Participation in 3rd-party for-profit client referral service that offers a money-back guarantee, fails to disclose the use of non-attorney actors in its advertising, and requires the lawyer to communicate with the client on the service’s online platform

Facts

The Committee received an inquiry regarding a for-profit client referral service for petty or misdemeanor criminal and traffic offenses. According to the inquiry, the service claims to have relationships with attorneys in various locations across Illinois, and it uses non-attorney actors to advertise the service to those who may need legal services. In exchange for the potential client’s payment of a fixed fee, the service both (1) refers the case to one of its affiliated attorneys, and (2) offers a money-back guarantee if “we don’t win your case.” The affiliated attorney is paid a portion of the fixed fee that the client paid to the service, and the attorney communicates with the client through online case management software that is hosted and monitored by the client referral service. The service keeps the other portion of the client’s fixed fee, purportedly to support the administrative and advertising costs associated with running the program. If the client does not prevail in the matter, the service refunds the entire fee to the client, while the attorney keeps their portion of the fee regardless of outcome.

Questions

1. Does an Illinois attorney violate the Rules of Professional Conduct by affiliating with a for-profit client referral service that advertises a money-back guarantee if the client does not “win” their case?
2. Does the financial arrangement between the lawyer and the client referral service constitute impermissible fee-splitting with non-lawyers?
3. Do the Illinois Rules of Professional Conduct require a lawyer who chooses to associate with a client referral service to ensure that the service discloses that non-attorney actors are used in the service’s advertising?
4. Does the referenced client referral service violate the Rules of Professional Conduct for other reasons?

Discussion

Question 1: Yes, the Referenced Money-Back Guarantee Violates the Rules of Professional Conduct.

An Illinois attorney violates the Rules of Professional Conduct by accepting clients from a for-profit, third-party client referral service for petty criminal and traffic offense that offers the clients a “money-back guarantee” if the clients do not “win” their case.

A. Impermissible Paid Recommendation of the Lawyer’s Services.

First, the offer of a “money-back guarantee” is effectively a prohibited paid recommendation of the lawyer by a for-profit referral service.

Rule 7.2(a) prohibits a lawyer from “giv[ing] anything of value to a person for recommending the lawyer’s services,” except in specific instances listed in the Rule. Ill. R. Prof’l Conduct 7.2; see also ISBA Advisory Opinion No. 94-12 (Nov. 1994) (finding participation in a for-profit lawyer referral program violates Rule 7.2). Comment 5 to Rule 7.2 states in relevant part, “[a] communication contains a recommendation if it endorses or vouches for a lawyer’s credentials, abilities, competence, character, or other professional qualities.” Ill. R. Prof’l Conduct 7.2, cmt. 5; see also ISBA Advisory Opinion No. 22-02 (May 2022) (online lead generation service did not violate Rule 7.2 because there was no recommendation of any lawyer’s services).

Here, a guarantee would be unsustainable if many clients lost their cases. So, the commitment to a “money-back guarantee” implies that the referral service has identified the lawyer for the client because the lawyer has a particular qualification or skill to handle the client’s matter. In other words, the money-back guarantee is effectively a recommendation to the client that they should hire the attorney the service has identified. See N.Y. State Bar Ass’n Committee on Prof’l Ethics, Opinion 1132 (Aug. 8, 2017) (“online legal services marketplace” was an impermissible referral service in part because its “satisfaction guarantee” “contribute[d] to the impression that [the service] [wa]s ‘recommending’ the lawyers on its service” by “stand[ing] behind them to the extent of refunding payment if the client is not satisfied”).

