Lawyer Regulation: The Root of the Problem

As I’ve mentioned before, I’ve left Avvo and am planning my next move (but not before enjoying a glorious Seattle summer!). And while I don’t know whether that move will keep me in the trenches working on innovation in access to justice, I plan on staying involved in these issues.

In 10+ years at Avvo, I’ve become invested. Hell, I’ve become radicalized. I’ve seen firsthand the institutional inertia, malaise, and active hostility deployed against efforts to make our legal system more consumer-centric. So I’ve joined the board of Consumers for a Responsive Legal System in order to contribute directly, regardless of where my career takes me.

Consumers for a Responsive Legal System – or “Responsive Law,” as it’s commonly known – has long been a lonely voice advocating for the consumer when it comes to the regulation of the practice of law. But it’s a critically important voice: we lawyers enjoy self-regulation, but in our regulatory expertise we get so finely-grained and nuanced that we miss the needs of those our profession exists to serve: our clients (and those who would be our clients).

We saddle ourselves with picayune, overly-detailed restrictions on our ability to inform people about the resources available to them.

We insist on archaic, mechanistic payment rules, divorced from the reality of modern consumer finance or purchasing expectations.

We police the edges with the bogeymen of overbroad, unconstitutional, and anti-competitive ethics opinions.

And all along we claim an expansive monopoly on anything smelling like “the practice of law,” effectively foreclosing anyone else who might like to offer a better service.

Despite a decade-plus of handwringing over “access to justice,” we’ve produced little more than calls for more pro bono work. The problem isn’t getting solved until lawyers recognize the source of the problem: our own naval-gazey, lawyer-centric, system of self-regulation. We desperately need to shift the focus to what consumers want, and not be afraid to aggressively scrap those rules that aren’t helping the public.

Responsive Law is working on a variety of fronts to focus the Bars on the needs of consumers. These are messy, state-by-state discussions, and seeing real change is going to be a long slog. But it’s important work that needs to be seen through the inevitable ups and downs along the way.

If you’d like to help Responsive Law in this effort, it’s easy to make a donation here.

3 Ways to Tweak the Lawyer Regulatory Rules Now

I’ve previously written about my “wish list” for structural change to the rules regulating the practice of law. I’ve also gone more granular on how the ABA’s proposal to modify the attorney advertising rules could be greatly improved.

There are also several other areas of the Rules of Professional Conduct that could be changed to make it easier for attorneys to innovate in the delivery of legal services.

Rule 1.15: the safekeeping property” rule

Rule 1.15 contains the lawyer trust accounting obligations. While the rule is well-intentioned, it isn’t flexible enough to account for situations where the client’s interests are already adequately protected. For example, legal fees paid by credit card: as long as those fees are earned relatively quickly, the client doesn’t gain any further protection from the trust accounting rules, as 1) the client isn’t actually “out of pocket” until the credit card grace period has run and 2) the client has recourse to the card issuer to charge back unearned fees in the event there is any dispute with the lawyer.

Getting recourse via the card issuer is a much easier, faster, and cleaner way for the client to get satisfaction than trying to proceed under the Rules. Yet Bar Committees and attorneys worry endlessly that Rule 1.15 prevents attorneys from using services that involve any form of prepayment for legal services by credit card. Why? Because the card processor or marketing intermediary may hold client funds while they are in transit to the attorney’s trust account.

As virtually all online commerce occurs via credit card, this means that all sorts of innovative consumer offerings aren’t going to get off the launching pad – for no reason other than the rigidity of a rule that offers no additional consumer protection in this setting.

This problem is vanishingly easy to solve: carve out an “intermediary exception” in Rule 1.15, or creating an exception to trust accounting for smallish payments made by credit cards (say, under $500 or $1000 – the level below which most innovative limited scope services will be sold).

Rule 5.4: protecting independent professional judgment

Rule 5.4 is effectively a conflicts-avoidance rule, designed to protect the independent professional judgment of lawyers from conflicts that might arise if third parties had a claim on a lawyer’s fees. Unfortunately, it has metastasized into a rigid rule prohibiting any form of fee splitting with non-lawyers.

