Lawyers seek updated rules after bar drops probes into LegalMatch

Lawyers are calling for an update to ethics rules after the State Bar dropped probes into possible ethics violations against attorneys who were investigated because they used the client-connection website LegalMatch.

The bar approved the company's application to become a lawyer referral service on Sept. 11 and attorneys started receiving "resource letters" around Oct. 7, according to Ellen A. Pansky of Pansky Markle Attorneys at Law.

"The resource letter is a very, very low-level disposition," Pansky said. "It's basically an acknowledgment by the bar that 'were we to pursue charges, there would be no finding by the court of any violation and there would be no discipline imposed.' So they have, in essence, concluded that none of these lawyers committed a disciplinary offense."

Pansky represented lawyers who received the initial investigation letters from the bar. The letters notified lawyers registered on LegalMatch's website, that they were being investigated for possible improper fee-splitting with a nonlegal entity.

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).

At that time, LegalMatch had operated in California for 20 years.

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."

In communication with LegalMatch, the bar wrote, "The cross-complaint fails to advance facts sufficient to establish that Section 6155 even arguably impermissibly curtails LegalMatch's First Amendment rights," according to court documents.

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

Shortly thereafter, the bar started sending out investigation letters in July.

Joanna Mendoza of the Law Offices of Joanna R. Mendoza and a former bar trustee said Tuesday the current rules regulating referral services are a remnant from when the bar was a professional association.

"The rules need to be brought into this century and follow the bar's focus on the public good (not what's best for lawyers and bar associations)," Mendoza said in an email.

An update to the rules is not unlikely since the bar is exploring the issue of fee-splitting between lawyers and nonlegal entities with the creation of the newly formed Closing the Justice Gap Working Group.

The group is exploring the role of technology and private companies in providing legal advice to consumers.

According to Kendra L. Basner, partner at O'Rielly & Roche LLP, there's no need for the bar to continue to spend time and money to pursue individual lawyers, especially since the bar is acknowledging that the rules are antiquated with the formation of the working group.

"The bar's efforts to prohibit online collective advertising groups that engage in commercial speech that is not misleading or otherwise harming consumers serves no legitimate purpose and could further stifle the bar's efforts to move this state forward," Basner said in an email.

Ethics lawyer David C. Carr previously commented that the bar's mandate to investigate lawyer referral services is clear under the Business and Professions Code. Carr also said people could argue that the law is antiquated but they can't fault the bar for investigating potential violations.

In a recent email, Carr said since "LegalMatch California is in compliance, there is no need to pursue those investigations."

He also believes that the current litigation against LegalMatch is likely to be dismissed.

But according to Diane L. Karpman, a legal ethics expert at Karpman & Associates, the bar's investigation has caused unnecessary stress on the lawyers who received the initial investigation letters.

Karpman said lawyers have had to spend thousands of dollars for representation after learning the bar was investigating them.

"But that's a mere pittance compared to the level of anxiety that the investigated lawyer feels," Karpman said. "That causes them to be distracted from their client's case. A lawyer is supposed to address 100% of their attention to the client's cause. Well, it's kind of hard when they're currently being investigated by the State Bar."

Neither LegalMatch nor the bar responded to requests for comment before press time.