Michigan Bar Proposes Prohibition on For-Profit Legal Referral Services

Written by Ridhi Shetty

For-profit legal referral will be prohibited by a new proposed ethics opinion by the State Bar of Michigan Professional Ethics Committee that states that for-profit legal referral services violate fee-sharing prohibitions under the Michigan Rules of Professional Conduct. Responsive Law has issued testimony opposing the proposed ethics opinion, urging the Committee to allow attorney participation in for-profit legal referral services to improve public access to justice.

The U.S. Supreme Court decision in North Carolina State Board of Dental Examiners v. FTC established that a bar association composed of individuals who actively participate in the legal market can be liable for anti-competitive acts if it is not actively supervised by the state. The Committee’s proposed opinion is anti-competitive because it prohibits who can participate in Michigan's legal market—especially in competition with the State Bar of Michigan’s own lawyer referral service—without showing how doing so protects the public.

Further, the First Amendment guarantees the public’s right to information from lawyers about available legal services, so the Committee should offer evidence that it is justified in compromising constitutional interests because of a resulting benefit to the public. Exclusions of for-profit legal referral services from accepted legal service providers must be narrowly tailored to those services that suppress consumer choice or deceive the public. The proposed ethics opinion, however, does not merely narrowly exclude harmful for-profit legal referral services, but rather it excludes all for-profit legal referral services outright. Consumers are often unaware that their problems have a legal aspect, that a lawyer can help them with their problems, or there are various options for obtaining legal help. Not only does the Committee identify no consumer harm caused by for-profit legal referral services, but it also does not recognize the benefit of such services in connecting consumers to the most suitable legal solutions.

For-Profit Legal Referral is Not Prohibited Fee-Splitting 

The Committee asserts that online platforms that facilitate payment between consumers and lawyers are engaging in prohibited fee-splitting that can influence lawyers’ independent judgment. For-profit legal referral services do not inherently influence lawyers’ independent judgment, so the public would be best served if the Committee allowed fee-splitting and evaluated whether individual fee-splitting arrangements interfere with lawyers’ judgment. The opinion also claims that legitimate advertising fees are not based on whether the advertisement leads to new clients for participating lawyers but are instead based on the value of the advertisement itself. Advertising fees can, however, easily vary with online platforms based on the scope and targeting of the advertisement and the risk of not being paid for their service due to unfavorable outcomes of the attorney-client relationship. Variable advertising fees also allow more efficient spending on advertisements, resulting in more affordable legal services for consumers.

Another concern raised in the opinion is handling client funds in trust accounts until services are completed, as the opinion claims that for-profit legal referral services can circumvent trust accounting rules. Though this is possible, for-profit legal referral services are no less likely to comply with trust accounting rules than other business relationships. These services also rarely bill clients until after the service is provided, so mishandling client funds becomes that much less probable.

The proposed ethics opinion concludes by alleging that for-profit legal referral services engage in the unauthorized practice of law, but they do not hold themselves out as non-lawyers providing legal services. Rather, they clarify that they help connect consumers to licensed lawyers, and their performance of "back office" functions is not unique to these services. Instead of preventing for-profit legal referral services from serving consumers, the Committee should recognize that providing consumers with the widest range of legal services options is in consumers' best interest.

You can read Responsive Law's testimony to the State Bar of Michigan Professional Ethics Committee here.

Ridhi Shetty is a legal intern at Responsive Law
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