FTC signs off on Net legal referrals

Cites competition, cost in Texas case.

Pamela A. MacLean/Staff reporter
June 16, 2006

Although it may not be a match made in heaven, Internet legal referral services that promise to match lawyers with potential clients have found a powerful new admirer-the Federal Trade Commission.

In a recent letter to the State Bar of Texas, the FTC planning and policy chief, Maureen Ohlhausen, said that the Internet-based client/attorney matching services "have the potential to lower consumer costs of obtaining information about the price and quality of legal services, which is likely to lead to more intense competition among attorneys, ultimately benefiting Texas consumers."

There has been a long simmering debate in state bars around the country since the advent of these services in 1999 about whether they violate ethical rules on advertising and the bans on nonlawyer referrals for legal help.

The Arizona and Washington state bars issued ethics opinions last year foreclosing use of the services, saying that lawyers may not pay to participate in for-profit Internet matching services. Meanwhile, Rhode Island approved the online matching in 2004 as a boon to consumers, quickly joined by North Carolina, South Carolina and Utah.

The FTC letter "is a powerful endorsement of the industry," said Anna Ostrovsky, general counsel for San Francisco-based LegalMatch.

Legal matching services generally charge lawyers to sign up. Consumers seeking legal help with divorces, wills, child custody and trademark issues help describe their needs and locations online. The service sends this to lawyers in the same region and interested attorneys respond-something like a dating service-with their qualifications and rates, allowing clients to shop for the right match.

Most states have been sitting on their hands. The nation's largest state bars, California and New York, remain mum on the topic, but have ethics committees pondering it.

Texas may be the key.

LegalMatch asked Texas to clarify whether the service violates Texas Ethical Rule 7.03, which prohibits state lawyers from paying a nonlawyer to solicit or refer prospective clients. In August 2005, the Texas bar's ethical opinion, No. 561, indicated that lawyers may not pay to be listed on a privately sponsored Internet site that gathers information about potential clients. But it was not clear whether it covered all of the online matching services.

In response, the FTC letter states, "online legal matching services are likely to make it less expensive for consumers to evaluate providers of legal services. The information sent to inquiring clients is likely to allow consumers to compare the price and quality among several competing attorneys more cheaply than other methods of comparison."

Ohlhausen concluded: "The burden should rest on the proponents of a restriction on competition to show that it is necessary to prevent significant consumer harm and that it is narrowly drawn to minimize its anticompetitive impact."

Austin attorney W. John Glancy, chairman of the Texas bar's Professional Ethics Committee, said that he could not disclose how the panel is leaning, when it might make a decision or who besides the FTC has submitted comments.

"It has been complete limbo for us for seven years," Ostrovsky said. "That's why we are so excited about [the FTC letter]. We asked the FTC to intervene six months ago to offer third-party guidance," she said.

Ostrovsky said that state bar rules on advertising were written before the Internet and many states have been slow to change. The ethics opinions "only add to the confusion" for lawyers, she said.

"California has not done anything either positive or negative, they simply ignored the issue," Ostrovsky said. "New York is in the same situation."

While some states take no formal position, they create confusion among lawyers who call ethics hotlines and are told they can't participate, she said.

Dennis Maio, a lawyer with the San Francisco office of Reed Smith and a member of the State Bar of California ethics committee, said, "I think the issue has been brooded about a bit." But he said the panel has not taken a position.

He described concerns that arise in considering a potential client who writes a 2,000-word email about needing a divorce only to have the lawyer representing the client's spouse receive the Internet solicitation. "Now there is no confidentiality and the lawyer is obligated to use it against her," he said.

James Cooper, FTC deputy director of policy planning, said the key is whether the services are really a referral. "When you go to the state bar for a referral you get the next person on the Rolodex," he said. "[With the Internet service] you get five or six offers. It is a different model and has the potential to offer benefits to consumers."

LegalMatch, one of at least four providing the services, has found it hard to keep up with the growing consumer demand. Ostrovsky said that there are thousands of lawyers participating in their system and tens of thousands of cases coming in each month from people looking for help.

The New York state bar is reviewing, but has not resolved, the matching-service issue, a spokesman said. Among new restrictions on attorney advertising proposed by New York's appellate courts is updating all manner of attorney advertising online.