I could go on at great length about the harm this causes, and the naivete of this rule, with its presumptions A) that other lawyers are somehow above pressuring each other over shared fees and B) that lawyer independence isn’t similarly threatened by the economic realities of running a law practice, regardless of the form in which bills are paid. And in a more perfect world, we would restyle this rule into less of a rigid prohibition and more of a general guideline that attorneys should resist all potential threats to their independence, regardless of the form in which such threats come calling.

Instead, I will observe that Rule 5.4 could be greatly improved by adding a simple carveout for ordinary business expenses that take the form of fee splits. The most obvious of these is credit card processing charges. Every fee paid by credit card is “split” with the card processor, as the processor’s 2-3% fee is deducted from the top before the funds are deposited in the attorney’s account. But marketing and advertising charges are increasingly likely to come out of fees as companies figure out better ways to unlock the consumer legal market by offering fixed-price services. Clients will pay for these services using credit cards, and the providers of these marketplaces – which may include private parties, courts, or bar associations – will want to be paid for generating that demand and facilitating the transaction. The easiest way to do that? Deduct that marketing fee from the legal fee paid. Again, this should be a non-event as long as the marketplace provider doesn’t interfere with the lawyer’s independent professional judgment. Here’s one potential formulation of a new exception to Rule 5.4:

(5) a lawyer or law firm may pay a portion of a legal fee to a credit card processor, group advertising provider or online platform for identifying and hiring a lawyer if the amount paid is a reasonable charge for payment processing or for administrative or marketing services, and there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship.

Safe Harbors

I’d rather have less-detailed rules, but to the extent states are going to have such rules, they could help their members out a lot by using safe harbors. What’s a safe harbor? In this context, it would simply be a list of state Bar-approved services. Lawyers could know that as long as the third-party marketing service they are working with is on the “approved” list, they wouldn’t have to worry about ethics compliance – at least for using the service. Safe harbors could be used for Rule 5.4, or 1.15, or even rule 7.2, for lawyer referral services.

Doing so isn’t without cost. A Bar adopting safe harbors would need to invest time in coming up with safe harbor criteria, with administering the program, and with ensuring that safe harbor lists were up-to-date. This would need to be a well-thought-out program, and the resources would need to be spent to ensure that it was running and doing the intended job. But this is the sort of process that should be well within the wheelhouse of any competent regulatory agency to build and implement.

Don’t get me wrong: I strongly believe it would be better for all concerned if the Bar regulators simply stripped the Rules down to the basics and focused on the purpose of the Rules, as I’ve suggested for rules 1.15 and 5.4 here, rather than mechanical compliance. But for those regulators who can’t get comfortable with taking such an extreme approach, adopting a “safe harbor” system is a great start that can offer the benefit of consumer-protective rules while eliminating most of the chilling effects of lawyer over-compliance.

5 Wishes For Attorney Regulation Reform

In early April, I left Avvo. It’s been 10 years; it’s time for something new. What that is yet . . . I don’t know. Summer is glorious in the Pacific Northwest; I’d love to take some serious time off and enjoy it with my family and friends.

So I don’t know how much more I’ll be writing here. I suspect, however, that I will stay involved in efforts to improve our legal system, regardless of where my work takes me. So with that adieu, I leave you with a brief wish list of legal reforms:

