Do you have a question about legal ethics that affects your practice? ETHICSearch can help. For quick and confidential research assistance, click here to send your questions.
Lawyer advertising (or incentivising): offering discounts or coupons to prospective clients
You are a sole practitioner with a concentration in real estate and estate planning. You are contemplating placing an advertisement in the local paper in which you will offer your services at a 10 percent discount.
You are also considering contacting a long-standing client and asking whether he would be willing to distribute coupons to their employees that offer estate planning services at a 20 percent discount.
What, if any, ethics issues are implicated in either scenario?
I. Coupons, Discounts and Bargain Pricing
There have been several state and local bar association ethics written on whether lawyers may offer discounts or coupons in advertisements to prospective clients. The central ethics issue implicated is the extent to which such an offer may be considered to be misleading if the lawyer does not clearly explain the basis of the fee discount. See, e.g. New York City Bar Opinion 1996-5 that discussed fee discounts in the context of a prepaid legal services plan:
…In particular, the Committee is troubled by the inquirer's concept of a fee discount being offered to plan participants for work not covered by the plan. What are the inquirer’s “standard hourly rates or flat fees”? DR 2-101(c)(4) authorizes advertising of a range of fees for services, hourly rates and fixed fees. To the extent that advertising a discount from a standard flat fee constitutes advertising a fixed fee, DR 2-101(E) requires a written statement be available to the public “clearly describing the scope of each advertised service,” which statement must be delivered to the client “at the time of retainer for any such service.” Advertising a discount from an unstated hourly rate or fixed fee is only half of the equation and might be considered misleading or, if no standard fee schedule and service description in fact exists, untruthful.
See AlsoSouth Carolina Opinion 96-27
(1996) in which the South Carolina Committee elaborated on an earlier South Carolina Opinion 93-08 that discussed fee discount coupons that the lawyer proposed to include in a “welcome wagon” packet and stated as follows:
A discount coupon or an offer of a special discounted fee for a new client, while perhaps undignified, may not be a substantive violation of the Rules of Professional Conduct, so long as it is not false or misleading. (Rule 7.1) In essence, a lawyer is free to establish whatever fees he wishes to charge, and in fact, may elect to give away his services; on the other hand, a lawyer may not set an arbitrary fee, then offer to discount that fee down to what his regular fee may have been.
…In the opinion of the Committee, a coupon is misleading if it states merely that the first half hour is discounted or free, without further disclosing the regular rate from which the discount or free one-half hour applies and that additional time may be required to resolve the particular matter for the client, which time will be billed at the hourly rate[.] . . .(Texas Professional Ethics Committee Opinion 452
DR 2-101(A) A lawyer shall not, on his or her own behalf or that of a partner, associate, or other lawyer affiliated with the lawyer or the lawyer’s firm, use, or participate in the use of, any form of public communication, including direct mail solicitation, that:
(5) Contains characterizations of rates or fees chargeable by the lawyer or law firm, such as “cut-rate,” “lowest,” “giveaway,” “below cost,” “discount,” and “special;” however, use of characterizations of rates or fees such as “reasonable” and “moderate” is acceptable.
The Ohio Code of Professional Responsibility was withdrawn in 2007 and was replaced with the Ohio Rules of Professional Conduct. The Ohio Rules carried forward some of the prohibitions outlined in DR 2-101(A)(5) in paragraph 4 of theComment to Rule 7.1 of the Ohio Rules:
[4] Characterization of rates or fees chargeable by the lawyer or law firm such as “cut-rate,” “lowest,” “giveaway,” “below cost,” “discount,” or “special” is misleading.
II. Offering Discount Coupons Through Third Parties
Some state bar opinions have considered situations where a lawyer makes coupons or discounts available to third parties who in turn disseminate the coupons to their customers who can then redeem them if they use the lawyer’s services in conjunction with the third party’s services. Typical scenarios include lawyers who give coupons to real estate agents who distribute them to their clients. If the client elects to use the lawyer’s services at the closing, the clients can redeem the coupon for a reduction in the fee. Issues implicated in this type of scenario include whether such arrangements constitute giving something of value to a person for recommending the lawyer’s services under Rule 7.2(b), solicitation underRule 7.3 and conflicts of interest under Rule 1.7.
