Clash of Titans: Groupon v. The Model Rules of Professional Conduct

• Author: Michael J. Conroy
• Position: J.D. Candidate, The University of Iowa College of Law
• Pages: 1329-1361

Clash of Titans: Groupon v. The Model Rules of Professional Conduct Michael J. Conroy  ABSTRACT: Daily deals, like those offered by Groupon and LivingSocial, have become a popular and highly effective form of advertising. The success of daily deals is not without concern in the legal community. State bar associations are split as to whether the Model Rules of Professional Conduct—namely Rules 5.4, 7.2, and 1.15—permit lawyers to advertise through daily deals. This Note argues that lawyers may ethically sell their services through daily deals as a reasonable cost of advertising authorized by Rule 7.2 and that the fee retained by the daily deal company is not an impermissible fee-sharing arrangement outlawed by Rule 5.4. Instead, such fees should be considered an alternative way of charging for advertising— one that will not interfere with the lawyer’s professional independence. Moreover, the flexible daily deal business model enables lawyers to comply with the client trust requirements of Rule 1.15. I. INTRODUCTION .................................................................................... 1331 II. THE DEAL ON DAILY DEALS ................................................................. 1332 A. W HAT A RE D AILY D EALS AND W HY W OULD A L AWYER U SE T HEM TO S ELL L EGAL S ERVICES ? .............................................................. 1333 B. R ELEVANT R ULES OF P ROFESSIONAL C ONDUCT ................................ 1336 1. Rule 5.4: Professional Independence of a Lawyer ............. 1336 2. Rule 7.2: Legal Advertising ................................................. 1337 3. Rule 1.15: Safekeeping Client Property ............................. 1339 C. S TATES T HAT F OUND V IOLATIONS OF THE R ULES OF P ROFESSIONAL C ONDUCT W HEN L AWYERS U SE D AILY D EAL S ERVICES ..................... 1339 1. The Formal, Binding Opinions of Alabama, Arizona, and Indiana........................................................................... 1339  J.D. Candidate, The University of Iowa College of Law, 2014; B.A., Tufts University, 2009. I would like to thank Professor Emily Hughes and members of Volume 99 of the Iowa Law Review for their help on this Note. Most of all, I thank my parents, John and Terry Conroy, grandmother, Joan Conroy, and fiancée, Melissa Lee, for their continued support, and members of the University of Notre Dame “Fighting Irish” Football Team for inspiring me to “[Write] Like a Champion Today.” 1330 IOWA LAW REVIEW [Vol. 99:1329 2. The Informal, Non-Binding Opinions of Oregon and Pennsylvania ......................................................................... 1341 D. S TATES THAT F OUND N O V IOLATION OF THE R ULES OF P ROFESSIONAL C ONDUCT W HEN L AWYERS U SE D AILY D EAL S ERVICES ........................................................................................ 1342 1. The Ethical Opinions of Maryland, Nebraska, North Carolina, and South Carolina ............................................. 1343 2. New York’s Ethical Opinion ................................................ 1346 III. PROBLEMS WITH THE SPLIT IN AUTHORITY .......................................... 1347 IV. THE MODEL RULES OF PROFESSIONAL CONDUCT ALLOW LAWYERS TO ADVERTISE VIA DAILY DEALS ........................................................... 1349 A. D AILY D EALS A RE P ERMITTED BY R ULE 5.4 ..................................... 1349 B. D AILY D EALS A RE A LLOWED BY R ULE 7.2 ....................................... 1352 1. Daily Deals Are Not Improper Referrals ............................ 1353 2. Daily Deals Comply with Rule 7.2(b)(1) ............................ 1354 C. S OLUTIONS TO THE T RUST R EQUIREMENTS OF R ULE 1.15( C ) ........... 1358 D. A DDITIONAL R ULES L AWYERS S HOULD C ONSIDER W HEN A DVERTISING T HROUGH D AILY D EALS ............................................ 1359 1. Steps to Prevent the Evils of Too Much Success ................ 1359 2. What Happens When Daily Deals Go Unused? ................. 1360 V. CONCLUSION ....................................................................................... 1361 2014] CLASH OF TITANS 1331 I. INTRODUCTION The development of daily deal advertising—online coupons targeted to consumers based on their geographic location or other identifiable tastes and preferences—has revolutionized the marketing industry. 1 Since the founding of Groupon in 2008, 2 daily deals have “transform[ed] marketing for small businesses.” 3 The year 2008 was also transformative for the legal industry; the recession reduced legal work at most firms and put immense pressure on lawyers to seek new ways to develop business. 4 Craig Redler, a Missouri solo-practitioner, was the first attorney to test whether daily deal advertising could work for lawyers. 5 Mr. Redler’s online daily deal offered clients a will and durable power of attorney, a $750 value, for $99, to “keep [their] brain from being inserted into any future Frankensteins.” 