Thursday, March 8, 2012

Lawyer Referral Services, good or bad?

I practice in a small firm. I like that, and I choose to be here. I have had chances to go to "biglaw," (the commonly used term for big-city, big-dollar and big-number of attorney lawfirms)  but I chose then and will continue to  stay in "smalllaw" because I have not found a good enough reason($) to deal with all that comes with the aforementioned "biglaw."

However, there are trade-offs for everything. Here in smalllaw land, new clients are generated by word of mouth, family, and friends. And google. And And a host of companies who, for the low fee of $500/month, promise to get YOUR name out there. All well and good.

Upon review of one nationally prominent unnamed legal referral service, I saw that my firm was paying an average of $400/month for one specific listing on a website. It generated, on average, 2 calls to the firm per month over the past 18 months. These calls led to the grand total 0 clients. Not a tough decision here to cut that expense.

The harsh reality is that in today's world, you still generally have to advertise. I wish lawyer ads were illegal, but anyone who has driven in a major city or sat at a bus stop will tell you that is not the case. The old adage used to be the lawyer on the back of the phone book got 80% of the calls. The next guy got 18%, then everyone else split up the scraps. The same is generally true of google and other search engines today. But, to be that guy, you have to pay. If there are results, great. It is a worthwhile investment. If not...

I've long wanted to start my own lawyer referral website, thinking I could just sit back and watch the advertising dollars add up. Turns out this requires a lot of work, so it is not in place yet. Until then, I am always looking for ways to generate new clients, without paying $400/month.

Enter today. While flipping through my February edition of the "Texas Bar Journal," the publication of the entity that I paid to give me a test so I could be a lawyer, then pay annually to stay a lawyer, then pay to teach me  "continuing legal education" courses that they also require to stay a lawyer, I see a page that looks like this:

Oh great, another one. But I read on. This service is sponsored by the State Bar of Texas. Interesting:  the club I joined, that should be advocating for me, that I pay to belong to. The article talks about how they can refer new clients, build your practice, etc. All good. Then the part hits me: $125/ year in fees, and if you get a case that generates more than $500, 10% goes back to the lawyer referral service. I'm sorry, what?

A referral fee that goes back to not just the "referral service," but the State Bar of Texas? Is that legal? So I did some checking.

Rule 703(b) of the Texas Disciplinary Rules of Professional Conduct requires:

(b) A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed
to practice law for soliciting prospective clients for, or referring clients or prospective clients to,
any lawyer or firm, except that a lawyer may pay reasonable fees for advertising and public
relations services rendered in accordance with this Rule and may pay the usual charges of a
lawyer referral service that meets the requirements of Occupational Code Title 5, Subtitle B,
Chapter 952. Full text available

Makes the above sound fishy, right? Referral fees are, subject to a few requirements, very legal and ok. They allow a lawyer who is over their head to get some help, share the love, and still get paid. All good things. However, I was always under the impression referral fees to a non-attorney were very not ok. Is that not what is going on here? And by the STATE BAR of TEXAS, who enforces and makes those same rules?

I also checked the Occupational Code, Chapter 952. See it here. Guess what it says?

(a) The state bar shall adopt reasonable rules subject to the approval of the supreme court to administer this chapter.
(b) The state bar may enforce this chapter and the rules adopted under this chapter.

 Seems like The State Bar has this one covered from both ends. The state bar sets the rules, fees, and guidelines. The pertinent rules are:

Sec. 952.151. NOTICE REQUIREMENT. (a) A lawyer referral service shall include the following statement in any advertising or other promotional effort: "This service is certified as a lawyer referral service as required by the State of Texas under Chapter 952, Occupations Code."

I don't see that anywhere on this ad.

Sec. 952.152. LAWYER PARTICIPATION. A lawyer who is licensed and in good standing in this state and who maintains an office in the geographical area served by a lawyer referral service may receive referrals of potential clients from the service if the lawyer:
(1) complies with Section 952.155; and
(2) pays a reasonable registration and membership fee not to exceed the amount set by state bar rules.

If I hit a million dollar case, is $100k reasonable? Guess who decides? The state bar.

Sec. 952.155. LIMITATIONS ON CLIENT FEES. (a) A lawyer may not charge a potential client referred to the lawyer by a referral service an amount that exceeds the total cost the client would have been required to pay, including legal fees and expenses, if a referral service had not referred the client.
(b) The combined amounts of any fee charged to a potential client by the lawyer or the referral service may not exceed $20 for the first 30 minutes of the initial office visit with the lawyer.
(c) An agreement between a lawyer and a referral service to eliminate or restrict the fee for the first 30 minutes of an initial office visit with the lawyer does not violate any statute or rule, including Chapter 15, Business & Commerce Code.
(d) A fee charged under Subsection (b) may be used only to pay:
(1) the reasonable operating expenses of the referral service; or
(2) the expenses of a public service program, including a pro bono publico legal program.

This all seems fine, but they way I read B and D, is that fees that fund this program are the $20 pops. That's it. No mention of a percent recovery and the purpose of those funds anywhere.

The more I look, the more of these type outfits there are out there. There are many, nationwide. Most that I have seen thus far have the deal where you pay to join,  you pay $20 for the consult,  and that's it. No kickback referral fee. However, some others require a percentage fee. Wisconsin has one. The City of Houston has one too, but they claim to be a non-profit. They take 15%.

The ABA has actually issued rules on referral services, which can be found here.

The one that I'm interested in is this one:

Rule IX

-- A qualified service may, in addition to any referral fee, charge a fee calculated as a percentage of legal fees earned by any lawyer panelist to whom the service has referred a matter. The income from any such percentage fee shall be used only to pay the reasonable operating expenses of the service and to fund public service activities of the service or its sponsoring organization, including the delivery of pro bono legal services.

Maybe Texas decided it was ok. However, I cannot find a rule that says it is, and Sec. 952.155 of the Occupational code seems to say otherwise, even though the Bar regulates both.  Maybe the 10% percent fee goes to legal aid, or some other good cause. But I cannot find a place that says where the money goes.  The ABA also has a list of lawyer referral services in Texas, or LRIS services, here. Some have the ABA seal of approval. The Texas State Bar LRIS program does not. I wonder why?

I am sure (really, I just hope) that there is a great, clear, explanation for this that I have totally missed. I am sure (really, I just hope) that there is some fine print I missed. I am sure (really, I just hope) that my State Bar, the group I swore allegiance to, is not trying to squeeze more money out of me and my fellow attorneys in what are tough economic times by deceptive means.

This thing has been around since 1972. I can't be the first person to ask these questions.

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