State Bar Opinions come to varying conclusions in this area.See, e.g. Rhode Island Opinion 95-21; (1995), a digest of which as it appears in the ABA/BNA lawyers’ Manual on Professional Conduct states as follows:
A lawyer may send to in-state realtors an advertisement offering title searches for a set fee and stating that the lawyer will credit buyers referred to the lawyer by the realtors for the same amount as the fee towards title costs at closing in the form of a “coupon” given to brokers so long as the advertisement and the “coupons” are not misleading, the lawyer includes the term “advertisement” in larger type on the letters, the envelopes, and the “coupons” and provides copies of the advertisement to the disciplinary counsel's office within 48 hours of the initial dissemination. Rules 1.5, 5.4, 7.1, 7.2(a), 7.3, 7.4.
Providing a coupon or discount to a present or future client is not giving anything of value to an individual for recommending your services. It is a permissible act not precluded by the rules aimed directly at potential clients themselves, not third parties who would recommend your services. This combined with the fact that the discount directly benefits the client, makes the Committee of the opinion that there is nothing unethical about the proposed conduct.
In closing, the Committee reminds you that under Rule of Professional Conduct 7.1(a) the discount applied must not be false or misleading. Rather it must indeed be an actual discount, not a reduction of an inflated price.
SeeAlso Illinois Ethics Op. 92-8 (1993) (law firm may offer employees of corporation reduced rate in return for corporation president's recommendation of firm to employees); Maryland Ethics Op. 99-33, 15 Law. Man. Prof. Conduct 508 (1999) (attorney may advise client that fee could be reduced if attorney is also retained by client’s co-workers who have similar claims, provided that lawyer guards against encouraging client to unethically solicit business).
CompareNassau County Opinion 98-10 (9/23/98) in which the Nassau County Bar Association stated that a lawyer may not send discount coupons to real estate brokers because they were in effect an indirect solicitation of the broker’s clients under the applicable provisions of the New York Code of Professional Responsibility:
…legal services advertising must comply with DR 2-103 (A) and (B) of the Code. DR 2-103(A) provides:
“A lawyer shall not, directly or indirectly, seek professional employment for the lawyer ... from a person who has not sought advice regarding employment of the lawyer in violation of any statute...”
The statute governing the above described conduct is New York Judiciary Law § 479, which prohibits a lawyer from directly or indirectly soliciting legal business, which is generally limited to direct or indirect in-person solicitation, whether done by the lawyer or by an agent, employee or any other person acting on the buyers’ behalf.
DR 5-104(A) prohibits a lawyer from entering a business relationship with a client when there are differing interests therein. As proposed, the law firm enters an agreement with a real estate agency. The real estate agency offers a real estate benefits program to customers of the agency and to companies that provide employee benefits. The customers of the real estate agency and the employees of companies that purchase employee benefits are eligible for discounted services from the law firm. Circuitously, the law firm is entering a business relationship with clients. Differing interests exist. The client expects the lawyer to exercise independent professional judgment free of compromise, but the lawyer may have business or financial interests that influence his or her independent professional judgment. The lawyer may be influenced by his or her interest in receiving as many referrals as possible or in making enough money from the referrals to cover or exceed the annual membership fee paid by the law firm to the real estate agency.
SeeAlso the following digest of Iowa Bar Opinion 00-9 (2000) as it appears in the ABA/BNA Lawyers’ Manual on Professional Conduct:
A lawyer may not participate in an arrangement with a real estate mortgage broker whereby the broker would offer clients certificates for one hour of complimentary legal services by the lawyer. Such an arrangement would violate the ethics rules that prohibit a lawyer from giving something of value for securing a client and that govern solicitation by lawyers, and does not provide for the disclosures required by DRs 2-101(A) and 2-105. In addition, there is no provision authorizing the lawyer to exercise discretion in cases that may involve a conflict of interest.
Conclusion
As the above illustrates, lawyers who are considering offering fee discounts or coupons to prospective clients or who encourage clients or third parties to distribute coupons or offers of fee discounts should check the applicable rules of professional conduct, ethics opinions and case law of the jurisdiction.