There is no question that Rule 7.2(a) bars a lawyer from paying a for-profit referral service to recommend the lawyer to clients. See, e.g., ISBA Advisory Opinion No. 92-23 (May 1992) (Rule 7.2 bars lawyer participation in for-profit referral service). The Committee believes Rule 7.2(a) also prevents the lawyer from affiliating with a referral service where the burden of paying for the recommendation of the lawyer has been shifted from the lawyer to the client. For one thing, a lawyer cannot circumvent the obligations of the Rules of Professional Conduct merely by using someone else as a conduit. See Ill. R. Prof’l Conduct 8.4(a); see also ISBA Advisory Opinion No. 97-05 (Jan. 1997) (Rule 8.4 bars a lawyer from providing legal services or serving on the board of a for-profit lawyer referral service because that is still lawyer involvement in a prohibited business). For another, it seems inappropriate to bar a lawyer from paying for a recommendation yet to permit the client to do so—particularly when there is no indication (1) that the lawyer or referral service has even disclosed to the client that a portion of the fee is paying for the service’s recommendation of the lawyer, supported by the “money-back guarantee,” and (2) whether the referral service has done anything at all to be in a position to recommend the lawyer to the client. Thus, the Committee believes the “money-back guarantee” described in this opinion involves a payment for a recommendation of a lawyer’s service, in violation of Rule 7.2(a).

B. Misleading, Incomplete Communication About the Fee Charged and the Lawyer’s Services and the Fees Charged.

Second, the “money-back guarantee” violates the rules that apply to a lawyer’s communications about their fees and services.

Rule 1.5(b) requires a lawyer to communicate to the client “[t]he scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible . . . before or within a reasonable time after commencing the representation.” Ill. R. Prof’l Conduct 1.5(b). The nature of the “money-back guarantee” set forth in the inquiry is unclear. For example, does the guarantee include expenses, or will the client have to pay expenses regardless of whether they “win” their case and are entitled to the guarantee?

In addition, under Rule 7.1, “[a] lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services,” and “[a] communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.” Ill. R. Prof’l Conduct 7.1.

Nothing in the facts set forth in the inquiry suggests that the referral service comes close to complying with Rule 7.1 in the way the “money-back guarantee” is communicated. The defects include at least the following:

• There is no indication that the client has been told that the lawyer gets paid regardless of the outcome and that it is the referral service, not the lawyer, who pays the money-back guarantee. As a result, the client may be misled into believing the lawyer has a financial incentive to win the client’s case.
• As noted above, the “money-back guarantee” implies that the referral service has taken some step to vet the lawyer or otherwise ensure the lawyer is appropriate for the client’s case. But there is no indication in the inquiry of what the referral service does or does not do and whether any of this is communicated to the client. The client is simply left to assume—misleadingly—that there is something special about the lawyer being offered that makes the referral service comfortable offering the money-back guarantee. As the Association of the Bar of the City of New York opined in rejecting a lawyer’s ability to “guarantee,” on penalty of a full refund of legal fees, the granting of an application for a permanent visa upon satisfaction of certain conditions:

The term ‘guarantee’ not only implies expertise [on the part of the lawyer], but when coupled with an offer to refund legal fees suggests that the lawyer’s expertise renders virtually certain a favorable result. The result of any particular case, however, depends not only upon the lawyer’s expertise but also the merits of the case. Any suggestion that a lawyer’s expertise, rather than the merits of the case, will conclusively determine the result is inconsistent with the [pre-Rules of Professional Conduct] admonition that special care be taken to avoid misleading statements [about lawyer qualifications].

Ass’n of the Bar of the City of New York, Formal Opinion 1986-1 (Feb. 26, 1986).

• Similarly, the offer of a “money-back guarantee” misleadingly implies that factors other than the relative strength or weakness of the client’s particular case will determine the outcome. Id. (“[T]he form guarantee may suggest an appearance of impropriety to the extent it implies that factors other than the justice of the claim will determine the result of the client’s case . . . . Neither the bar nor this particular class of clients would be served by any intimation that cases are decided other than on the merits.”).
• There is no definition of “win” provided to the client that explains when the “money-back guarantee” will be paid. What if the client prevails on the primary charge but is convicted of a lesser charge? Is that a “win” for which the client cannot get their money back? Who navigates disputes between the client and lawyer, or client and service, on whether the client is entitled to a refund? These omissions also make the referral service’s communication about fees misleading and incomplete.