  • Change to “Principles-Based” Regulation.  The American system of attorney regulation is rules-based: read the rules, comply with the rules. Such a system that has the advantage of clarity, but it’s a poor system for attorneys. It’s brittle. It’s non-responsive to changes in the environment. It focuses on detail (and “creative compliance”) at the expense of the purpose underlying each rule. And it makes innovation hard. Why not adopt the example of our cousins in the UK and move to a system of principles-based regulation? Let’s re-write the Model Rules to focus on desired outcomes, rather than rigid rules, and let attorneys and firms figure out the best ways to achieve those outcomes. We might be surprised the extent to which such a system would elevate the profession to a place where the focus is back on achieving the best outcomes for clients, rather than mere “compliance.”
  • Allow Non-Lawyer Ownership of Law Firms. Law firms are starved of investment – and the innovative thinking that would happen if smart non-lawyers could be invested in the success of those firms – by the flat-out bans on non-lawyer investment in, and ownership of, law firms.  Enough with the hand-wringing about the “uniqueness of the profession” and “corporate profiteering.” Law is already a business, and we are deluding ourselves if we think that attorneys are immune from the pressures of the bottom line. It would be easy to build client protection measures into such a system. And let’s be honest: well-run corporate businesses, with transparent practices and high levels of accessibility, would provide better, more predictable, more responsive, and less conflicted service than most lawyers and law firms right out of the gate.
  • Scale Back the Definition of “The Practice of Law.” Along with allowing non-lawyer ownership of law firms, we should dispense with the field-grabbing maneuver of claiming that everything remotely “legal” is “the practice of law,” and thus can only be handled by licensed attorneys. Let lawyers practice at the top of their licenses, and let everyone else – so long as they aren’t “holding out” as attorneys – be free to dispense legal advice, even to paying customers. There’s a decent chance the Supreme Court will dictate this result within the next few years anyway, 1 so some enterprising Bar should just get out in front of this sea change that’s coming. 2
  • Fix Multi-Jurisdictional Practice. My great-grandfather was a lawyer in Indiana. He abruptly moved his family to Tulsa in 1921, arriving just as race riots roiled that city. He had to start his practice over in a new state, but state-based attorney licensing made sense at that time – and certainly up to, and beyond, his retirement decades later. Most attorneys, including great-granddad, worked in wide-ranging, intensely local practices. But in modern society, it’s the rare lawyer who isn’t focused on a narrow area of law. Those narrow areas often span multiple geographies. So why persist in the fiction that general facility with a state’s law – as tested on a single occasion – is a necessary prerequisite to practice law in that state? Why not have admission at the national level, handle discipline at the state level, and control – via more frequent and specific tests – admission to practice before local courts? Doing so would far better police the point where failure to understand the local rules can do the most harm to clients (representation in court), while freeing lawyers (and the clients they would serve) from the arbitrariness of state MJP restrictions.
  • Create Meaningful Regulatory Processes.  Administrative agencies drive a gigantic body of the law – just look at the Code of Federal Regulations.  Non-legislative in nature, administrative rules are nonetheless adopted under a well-developed body of processes and norms.  While this process differs slightly from agency to agency, it is marked by transparency, opportunity for public comment, and responsiveness.  Notices of Proposed Rulemaking are promulgated, and orders imposing new or amended rules offer detailed descriptions of how any serious comments received were addressed. Nothing of the type pertains in lawyer regulatory processes. Supreme Courts treat lawyer regulation as just another adversary process – often freezing non-lawyers out. Publicity, notice, and transparency? Typically non-existent. And even the most well-intentioned regulators inevitably get hung up on a decision-making process that gives interested market participants (who often have the scantest sense of their regulatory obligations) veto power.  If the legal industry is going to maintain self-regulation, it needs to start doing so in a much more serious and neutral fashion.

Many lawyers would regard these as radical changes. But they really aren’t: they are a mix of approaches proven elsewhere and straightforward fixes for obvious regulatory failings. Unfortunately, our profession strongly prefers incremental approaches to anything that smells of “change” – that’s one reason we’ve got the creaky assemblage of Rules of Professional Conduct lawyers are saddled with. If the profession is to adapt and best serve the public, it’s got to do more than just tidy things around the edges. I offer my “wish list” as a modest starting point for that discussion.

Notes:

  1. There is a very good argument that telling non-lawyers they are barred from giving legal advice violates the First Amendment, and cases – including this one – challenging limitations on “paid professional speech” are working their way through the courts.
  2. Also worth noting: the legal monopoly in the UK doesn’t include legal advice; yet things seem to be working tolerably well there.

Cohen’s Forced Client Disclosure

Look, I enjoy a little schadenfreude as much (if not more so) than the next guy. And it’s especially delicious when it comes at the expense of the cabal of crooks, clowns, and lickspittles currently running our democracy into the ground.

