence and confidentiality go out the window.

As far as independence, that stance takes a rather dim view of lawyers and assume we would not be capable of making ethical and responsible decisions with non-lawyers with whom we would like to split fees. (It takes an equally dim view of the non-lawyer partners, obviously.) For Avvo in particular, it presumes poor behavior when Avvo actually does provide an assurance of fair, consistent fees, and there’s no reason to believe that partnering with Avvo leads to a drastic increase in fees or decrease in the quality of services.

Confidentiality is a different issue, however. Non-lawyers aren’t covered by the ethics rules or any other guidance on this topic. A non-lawyer partner could presumably violate client confidentiality with impunity, if we presume menace, or simply by a lack of understanding of the obligations. So how do we solve that problem?

It’s relatively simple. Rewrite the ethics rules to allow fee-splitting between lawyers and non-lawyers, but bring those non-lawyers within the scope of the applicable ethics rules, including confidentiality and conflicts of interest. In other words, if you want to split fees with a lawyer, you’ve got to follow the rules.

For Avvo, that would require entity-level regulation, meaning services like Avvo would be regulated, to some extent, by the bar. It’s unclear at this point whether that would be a palatable solution for Avvo, but it’s got to be better than trying to thread the needle on an outdated rule like 5.4(a) in state after state after state.

  1. A rule which is substantively the same as the Model Rule.