C. Potential Limitation on Professional Independence & Conflict of Interest.

Third, the existence of a “money-back guarantee” may limit the professional independence of the lawyer and/or create a conflict of interest.

Under Rule 5.4(c), “[a] lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.” By the same token, a conflict of interest exists if “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer,” and the client has not given informed consent to the conflict. Ill. R. Prof’l Conduct 1.7.

Here, the potential limitation on the lawyer’s independence and the associated potential conflict of interest both arise from the lawyer’s relationship with the referral service. The inquiry does not indicate how the service identifies the lawyers with whom it affiliates. Presumably, the service makes some effort to identify lawyers who appear to be at least superficially qualified to represent the clients solicited by the service, even if only to try to mitigate against having to make good on the “money-back guarantee” too frequently.

If the lawyer knows or simply assumes that the service removes lawyers from its network after a series of losses—for which the service must refund the clients their fees—the lawyer may be unduly influenced by their own interest in ensuring they are not dropped by the referral service. For example, the lawyer may be motivated to accept or comply with limitations on the representation imposed by the referral service, or the lawyer could decide not to counsel the client about lesser offenses in order to seek a complete “win” that would avoid the need for the service to pay the money-back guarantee. These situations would violate Rule 5.4(c) and suggest a conflict of interest under Rule 1.7 because the lawyer’s relationship with the referral service is prompting the lawyer to represent the client in a different manner than the lawyer would represent the client without the existence of the referral service.

Question 2: No, Lawyers May Not Split Fees With a Nonlawyer Client Referral Service.

The arrangement described in the inquiry violates Rule 5.4(a), which broadly prohibits lawyers and law firms from “shar[ing] legal fees with a nonlawyer,” unless one of four exceptions applies. Ill. R. Prof’l Conduct 5.4(a). None of those exceptions applies here.

As Comment 1 to Rule 5.4 states, the limitations on fee-splitting exist “to protect the lawyer’s professional independence of judgment. Where someone other than the client pays the lawyer’s fee or salary, or recommends employment of the lawyer, that arrangement does not modify the lawyer’s obligation to the client.”

The arrangement described in the inquiry indeed constitutes fee-splitting. The client is charged a single fixed fee, a portion of which the referral service pays to the lawyer and a portion of which the service keeps for itself. The referral service is described as a for-profit service, and there is no indication that lawyers are involved in operating it.

The fee paid by the client that is directed to the referral service cannot be considered a reasonable cost of lawyer advertising that is permitted under Rule 7.2(b)(3). For one, the fee is paid by the client, not the lawyer. For another, the fee is paid only when a client, in need of legal services, is placed with a lawyer who can provide those services. It is a fee for services, paid to the nonlawyer referral service, not an advertising cost. Compare ISBA Advisory Opinion No. 22-02 (May 2022) (fee paid by lawyer to online lead generation service was reasonable cost of advertising, not impermissible fee-splitting, where the lawyer paid a fixed fee to participate, and the fee was “unrelated to whether the lawyer obtains clients, the type of work the lawyer performs, or the fees charged by the lawyer for the work”).

Question 3: Yes, the Client Referral Service Must Disclose the Use of Non-Attorney Actors in Its Advertising.

The inquiring attorney presents a narrow question concerning the advertising used by the client referral service, focusing on the use of non-attorney actors. Although the Rules of Professional Conduct prohibit use of this client referral service for other reasons discussed in this Opinion, the answer to this narrow advertising question is yes, and this is true even if the referral service does not have the problematic features described elsewhere in this opinion: The client referral service must disclose in its advertising material whether non-attorney actors are being used, and an Illinois lawyer violates the Rules of Professional Conduct by accepting clients from a service that does not comply with the Rules that govern lawyer advertising.