6 Needless to say, the daily deal was controversial amongst state bar associations, 7 although not for its advertising ploy. State bar associations were concerned that a lawyer’s use of daily deal advertising violated their respective rules of professional conduct (styled after the Model Rules of Professional Conduct, or the “Rules”). 8 Currently, ten states have issued opinions on whether it is ethical for lawyers to advertise via daily deals—four states found the practice unethical while six states concluded that lawyers may ethically use daily deals. 9 Although each state’s analysis was slightly different, their ethical opinions focused primarily 1. Kirk Kardashian, The Pros and Cons of Groupon , TUCK SCH. BUS. DARTMOUTH (Nov. 7, 2011), http://www.tuck.dartmouth.edu/news/articles/the-pros-and-cons-of-groupon/. 2. About Groupon , GROUPON, http://www.groupon.com/about (last visited Jan. 21, 2014). 3. Kardashian, supra note 1. 4. See infra Part II.A. 5. Sergei Tokmakov, Groupon Attorney Advertising , BLOGZ.ORG (Jan. 27, 2012), http://blogz.org/Blog812035-Groupon-Attorney-Advertising.htm. 6. Law Offices of Craig S. Redler & Associates, LLC - Olivette , GROUPON, http://www.groupon.com/ deals/law-offices-of-craig-s-redler-associates (last visited Jan. 21, 2014). 7. Debra Bruce, Did a Groupon Really Work for a Solo Lawyer? , SOLO PRAC. U. (Jan. 19, 2012), http://solopracticeuniversity.com/2012/01/19/did-a-groupon-really-work-for-a-solo-lawyer/; Tokmakov, supra note 5. 8. While this Note uses different states’ applications of their own adopted ethics rules (all of which were styled after the Rules) as examples of diverging viewpoints and applications, this Note’s analysis is intended to speak to the proper application of the Rules generally as it relates to lawyers’ use of daily deals, and should not be understood to prescribe an application within any particular state, which may be constricted by past precedent and/or informed by state-specific modifications to the Rules. 9. See infra Parts II.C–D. This issue has also come up outside of the United States as well. The Israeli Bar Association held that lawyers may not advertise their services through daily deals because of concerns that the advertisements will be misleading and dishonor the profession. Hila Raz, Discount Law on Groupon: Consumer Book or Ripoff? , HAARETZ (Oct. 24, 2012, 5:13 AM), http://www.haaretz.com/business/discount-law-on-groupon-consumer-book-orripoff.premium-1.471928. 1332 IOWA LAW REVIEW [Vol. 99:1329 on the same three Rules. 10 First, the states considered whether the daily deal model violates Rule 5.4 as an improper sharing of attorney fees. 11 Second, the states analyzed whether daily deal arrangements violate Rule 7.2 as an impermissible referral service or an unreasonable cost of advertising. 12 Third, the states contemplated whether the daily deal business model prevents lawyers from depositing all pre-paid legal fees in separate trust accounts as required by Rule 1.15(c). 13 This Note argues that the Model Rules of Professional Conduct, specifically Rules 5.4, 7.2, and 1.15(c), allow lawyers to use daily deals for three reasons. First, the cost of daily deal advertisements is reasonable. Second, they do not jeopardize a lawyer’s professional independence. Third, the flexibility of the daily deal business model allows lawyers to comply with the Rules’ independent client trust requirements. Part II discusses the daily deal industry, details the relevant Model Rules of Professional Conduct, and details state ethical opinions that have addressed the issue. Part III considers the problems created by the split in authority over daily deals. Part IV resolves the disagreement in existing ethical opinions and articulates why the fee charged by daily deal providers is neither a referral fee nor a sharing of legal fees, but a reasonable and permissible cost of advertising. Finally, Part V concludes that lawyers may ethically advertise through daily deals. II. THE DEAL ON DAILY DEALS Due to attorneys’ interest in advertising via daily deals and an increase in such practices, several state bar associations have considered the “ethical implications” of daily deal arrangements. 14 State bar associations are split as to whether a lawyer’s use of daily deal advertisements violates the Rules. Maryland, 15 Nebraska, 16 New York, 17 North Carolina, 18 and South Carolina, 19 10. States in favor: Maryland, Nebraska, New York, North Carolina, and South Carolina. States against: Alabama, Arizona, Indiana, and Pennsylvania. See infra Part II.B–D. 11. MODEL RULES OF PROF’L CONDUCT R. 5.4 (2012); see infra Part II.C–D. 12. MODEL RULES OF PROF’L CONDUCT R. 7.2; see infra Part II.C–D. 13. MODEL RULES OF PROF’L CONDUCT R. 1.15(c); see infra Part II.C–D. 14. Thomas A. Gilligan, They’re Not Just for [Name Your Commoditized Service or Product Here] Anymore: Ethics Opinions Say Groupons for Legal Services OK , FOR DEF., Mar. 2012, at 63, 63, available at...