Ethical Issue: Document Usage Fees

Q. What if the law firm is charged a fee per document used (a usage fee), but the document usage fee is unrelated to the fee charged by the law firm to its clients?

A. This question addresses the issue about a fee structure of a company that provides online document assembly to lawyers -- who then use that service as part of the legal services provided to their clients -- where the lawyers pay the company a set monthly fee plus a “per use” cost for the use of the document assembly services.

The primary question is whether this arrangement creates a division of fees between the lawyer and the service provider. The division of fees is governed at three places in the state rules of professional conduct. Model Rule 1.5(e) and its state counter-parts set out the circumstances where lawyers who are not otherwise affiliated may divide fees. It is not relevant to this analysis. Model Rule 7.2(b) prohibits a lawyer from receiving anything of value for the recommendation of the lawyer’s services, except for the reasonable costs of advertising and the usual expenses of certain lawyer referral services. This rule is also not relevant to this analysis.

Model Rule 5.4 is entitled the “Professional Independence of the Lawyer” and prohibits a lawyer from sharing legal fees with a non-lawyer, which would include a general corporation, except for certain exceptions that do not apply to the issue examined here. Therefore the question is whether the arrangement of a “per use” cost is the impermissible sharing of legal fees with a non-lawyer.

The cases and opinions on Rule 5.4 are divided into three types. First, there are those that address circumstances that involve referral services, such as an arrangement where a lawyer pays a percentage of the fee for each case that is referred to the lawyer. These do not apply.

The second arrangement involves the circumstance where there is an agency relationship between the lawyer and the service provider. One group of cases involves the lawyer’s use of investigators and consultants, where the agent’s compensation is based on a percentage of the fee from a particular matter. This situation is impermissible, but inapplicable to this analysis. In a second group of cases, the lawyer acts as an agent of the service provider. For example, in Michigan Opinion RI 325, a company sold estate planning kits and used the law firm to complete the paperwork from information the corporation had collected from its customers. The law firm then collected the fees from the company. Essentially, this is the opposite arrangement from that considered here, where the lawyer is the one with the client and merely uses the document preparation service to meet the client’s needs, not unlike a lawyer who buys blank forms from a business supply company.

The third arrangement involves payments that are based on fees but that do not pose a threat to the independence of the lawyer’s judgment. In these circumstances, there is a technical division of fees with a non-lawyer, but that division has no ability to threaten the lawyer’s fidelity to his or her client. These cases involve the payments made to a temporary agency when a lawyer uses the services of a temporary lawyer or other staff. Typically, the agency bills a fee, pays the temporary service provider a portion and retains the remainder as its service fee. Another circumstance involves the use of credit cards, where the lawyer receives payment of fees from the client on a card. The payment is divided with the lawyer’s bank as part of the lawyer’s merchant account agreement with the bank. This is usually two to five percent of the amount billed to the credit card, depending on the arrangement. This is much like a “per use” purchase of services. In this case, it is a “per use” of banking services to facilitate the payment of the client’s fees. In both of these situations, the lawyer’s dedication to the client is not compromised in any way.

Based on these authorities, if a lawyer were to provide document preparation services to customers of a service provider as its agent and were compensated according to the customers served, it is probable that the arrangement would be deemed in a violation of Rule 5.4 in most states. However, when the lawyer merely purchases the document preparation services from the service provider in order to enable his or her clients to complete the forms, which the lawyer then reviews, the lawyer is not an agent of the service provider and the circumstance does not impair the lawyer’s fidelity to the client and his or her independence of judgment, even when the arrangement is on a “per use” basis. Therefore, it would be highly likely that a state would conclude this arrangement was a violation of Rule 5.4 or any other provision governing the division of fees.