And yet. While I was delighted and amused to hear that Sean Hannity – the bombastic Trumpian water-carrier headlining State TV Fox News – was Michael Cohen’s mystery third client, something about it feels . . . off.

My friends at Davis Wright Tremaine have been justifiably crowing about their partner Rob Balin’s rising from the gallery and convincing the judge that the First Amendment interest in free speech and open trials demanded disclosure of the client’s name.

But did it? Was that REALLY the right call?

I have repeatedly taken the RPCs and authors of Bar ethics opinions to task for failing to respect the First Amendment when it comes to lawyer speech regulation. This includes, most recently, ABA Opinion 480, which interprets Rule 1.6 far beyond its constitutional limitations. But this doesn’t mean the First Amendment always trumps the obligations lawyers have to their clients – or to the protections of the attorney-client relationship built into the Rules.

Cohen did the right thing – really, the only thing he could do – in seeking consent from his clients to disclose their identifies, and resisting the efforts at disclosure when Hannity did not give such consent.

And Balin certainly did the right thing, too, in pressing his argument for openness and disclosure.

But what I can’t figure out is why this disclosure was necessary. The fact that a legal matter is proceeding in a courtroom does not mean that any-and-all facts relating to that proceeding are free game for disclosure. Immaterial facts, matters not relevant to the proceeding, trade secrets, etc, etc – there are numerous instances where facts are not disclosed in order to protect confidences.

So why here? As I understand it, the relative paucity of legal work (as opposed to “fixing” and “consulting”) performed by Cohen was important to the government’s argument about the appropriateness of raiding his office. But why would that require disclosing the identity of his legal clients? Why isn’t their numerosity (or lack thereof) sufficient? Particularly when – knowing what we do about the type of legal work he did for his other two clients – there are significant reputational harms coming from a client being linked to Cohen?

Don’t get me wrong: I think it’s hilarious that Hannity was revealed to be the third client. And this disclosure has turned out to be hugely interesting to the public, implicating as it does questions of journalistic ethics and the relationships between Trumpworld and Foxlandia.

But Judge Wood didn’t know that going in. And the real question wasn’t whether the identity of the client would be interesting, but whether that identity was relevant to the proceeding. It doesn’t seem like it was.

I may be missing some important nuance here; I wasn’t there in the courtroom to hear the arguments. But it’s deceptively easy to just go with the outcome you like. With norms and institutions under attack as they are these days, it’s never been more critical to respect and defend the rule of law.

Disclosing Public Info About Clients

Earlier this month, the ABA issued advisory opinion 480, which says that attorneys cannot reveal client information even if that information is in the public record. The opinion points to Model Rule 1.6, which states:

A lawyer shall not reveal information relating to the  representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).

This rule is certainly a statement of good practice. Attorneys absolutely should be guarded in how they communicate about their clients’ matters. In fact, they should err on the side of caution when it comes to talking about their clients. I’ve hired a lot of lawyers over the last 20+ years, and I can say, without exception, that I would expect that each and every one of them would ask my permission before talking publicly about ANYTHING related to the representation that I might possibly have a problem with – even if that information is in the public record.

But what an attorney should do is a completely different question than that of what an attorney is compelled to do.  The distinction between best practices and legal compulsion (a distinction lawyers should do a better job of appreciating, btw) is the critical thing to keep in mind in understanding why ABA opinion 480 is wrong.

Why? Because we attorneys don’t give up our First Amendment rights when we get licensed. And while these rights leave room for appropriate regulation of professional speech (even if the exact standard for such regulation remains undetermined), there’s little reason to believe that a blanket rule of the sort adopted by the opinion would pass Constitutional scrutiny.

In reaching its conclusion, the opinion stretches to find a way around Hunter v. Virginia State Bar, 744 S.E.2d 611 (Va. 2013), the Virginia Supreme Court case that dealt directly with a state bar arguing that its rules prevented lawyers from writing about matters of public record. To do so, the opinion states  “the Committee regards Hunter as limited to its facts.”

