On November 27, 2018, the ABA Standing Committee on Ethics and Professional Responsibility issued a formal ethics opinion on A Lawyer’s Obligations When Clients Use Companies or Brokers to Finance the Lawyer’s Fee. See ABA Formal Op. No. 484 (Nov. 27, 2018). Here’s a summary.
When a lawyer facilitates the financing of a fee through refering the client to a finance company or broker, the lawyer must comply with Rule 1.4 and communicate sufficient information to the enable the client to make an informed decision about whether to undertake the financing arrangement. Among other things, the lawyer should consider providing the following to the client:
- A description of the the lawyer’s financial and professional relationship with the finance company.
- A description of how the lawyer’s fee will be paid by the finance company and what information will be shared between the company and the lawyer.
- A description of the costs, benefits, alternatives, and potential downsides of the transaction to the client.
- A description of terms of the financing arrangement to the extent “known or understood by the lawyer.”
- Disclosure as to whether the lawyer will charge a higher fee because of the financing arrangement.
- Any “other factor that the lawyer knows or reasonably should know to be material to the financing of the representation.”
See id. at 5-6.
In addition to making these disclosures, the lawyer must assure that the finance company will not “direct or regulate the lawyer’s professional judgment.” See id. at 7. The lawyer must also assure that the overall fee remains “reasonable.”1 Id. And, the lawyer must obtain the client’s informed consent to the disclosure of any confidential information about the client’s matter to the finance company. Id. at 8.
Finally, the lawyer must assure that the financing arrangement does not give rise to a conflict of interest due to such things as: (1) a past or present lawyer-client relationship between the lawyer and the finance company; or (2) a business interest that the lawyer has in the transaction or finance company. In the event that such a conflict exists, the lawyer must get the client’s informed consent to the lawyer’s continued representation.2
The advice in this opinion is accurate and straightforward. Whether the opinion is particularly helpful, however, is questionable given the obvious nature of most of the advice provided.
- The committee noted that if the finance company pays the lawyer only a portion of the amount financed, impermissible fee sharing does not occur. Said the committee: “Such terms do not constitute fee sharing in violation of Model Rule 5.4(a) because the financing or subscription fee is basically an administrative fee that is deducted from the payment to the lawyer. This is akin to a merchant fee that credit card companies charge. It is settled that lawyers’ payment of credit card merchant fees does not constitute impermissible fee-sharing.” See id. at 9-10. ↵
- If the lawyer owns an interest in the finance company, the informed consent would have to comply with the detailed requirements of Rule 1.8(a). ↵