PoL invited “Truth on the Market bloggers” to tackle this one. How could we resist?
It seems that while the NC bar is apparently unfazed by 40% contingency fees, they’re right on the case when it comes to a law firm offering consumers a discount on services through Groupon. According to the ABAJ:
[T]he Law Offices of Craig S. Redler & Associates in St. Louis, offered to provide a will and durable power of attorney for $99. Groupon gets paid a percentage of the amount earned by the advertiser, and that’s the issue that will be considered by the North Carolina ethics subcommittee. A proposed opinion written by committee staffers opines that the arrangement amounts to impermissible fee-sharing with a nonlawyer, according to an Oyez column by North Carolina Lawyers Weekly. * * *Redler says the firm lost money when clients got the $99 will and power of attorney. But the ad brought calls from a lot of new clients, most of whom sought additional legal services. From that standpoint, he says, the Groupon worked well.
Law practice commentator Carolyn Elefant, quoted in the ABAJ article, notes:
Though to date, North Carolina is the only disciplinary body that has expressly addressed Groupon, others have ruled on the ethics of other types of discounted services. A number of state disciplinary bodies don’t approve of the practice, finding that discounts may be deceptive (for example, offering a “free” consult when a lawyer never charges for consults anyway), or can give rise to a conflict of interest or constitute a “fee” in exchange for referral if given to a third party, like a realtor, for distribution.
Well, it’s obvious that Groupons or similar devices will divert lawyers from their usual straight and narrow by leading them into all sorts of nefarious practices. After all, what could be more unethical than lawyers reducing prices?
But lawyers better get ready. Bruce Kobayashi and I discuss even more basic threats to their high-priced business model rumbling down the track.
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From an economic perspective, banning a practice that will often, if not generally, have pro-competitive consequences (discounting!) on the grounds that it might sometimes involve deception is a dubious proposition. It is one that the FTC, for example, has fought in its policy advocacy positions with state bar associations and others considering ethical rules that would similarly chill discounting. If deception were truly the concern, one would imagine a disclosure regime would suffice. However, as Larry points out, nobody really believes that the motivation of this rule is protecting consumers, right???
Carolyn,
I don’t know how large Groupon’s cut is, but whatever it is, why is that any different than the advertising fee a lawyer would be charged by the local newspaper, Yellow Pages, or door mail company for printing and distributing the same coupon via more traditional means? Either way, the lawyer is paying out part of the discounted fee. In the Groupon case, however, the lawyer is only charged for the advertising that is successful, if I understand it correctly. Thus, no wasted money on coupons that are never redeemed.
Prof R: do you recall the opening scenes from the old Paul Newman movie, “Young Philadelphians”?
Carolyn
Thanks for your comment. I agree it might be a loser for the lawyer. But that’s really separate from whether it should be regulated. Markets make mistakes, but that’s how they learn. Actually it seems like it worked out ok for the lawyers (they got new business) and the clients got a lower price.
Usually, I have a similar reaction to ethics decisions. The only reason why the Groupon one didn’t aggravate me that much is that it’s an economic loser from the lawyers’ perspective (even for lawyers who want to offer cheap rates). The lawyer has to review the file, determine if the $99 will is appropriate, draw it up and get it drafted & notarized. If the lawyer believes that a trust is a better solution (and let’s assume that it really is), he’s going to appear as if he’s pulling a bait and switch by offering a more expensive product. Yet if the will is inappropriate, the lawyer risks malpractice by offering it.
The studies that I cited in my piece show that Groupon works best for companies with excess capacity – like a restaurant that is half filled – the marginal cost of serving 2 extra meals is minimal since the restaurant is still paying the servers, the waiters, etc…A solo may not have this excess capacity and further, there are opportunity costs as the solo could use the time spent on the $99 wills to drum up more lucrative business.
I do, however, disagree with the bar decisions that don’t allow lawyers to give out coupons. There, the lawyer has more control plus, they don’t have to pay a big chunk of the discounted fee to Groupon.