Well, that’s nice. But is that limiting distinction appropriate? Let’s go to the opinion in Hunter:

The VSB argues that it can prohibit an attorney from repeating truthful information made in a public judicial proceeding even though others can disseminate this information because an attorney repeating it could inhibit clients from freely communicating with their attorneys or because it would undermine public confidence in the legal profession. Such concerns, however, are unsupported by the evidence. To the extent that the information is aired in a public forum, privacy considerations must yield to First Amendment protections. In that respect, a lawyer is no more prohibited than any other citizen from reporting what transpired in the courtroom.

The ABA opinion seems to find it distinguishing that there was no evidence to support the Virginia Bar’s opinion. That’s true – there wasn’t.  But the implication of this isn’t that Hunter is an outlier. Rather, it’s that any attempt to punish an attorney for disclosing public record information would need to be supported by evidence.

What’s more, that evidence – and the particular application of Rule 1.6 to punish  an attorney for such disclosure – would most likely need to meet the bar for strict scrutiny. As the Hunter decision notes:

State action that punishes the publication of truthful information can rarely survive constitutional scrutiny.

Well, yes – this is a fundamental cornerstone of free speech law. While one can imagine scenarios where this hurdle could be met, they certainly aren’t going to be the norm.

I’m sure the drafters of Opinion 480 had their hearts in the right place, and were thinking of client protection. It’s an understandable impulse, and like I wrote at the outset, this is an area where attorneys should go far beyond what the Rules require. But we can’t turn a blind eye to the First Amendment – and read that “should” as a “must” – simply because we know what the best practice is.

The Feds Weigh in on Tikd

When the Supreme Court decided to grant cert in the North Carolina Dental Board case, many bar associations seemed concerned. Concerned enough to file an amicus brief, pointing out that a narrowing of the state action immunity doctrine could put their own self-regulatory activities at risk.

As we know, the Supreme Court went forward anyway, and the Bars ARE at risk. They interpret their rules in broad and overreaching ways. The industry claims a monopoly over any work that remotely looks “legal.” And, most fatally, the Bars are operated by groups of market participants – market participants who don’t always grasp that the purpose of regulation is to protect the public, not to preserve the incomes of lawyers.

Surprisingly, while some Bars have responded to North Carolina Dental by tightening up their processes, there’s been little examination of whether the potential for antitrust liability merits a meaningful re-look at how Bars carry out their regulatory activity. Most Bars haven’t even done the obvious stuff, which would start with disbanding ethics opinion-writing and advertising review committees. And there’s been even less action on the administrative rulemaking front, where most Bars continue to operate systems where rules changes must be voted on by market participants. Suffice it to say that is not a model for maximizing the consumer- and competition-protective aspects of the rules.

What explains this? My money would be on hubris.

From advertising (“legal services are different”) to sunshine laws (“lawyers are licensed by the judiciary, so you can’t FOIA their licensing records”) to monopolization (“if it remotely smells legal, it’s got to be done by a lawyer”), lawyer exceptionalism has been the order of the day. In the eyes of the Bar, the rules that apply to other, humdrum professions and services simply doesn’t apply to lawyers. The attitude, it seems, is that lawyer self-regulation means whatever the Bars want it to mean.

I know, I know: there are plenty of lawyers and Bar leaders who understand these problems, and are trying to do the right thing. But the inertial, institutional weight is piled powerfully in the opposite direction. And lacking the willingness to change from within, Bars may find themselves forced into change from without.

I’ve written about the antitrust lawsuit filed against the Florida Bar by Tikd, a company that helps people resolve traffic tickets. In response to that suit, the Bar has basically taken the position that North Carolina Dental doesn’t apply to it.

That’s almost certainly wrong. And you needn’t just take my word for it, as a rather influential party has just weighed in to opine on the wrongness of the Bar’s position. In a statement of interest filed in the case, the Department of Justice stepped in with a 14 page brief dismantling the theory of lawyer exceptionalism. As the DOJ notes, the Bars can’t just rely on their relationship to the judiciary to claim the state action immunity defense:

“TIKD challenges neither a Bar rule nor a state supreme court decision. TIKD alleges instead that the Bar improperly enforced its rules and abused its authority, and that its improper enforcement had anti-competitive effects.”

