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The Regulation of Lawyer Referral Services: a Preliminary State-By-State Review

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The Regulation of Lawyer Referral Services: a Preliminary State-By-State Review THE REGULATION OF LAWYER REFERRAL SERVICES: A PRELIMINARY STATE-BY-STATE REVIEW Prepared by the American Bar Association Standing Committee on Lawyer Referral and Information Service I. Overview Lawyer Referral Service (LRS) programs across the country provide an efficient mechanism for providing attorneys with direct referrals of potential clients, while also providing access to legal services to typically middle-class Americans who may otherwise lack the knowledge or information necessary to independently seek out counsel. Every state has developed regulatory schemes defining these programs and the parameters for attorney involvement, and in some cases even dictating the operation of LRS programs themselves. A review of the LRS rules in all fifty states undertaken by the ABA Standing Committee on Lawyer Referral and Information Service reveals a broad continuum of regulation of LRS programs across the country. This report summarizes the preliminary findings of this review, with further research ongoing. II. Analysis of State LRS Regulatory Schemes There is a wide variation among the states in the manner in which LRS programs are regulated. The predominant approach involves defining the conditions under which lawyers may participate in LRS programs through court rule; specifically, rules of professional conduct. But there are also states that have court rules defining how LRS programs are to be operated (including two states that engage in regulation via statute in addition to court rule), and the applicability of LRS regulatory approaches are controlled, in part, on how states define “lawyer referral service,” and these definitions often vary. A. The Basis and Focus of LRS Regulation The approaches undertaken by the states in regulating LRS programs may be easily divided into two distinct areas of focus: a focus on regulation of attorney participation in LRS programs, and a focus on regulation of LRS programs themselves. The significant majority of states focus solely on regulating attorney participation in LRS programs. These states, on the whole, accomplish this through their rules of professional conduct—specifically through their adoption of some form of the ABA Model Rule of Professional Conduct 7.2, which sets forth the conditions under which a lawyer may “give anything of value” for the recommendation of the lawyer’s services. Though this rule generally encompasses attorneys’ payment for types of traditional advertising, it also provides attorneys the ability to pay to participate in LRS programs, which will recommend the attorney’s services to prospective clients. The pertinent language in the Model Rule authorizes attorneys to “pay the usual charges of . a not-for-profit or qualified lawyer referral service.” The rule further defines the term “qualified lawyer referral service” as “a lawyer referral service that has been approved by an appropriate 1 regulatory authority.” The wording of the rule presumes that attorneys may always participate in a not-for-profit LRS, but that a state could also potentially allow attorneys to participate in a for- profit LRS if such were approved by the appropriate regulatory authority.1 In reviewing the LRS regulations of all fifty states, the ABA has determined that at least twenty- six states have adopted either a form of Model Rule 7.2 or some other rule that authorizes attorneys to participate in only not-for-profit LRS programs. This restriction is imposed either by the plain language of the rule itself or through some other interpretive analysis, such as an ethics opinion. All of the state rules are set forth in section D below. Regardless of whether this restriction is imposed, the majority of states regulate LRS programs solely through enforcement directed toward attorney compliance with the rule by a state’s disciplinary authority. Only a few states—California, Florida, Missouri, Ohio, Tennessee, Texas, and Wyoming—have gone beyond merely regulating attorney participation in LRS programs by also promulgating regulations setting forth requirements and duties of LRS programs themselves. The degree to which any of these states’ regulations control the structure, operation, supervision, and fee schedules for LRS programs operating in these states vary widely. Citations to these specific rules are also found in section D below. In short, the predominant approach taken by the states in regard to LRS programs has been to authorize attorneys to pay to participate in not-for-profit lawyer referral programs (and in some instances, for-profit programs), with only a few states taking further steps to regulate how these programs actually function. B. Legislative vs. Court Rule Approach Every state has court rules referencing LRS programs, whether by focusing solely on attorney participation or by also considering the operation of the LRS programs themselves. Only California and Texas have passed both court rules and statutory provisions addressing LRS programs. California Business & Professions Code § 6155 sets forth the conditions under which a lawyer referral service may operate in the state, but it is the “Rules and Regulations of the State Bar of California Pertaining to Lawyer Referral Services Including Minimum Standards for a Lawyer Referral Service in California” adopted by the California Supreme Court that expand upon the statutory text and provide for enforcement of the Business & Professions Code section. In Texas, attorney participation in LRS programs is governed by that Texas rules of professional conduct, while LRS programs themselves are regulated by Texas Occupations Code § 952, the “Texas Lawyer Referral Service Quality Assurance Act.” The State Bar of California has recently undertaken a revision of the aforementioned rule, with final approval by the California Supreme Court still pending. The Bar’s approach to revision was to produce a final rule that still remains substantively consistent with the existing statutory text in order to avoid a parallel legislative amendment process. Thus, the State Bar is not necessarily 1 Prior to its amendment in 2002, MRPC 7.2 stated that an attorney “may pay the usual charges of a not-for-profit lawyer referral service or other legal service organization.” The “legal service organization” language was removed in favor of “qualified lawyer referral service,” though a number of states still use the pre-2002 formulation of the rule. 2 constrained by the statute and has flexibility to amend the court rule as necessary, so long as the amendments do not create conflict between the rule and statute. C. Defining “Lawyer Referral Service” Key to understanding the approaches taken in the states to regulate lawyer referral services is the means by which states define what constitutes a “lawyer referral service.” A review of the states, however, reveals no universal definition.2 As noted above, the majority of states have adopted some form of Model Rule 7.2, and the language of the rule itself does not define lawyer referral services. Commentary to the rule, however, does provide a limited definition, and most states have adopted the commentary either verbatim or with slight variations.3 The model comment provides: A lawyer referral service . is any organization that holds itself out to the public as a lawyer referral service. Such referral services are understood by laypersons to be consumer-oriented organizations that provide unbiased referrals to lawyers with appropriate experience in the subject matter of the representation and afford other client protections, such as complaint procedures or malpractice insurance requirements. Those states that have adopted rules specifically regulating LRS programs have defined these programs with greater specificity, though these definitions vary from state to state.4 In California: “Lawyer Referral Service” means an individual, partnership, corporation, association, or any other entity, or a service or agency of an entity, which operates for the direct or indirect purpose of referring potential clients to lawyers, whether or not the term “referral service” is used. In Florida: A "lawyer referral service" is: (1) any person, group of persons, association, organization, or entity that receives any consideration, monetary or otherwise, given in exchange for referring or causing the direct or indirect referral of a potential client to a lawyer selected from a specific group or panel of lawyers; or 2 In fact, the American Bar Association's Model Supreme Court Rules Governing Lawyer Referral Services and Model Lawyer Referral and Information Service Quality Assurance Act do not provide a specific definition, instead providing descriptive guidance as to what a “lawyer referral service” is by articulating the functions of such services. 3 Variation on the commentary is most often the product of a state removing “qualified lawyer referral service” language from its rule, thereby limiting attorney participation solely to not-for-profit lawyer referral programs. 4 Ohio does not specifically define LRS programs in its rule, instead setting forth a list of requirements for a program holding itself out as an LRS in that state. Wyoming’s rule explicitly authorizes the operation of only one LRS in the state, to be run by the state bar, so a broad definition of LRS programs is not included in its rule. 3 (2) any group or pooled advertising program operated by any person, group of persons, association, organization, or entity wherein the legal services advertisements utilize a common telephone number and potential
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