When is the cost of advertising reasonable?
A recent article in the ABA Journal discusses the use of what it calls "deal-of-the-day" coupons, in other words, the GroupOn model, as a method of client development. The article looks at aspects of three state ethics opinions that all come to the conclusion that with certain precautions the model is acceptable. Since the article was written, a fourth state has come to the opposite conclusion.
The issues examined by the ethics opinions and noted in the article include fee-splitting and misleading communications. However, one of those commenting on this article added another perspectice, which I had not thought of -- that is whether the cost of the "split" is a "reasonable cost."
ABA Model Rule 7.2(b) and its state counterparts prohibit a lawyer from giving anything of value for the recommendation of the lawyer's services. One of the exceptions to this prohibition is the "reaonable costs of advertisements." In other words, a lawyer may pay the "reaonable costs" of advertisements. But here's the problem -- In a system where the lawyer must assume the risk of ROI, how do we measure a reasonable cost.
In the 1990s, the ABA conducted a study of the Yellow Pages. It found that about 20% of lawyers brought in less fees than the cost of their ads and an additional 10% only broke even. Nearly a third of the lawyers with Yellow Pages ads did not make any profit from them. So, was the cost of the advertisements reasonable to them? What about for lawyers who spent 90 cents to make a dollar, or 50 cents? Where does it become reasonable and how is it possible to determine reasonableness prospectively?
The problem is that the rule presumes a lawyer will know the rate of return and be able to avoid excessive costs, when a lawyer has no ability to predict this. On the other hand, the deal-of-the-day model enable the lawyer to know the rate of return going into the deal, which, as I understand it, is as high as a 50-50 split.
So, is it possible that Rule 7.2(b) actually says that it is permissible for a lawyer to buy ad space in a directory where the lawyer ultimately gets no return (or looses money), but it is impermissible for that lawyer to enter into a deal-of-the-day agreement where the lawyer gets half of the fees that are generated from the advertisement? That doesn't sound reaonable at all.