Uh-huh. It’s not really that complicated: unless disinterested state actors are actively supervising the Bar’s anticompetitive actions, the Bar – and its members on the committees in question – are exposed to potential antitrust liability. Now, I would HOPE that Bars would address this potential liability by being, you know, less anti-competitive (as opposed to just creating structures for greater state supervision). But in any event, the first step is acknowledging the problem. And on that front, the DOJ has just sent all lawyer regulators a powerful message.

Fake Bar Associations a Real Example of What’s Wrong With the Ad Rules

Hey, I’ve got an awesome plan:

  1. Create bogus Bar Associations
  2. Set up lawyer referral services under their names
  3. Get those services approved by the State Bar, and
  4. PROFIT! $$$$$!

So yeah, that’s basically what this attorney in Kentucky did.

Like many states, Kentucky has a Bar rule that allows for non-profit lawyer referral services. I’ve written before about the many, many issues with these rules. But one under-appreciated problem is how susceptible these rules are to abuse via creative compliance.

So basically:

  • You’ve got a rule that prohibits a form of marketing used without incident in all other industries – paid referrals.
  • That is, unless such paid referrals are provided via bar associations (never mind the unexplored assumption that there’s something about Bar associations that makes their referrals purer or less likely to mislead the public than any other referral services)
  • And, because the Rules are applied rigidly, some asshole who creates bogus bar associations gets his “bar association referral services” approved because they’ve, you know, got “Bar Association” in their names.

It’s moronic and embarrassing. This kind of garbage is obviously misleading, and yet the Bar’s own ostensibly-consumer-protecting, overly-detailed-and-prescriptive Rules are enabling this crap.

Yet more fodder for the argument that the best thing that could be done to the Rules is to strip them down to a simple “false and misleading” standard. With that, it might be easier for the powers-that-be at the Bars to see this kind of thing for what it really is.

 

Canadian Bar Cozies Up to Compelled Speech

Oh, Canada.

Not content with statements of principle in support of diversity – or even ethics rules, such as the hotly-contested-and-likely-unconstitutional ABA Model Rule 8.4(g) – Canada’s largest legal regulator has adopted a rule requiring that each of its members “create and abide by an individual Statement of Principles that acknowledges your obligation to promote equality, diversity and inclusion generally, and in your behaviour towards colleagues, employees, clients and the public.”

The Law Society of Ontario (nee “Law Society of Upper Canada”) offers templates that presumably provide a safe harbor for attorneys who adopt them. The first template reads:

As a licensee of the Law Society of Upper Canada, I stand by the following principles:
  • A recognition that the Law Society is committed to Inclusive legal workplaces in Ontario, a reduction of barriers created by racism, unconscious bias and discrimination and better representation of Indigenous and racialized licensees in the legal professions in all legal workplaces and at all levels of seniority;
  • My special responsibility as a member of the legal profession to protect the dignity of all individuals, and to respect human rights laws in force in Ontario;
  • A commitment to advance reconciliation, acknowledging that we are collectively responsible to support improved relationships between Indigenous and non-Indigenous peoples in Ontario and Canada; and,
  • An acknowledgement of my obligation to promote equality, diversity and inclusion generally and in my behaviour towards colleagues, employees, clients and the public.

These all sound like perfectly fine principles. But there’s a big difference between principles and mandates – and that’s particularly true when when those mandates are dictating what people are supposed to say and believe.

And it doesn’t matter whether or not I agree with the subject of the mandate. It’s the compulsion that repels; a heavy-handed presumption that requiring something can make it so. We also know that principles driven into mandate encourage the worst sort of nose-counting rigidity. One needn’t look far online to see calls for fairness, equal dignity, and respect turn into demands for quotas and other specific outcomes.