Rule 7.1, discussed above, requires communications about lawyer services to be truthful and not misleading. Ill. R. Prof’l Conduct 7.1(a). Using non-attorney actors, without telling prospective clients that the individuals depicted are neither attorneys nor the specific attorney who would be the client’s lawyer, is misleading and therefore improper. A prospective client could easily assume that the individual depicted in the advertisement would be that person’s lawyer if the client paid the fixed fee. Rule 8.4(a) prohibits a lawyer from violating the Rules through the conduct of others, so the lawyer who accepts clients obtained through misleading and improper advertising violates the Rules. See Ill. R. Prof’l Conduct 8.4(a).

Question 4: Yes, a Lawyer Using the Client Referral Service Would Violate or Would Be Likely to Violate Other Rules of Professional Conduct.

The inquiring attorney posed the above three questions in their inquiry. However, the Committee believes it is important to identify additional important reasons that the client referral service described in this Opinion violates or likely would violate the Rules of Professional Conduct.

A. Communicating With the Client on the Referral Service’s Online System Would Violate Rule 1.6.

The inquiry notes that the client referral service requires the lawyer’s communications with the client to occur over the service’s online case management system that is hosted and monitored by the referral service.

This arrangement violates Rule 1.6, under which a lawyer is obligated to protect the confidentiality of information relating to the representation of the client, unless the disclosure is authorized or required by the Rules of Professional Conduct. See generally Ill. R. Prof’l Conduct 1.6 and comments thereto. Using the client referral service injects the service into the middle of the lawyer-client relationship, as the service has access to and monitors lawyer-client communications. Compare ISBA Advisory Opinion No. 22-02 (May 2022) (online lead generation service did not raise Rule 1.6 concerns where the service warned users not to share confidential information with the service, and lawyer-client communications, after acceptance of the engagement, did not occur on the service’s platform). This occurs even though there is no indication that the service, which is apparently comprised of nonlawyers, has agreed to keep any client information confidential—or even that the client has been told that the client referral service monitors and maintains the confidential information they share with their attorney. Rule 1.6 does not permit a lawyer to grant this kind of undisclosed and unrestricted third-party access to client information.

B. The Arrangement Appears to Offer No Opportunity for the Lawyer to Determine Whether to Accept or Decline the Representation.

Lawyers have various duties when determining whether to accept or decline a representation. A full explication of these duties is beyond the purview of this Opinion, but at a minimum, they include (1) the duty to ensure the lawyer is competent to handle the matter, Ill. R. Prof’l Conduct 1.1; and (2) the duty to ensure that the lawyer would not be operating under a conflict of interest in accepting the client or the matter, Ill. R. Prof’l Conduct 1.7.

The facts set forth in the inquiry do not indicate whether a lawyer, presented with a potential client by the referral service, has any opportunity to run a conflict check or otherwise consider and evaluate whether the lawyer indeed can take on the matter consistent with the Rules of Professional Conduct. This is another reason the arrangement described in this Opinion is problematic under the Rules. Compare ISBA Advisory Opinion No. 22-02 (May 2022) (online lead generation service did not violate the Rules where the lawyer had the ability to run a conflict check and determine whether to accept or decline a representation).

C. The Arrangement Violates Additional Fee-Related Rules.

The facts set forth in the inquiry suggest the client referral service violates various additional rules governing the charging and handling of client fees.¹

1. The Lawyer Has No Ability to Ensure the Fee is Reasonable.

First, it does not appear from the inquiry that the lawyer accepting clients is able confirm the reasonableness of the fee before it is charged.

Under Rule 1.5(a), “[a] lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” Ill. R. Prof’l Conduct 1.5(a).

The inquiry does not say how the fee to be charged to the client is determined. But nothing in the inquiry suggests that the lawyer has any involvement at all in setting the fee, let alone in ensuring the fee is reasonable for the matter and the work to be performed. The lawyer cannot delegate to the referral service the obligation of ensuring the fee the client is charged is reasonable. See Ill. R. Prof’l Conduct 8.4(a) (misconduct for a lawyer to violate the Rules “through the acts of another”).

