State Bar tells attorneys it is investigating their dealings with lawyer referral service it has just approved

Even as it investigates attorneys for possible fee-splitting when they used the client-connection website LegalMatch, the State Bar approved the company's application to become a lawyer referral service effective Sept. 11.

Ellen A. Pansky of Pansky Markle Attorneys at Law represents attorneys who have received investigation letters from the bar.

"Responses have been submitted on behalf of the individuals contacted by the bar," Pansky said Friday. "But the bar has not yet responded. So it's at this point unclear how the bar intends to proceed."

On Thursday, the bar informed LegalMatch that it would approve its application after a months-long effort to get a court order to shut it down.

The issue started when the 1st District Court of Appeal last year deemed LegalMatch to be a lawyer referral service, rather than an advertiser, requiring that it register with the bar under California Business and Professions Code Section 6155. Jackson v. LegalMatch.com, 2019 DJDAR 11045, (Cal. App. 1st Dist., Nov. 26, 2019).

In May, Superior Court Judge Ethan P. Schulman in San Francisco denied the bar's emergency junction request to close down LegalMatch. The bar's counsel misled the court by not disclosing it had the company's application for registration for months without taking action on it, Schulman said. State Bar of California v. LegalMatch.com, CGC-20-584278, (San Francisco Super. Ct., May 4, 2020).

The company also filed a cross-complaint against the bar on Aug. 10, saying the Business and Professions Code's declaration of what constitutes a lawyer referral service is "an unlawful infringement of the right to freedom of speech as guaranteed by the United States and California constitutions."

The bar denied LegalMatch's application to register on June 23, saying it contained several deficiencies such as a determination its attorney panel members' were competent and had malpractice insurance.

According to attorneys who spoke to the Daily Journal, lawyers who have used LegalMatch to get in touch with clients started receiving cease and desist letters after the bar's denial.

Jonathan R. Preston has used LegalMatch for almost three years to find clients. He received a cease and desist letter on July 2, saying he couldn't accept client referrals from the website until LegalMatch registered as a lawyer referral service.

Preston said he was unaware of the issue until the appellate court's decision. He considered LegalMatch just another advertising opportunity similar to Avvo, a website which also connects clients with lawyers.

"I do think that if LegalMatch is guilty of this, so are the other companies with similar business models," Preston said. "Eventually, the bar is going to have to say that clients that post legal matters on websites expecting a phone call -- basically, those websites will have to be turned down for California."

But the bar did not stop at the cease and desist letters. It started to notify attorneys in late July that it was investigating them for possible illegal fee-splitting in connection to their use of LegalMatch.

The bar said it could not confirm whether such investigations are underway because of confidentiality reasons, but some attorneys confirmed to the Daily Journal they had received or seen them.

The bar's letter denying the company's application stated that a lawyer "may not share fees with a nonlawyer or with an organization that is not authorized to practice law, except a lawyer may pay a fee to an LRS 'operated in accordance with the State Bar of California's Minimum Standards for Lawyer Referral Services...'"

Carl I.S. Mueller, attorney at The Maloney Firm APC, said he had seen one of the investigation letters that the bar sent out.

According to Mueller, the bar is investigating attorneys for using a non-certified lawyer referral service and allegedly participating in improper fee-splitting with nonlawyers.

"It's unclear to me why they're pursuing the legal fees split," Mueller said. "It seems to me very clear that LegalMatch is a subscription model and no fees paid by the client are split between LegalMatch and the attorney. I've seen nothing in any case filing that alleges that that has occurred."

While potential clients do not have to pay a fee, LegalMatch charges a monthly subscription fee to lawyers. But there's no guarantee that a client will end up hiring a lawyer, according to Pansky.

Erin M. Joyce of Erin Joyce Law said the bar's recent actions are contradictory.

"I think this is really making the State Bar look like it's going in two directions at the same time," Joyce said. "They're galloping full speed ahead to allow nonlawyers to practice law, galloping full speed ahead to change the rules of professional conduct, and then on the back end, from a different office, trying to stop what certainly would be approved under the 'sandbox,' which is the online platforms to help match clients with potential attorneys."

LegalMatch had operated in California for 20 years before the issues came up. But according to Kevin Mohr, a professor at Western State College of Law at Westcliff University, that doesn't necessarily make their business model appropriate according to the law.

Mohr hasn't seen the investigation letters, but asked to give his opinion, he agreed with the Court of Appeal's reading of the law, saying Rules of Professional Conduct 5.4 prohibit illegal fee-splitting.

"If LegalMatch is not a qualified legal referral service, which is precisely what the appellate court found back in November, and the Supreme Court appears to have signed off on that when they denied review of the case, then it's not a qualified legal referral service and to pay them for referrals is a violation of Rule 5.4," Mohr said.

Ethics lawyer David C. Carr has seen one of the investigation letters the bar sent. His view is that the bar's mandate to investigate lawyer referral services under the Business and Professions Code is clear.

People could argue that the law is antiquated and too restrictive, he said, "but I don't think we could fault the bar for investigating potential violations of rules that exist. Now, the viewpoint of some people may be informed by the fact that these rules have been around for a long time. And the bar has never sought to enforce them against lawyers since 1997."

Carr, who worked at the bar in the 1990s, said he was the last lawyer to prosecute someone for violating the rules. The reason there haven't been any discipline matters under the rules since then is because no one has complained, said Carr.

"The only people that complain about the lawyer referral services are other lawyers," Carr said, "because they see them as being unfair competition ... because they're operating without meeting any of the requirements of the lawyer referral service rules."

Pansky said the bar has the right to investigate, but does not understand under what assertion attorneys have been involved in illegal fee-splitting. "It's my understanding that after a case is resolved, there's no additional or supplemental compensation or remuneration that goes back to LegalMatch," Pansky said. "I am perplexed as to why the State Bar has asserted that the payment of a marketing or advertising or licensing or subscriber fee to a marketing service is indicative of any fee split."