It’s fine if the Law Society wants to elevate and bring attention to these goals. It’s fine if it wants to invest toward realizing them. And it’s fine if it wants to persuade its members that these are worthy goals, and that members should take active steps toward their realization. But when persuasion and aspiration turn into compelled, dogmatic recitation, the regulators of the Bar have surely lost their way.

An Opening for Ad Rule Changes?

At last weekend’s clutch of lawyer meetings in Vancouver – the ABA midyear, NOBC, APRL, etc – I had numerous discussions about the attorney advertising rules, how they represent an obstacle for consumers and lawyers alike, and the potential for change to the rules.

A few consistent themes:

  • We’re past the point of incremental change.
  • Nobody can provide a defense for the continued existence of ABA Model Rule 7.2.
  • An increasing number of states are no longer looking to the ABA for guidance, and are setting their own course in revising their rules.

This may explain why the only voices in opposition to the ABA’s proposed changes to the advertising rules were those calling for more sweeping change:

In closing Gillers asked the about 50 attendees how many support even less restrictive rules than the working draft proposes. Overwhelmingly, a show of hands suggested more changes would be preferred.

I’ve long suggested that there is far more the ABA could do here to protect the public while radically freeing up the advertising rules. Perhaps the weight of informed opinion has finally swung over to this view.

What’s “Reasonable?”

Let’s talk about the worst part of the most unnecessary (and harmful) rule in the ABA’s Model Rules of Professional Conduct: subsection (b)(1) of Rule 7.2.

What, you may ask is subsection (b)(1) of Rule 7.2?

It’s the begrudging caveat, added after Bates v. Arizona found that consumers and attorneys have a First Amendment right in attorney advertising, that attorneys can, in fact, advertise:

“(b) A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may

(1) pay the reasonable costs of advertisements or communications permitted by this Rule;”

Why the powers-that-be didn’t just get rid of this rule entirely, I will never know – except that attorneys DO love their rules. And let’s face it: both expeditiousness and caution are going to cause us lawyers to gravitate toward incremental carveouts rather than bold rule changes.

But 40+ years post-Bates, these weasel words continue to do their damage, as attorneys and bar regulators agonize over whether a given payment for advertising is “reasonable.”

This, despite the fact that there is no class of professionals less qualified than attorneys to opine intelligently about the reasonableness of business marketing expenses. And despite the fact that it’s a vacant and empty exercise to begin with, as any “unreasonable” charges for marketing will be quickly squashed out by market forces.

But it gets worse.

For in their examination of this issue, virtually all attorneys and ethics committees make the same error out of the gate, assuming that all advertising should cost the same because all costs are the same. They know this because they’ve bought yellow pages or magazine ads, and hey, all paper and ink costs the same, right?

Not only does this logic not apply in the online world – where the cost inputs to providing advertising across different services or practice areas CAN actually vary widely – more importantly, it makes a fundamental error in assuming that the cost of advertising can only be reasonable in relation to the cost it takes to produce and serve such advertising. It’s understandable that attorneys would hold such a narrow view – we are, after all, accustomed to selling our services simply on a markup to our cost – but it is surely NOT the only, or even the best, way to determine whether the cost of advertising is “reasonable.”

Why? Because an attorney who is buying advertising doesn’t care what the costs of providing that advertising are. They don’t care what size of margin is being gleaned. That information is completely irrelevant to them. What they DO care about is the return on investment they get from that advertising. They care about the business they get, and the price they are charged to generate that business. That’s all.

This comes back to a deceptively simple concept that most businesses (except, apparently, lawyers and law firms) have to grapple with: how to price their services. The two primary means are cost-based and value-based pricing. But while it’s important that pricing ultimately cover costs, the more sophisticated and client-focused approach is to look at the value you are driving and price based on that (this hackneyed old anecdote is a useful illustration of the primacy of value over cost-based pricing).

What’s “reasonable?” It’s what someone’s willing to pay, based on the perception of the value delivered. That customer-centric perspective should be the beginning – and end – of any evaluation of the “reasonableness” of charges for attorney advertising.

Social Media + The Law of Legal Marketing