2. The Basis for the Fee Charged Is Undisclosed, and the Fee May Be Unreasonable.

Second, there is no indication that the basis for the amount of the fixed fee charged is disclosed to the client, making communications about the fee misleading. Is the client even aware that they are paying a fee that goes to the referral service, and that they may be able to obtain the lawyer’s services without paying the referral service fee on top of the lawyer’s fee? As noted above, a client is entitled to know “the basis or rate of the fee and expenses for which the client is responsible, . . . before or within a reasonable time after commencing the representation.” Ill. R. Prof’l Conduct 1.5(b). Nothing in the inquiry suggests compliance with these requirements.

The fee charged by the referral service also may be unreasonable under the circumstances. By definition, the fee is over and above what the lawyer would charge to perform the service, since the lawyer is compensated by only a portion of the fee paid by the client. This structure presents a real risk that the fee charged would be considered unreasonable and thus impermissible under Rule 1.5(a).

3. The Referral Service Deprives the Lawyer of the Ability to Properly Handle the Client’s Fee Payment.

Third, that the referral service is the one that accepts the client’s payment of the fixed fee would seem to make it difficult, if not impossible, for the lawyer to comply with their obligations for the handling of those dollars.

To be sure, a fixed fee “constitutes complete payment for the performance of the described services,” Ill. R. Prof’l Conduct 1.5(d)(1), and is “generally not subject to the obligation to refund any portion to the client if the lawyer completes the agreed-upon services,” id. at cmt. [3]. But the Rules do not permit the lawyer to keep a fixed fee if the representation terminates before the service is performed. Id. (referencing Rule 1.16); Ill. R. Prof’l Conduct 1.16(d) (“Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as . . . refunding any advance payment of fee or expense that has not been earned or incurred . . . .”).

Here, there is no indication that the lawyer can require the referral service to return the client’s fee if the lawyer must withdraw or the representation is terminated before the matter concludes. Nor is there any indication that the lawyer can return a portion of the fixed fee if the matter scope changes such that the fixed fee initially charged has become an unreasonable fee that is prohibited under Rule 1.5. Ill. R. Prof’l Conduct 1.5(a).

Conclusion

The client referral service described in this Opinion is problematic under the Rules of Professional Conduct for multiple reasons. The money-back guarantee offered by the service makes the service a prohibited paid recommendation for a lawyer, the communications surrounding the money-back guarantee are insufficient and misleading, and the basis for the fee charged to the client is undisclosed. Use of the service also is impermissible fee-splitting with a nonlawyer. Further, the referral service’s undisclosed use of non-attorney actors in its advertising separately violates the Rules of Professional Conduct. Using the referral service’s online platform to communicate with clients, with no apparent safeguards or the informed consent of the client, would violate the lawyer’s duties of confidentiality. Finally, a lawyer using the referral service would seem to be unable to comply with various additional duties regarding the payment of fees, including the obligation to ensure the fee charged is reasonable.

Footnotes

1. The Committee does not opine upon whether the “money-back guarantee” described in this opinion is akin to an impermissible contingency fee in criminal matters, but it finds the guarantee concerning in this regard. Rule 1.5(e)(2) prohibits lawyers from “enter[ing] into an arrangement for, charg[ing], or collect[ing] . . . a contingent fee for representing a defendant in a criminal case.” Ill. R. Prof’l Conduct 1.5(e).

References

• Illinois Rules of Professional Conduct 1.1, 1.5, 1.6, 1.7, 1.16, 5.4, 7.1, 7.2, and 8.4
• ISBA Advisory Opinion No. 92-23 (May 1992)
• ISBA Advisory Opinion No. 94-12 (Nov. 1994)
• ISBA Advisory Opinion No. 97-05 (Jan. 1997)
• ISBA Advisory Opinion No. 22-02 (May 2022)
• Ass’n of the Bar of the City of New York, Formal Opinion 1986-1 (Feb. 26, 1986)
• N.Y. State Bar Ass’n Committee on Prof’l Ethics, Opinion 1132 (Aug. 8, 2017)
• Supreme Court of Ohio, Opinion 2003-2 (Apr. 11, 2003)