As reported by Forbes, a U.S. District Court sanctioned a prominent U.S. law firmfor manufacturing a frivolous lawsuit.  The case is Lavesky et al. v. ITT Educational Services, Inc., filed under the False Claims Act (“FCA”).  The Lavesky court did not mince words in sanctioning plaintiff’s counsel: “From what the Court can gather, [plaintiff’s attorneys’] view is that virtually any ex-employee will do for purposes of manufacturing an FCA lawsuit.”  

Lavesky carries implications for all cases, not just those filed under the FCA--it provides a blueprint for the defendant victim of a manufactured lawsuit.  If discovery shows that the plaintiff was unaware of the facts upon which she based her lawsuit before an “enlightening conversation” with her attorney, the defendant should consider moving for sanctions pursuant to:(i) Federal Rule of Civil Procedure 11, and (ii) Model Rule of Professional Conduct 7.3, which prohibits lawyers from soliciting “professional employment from a prospective client when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary gain.”  This recipe ended up costing the Lavesky’s counsel almost $400,000 in fees.

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Last week, the Wall Street Journal Law Blog wrote about a recent New York ethics opinion approving legal advertising on Groupon and other group coupon sites.  These services allow consumers to pay one price up front for a service that is more valuable. A restaurant, for example, may offer a $50 meal for $25 that is paid immediately. An attorney, like this one, for example, may offer to provide a will for $99.  New York wasn’t the first state to weigh in on the issue--South Carolina has, too--and it probably won’t be the last. 

Both New York and South Carolina have approved groupon lawyer advertising per se despite claims that it constitutes the improper sharing of legal fees with a non-lawyer. However, and probably of more practical use to one considering running a groupon lawyer deal, the opinion of each state shows that it is essentially a path fraught with dangerous ethical pitfalls.  For example, New York identified a laundry list of issues aside from fee-sharing that may be implicated in the typical scenario depending on the facts, including improper payment for referral, excessive fees, advertising violations, improper creation of the lawyer-client relationship, conflicts of interest, and improper scope of representation.

With these potential ethical pitfalls in mind, not to mention the questionable effectiveness and taste of such advertising, it is doubtful that legal service groupons will ever become too common. 

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