State Bar of Arizona Ethics Opinions
00-03: Conflicts of Interest; Confidentiality; Fees; Collection of Legal Fees
It is unethical for an attorney representing a client in pending litigation to file a lawsuit against that client, while the representation is continuing, for the collection of attorney's fees and unpaid costs. [ERs 1.6(d), 1.7, 1.16(a)]
A lawyer asks whether he ethically may sue his client for unpaid attorney's fees and costs arising from litigation while continuing to represent the client in the underlying litigation when the client is unwilling to pay or refuses to make mutually satisfactory arrangements to pay. This Opinion assumes the fees and costs arise from the ongoing litigation, there is a written engagement letter or fee agreement, and that no consent or waiver to allow such a lawsuit has been requested from, or given by, the client. No facts are given regarding the underlying allegations concerning the client's position or claims in the fee dispute.
May a lawyer sue a client for unpaid attorney's fees and costs while continuing to represent the client in ongoing litigation?
RELEVANT ETHICAL RULES
ER 1.6 . Confidentiality of Information
(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b), (c) and (d) or ER 3.3(a)(2).
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(d) A lawyer may reveal such information to the extent the lawyer reasonably believes necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceedings concerning the lawyer's representation of the client.
ER 1.7 . Conflict Of Interest: General Rule
(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
ER 1.8. Conflict of Interest: Prohibited Transactions
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(b) A lawyer shall not use information relating to representation of a client to the disadvantage of the client unless the client consents after consultation.
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(h) A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement, or settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith.
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(j) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:
(1) acquire a lien granted by law to secure the lawyer's fee or expenses; and
(2) contract with a client for a reasonable contingent fee in a civil case.
ER 1.9 . Conflict of Interest: Former Client
A lawyer who has formerly represented a client in a matter shall not thereafter:
(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or
(b) use information relating to the representation to the disadvantage of the former client except as ER 1.6 would permit with respect to a client or when the information has become generally known.
ER 1.16. Declining or Terminating Representation
(a) Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:
(1) the representation will result in violation of the Rules of Professional Conduct or other law;
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(b) Except as stated in paragraph (c), a lawyer may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interest of the client, or if:
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(4) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled;
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RELEVANT ARIZONA ETHICS OPINIONS
While there is no prior Arizona Ethics Opinion directly answering the question presented, several Opinions contain samples of the application of the concepts and rules involved.
Opinion Number 92-04 (March 26, 1992) concluded that a law firm may not furnish to a bank a list of accounts receivable identifying the names of the clients and the amount each client owes, except to the extent the clients consent after consultation. The information as to what a current or past client owes a law firm is confidential.
Opinion Number 93-11 (September 28, 1993) dealt with whether an attorney ethically may instigate a criminal prosecution against a former client whose personal check for legal services was returned unpaid because of insufficient funds. This Opinion found that ER 1.6(d) did not authorize disclosure of confidential information to criminal prosecution authorities under the facts stated. This Opinion cites with approval the Comment to ER 1.6, which states:
A lawyer entitled to a fee is permitted by paragraph (b)(2) [sic] to prove the services rendered in an action to collect it. This aspect of the rule expresses the principle that the beneficiary of a fiduciary relationship may not exploit it to the detriment of the fiduciary. As stated above, the lawyer must make every effort practicable to avoid unnecessary disclosure of information relating to a representation, to limit disclosure to those having the need to know it, and to obtain protective orders or make other arrangements minimizing the risk of disclosure.
Of note in this Opinion is the reference to Ariz. Op. 76-14 (July 23, 1976) decided under the ethical code then in effect, which disapproved of any practice of instituting a criminal proceeding against a client for tendering a bad check. At the time EC 2-23discouraged even the filing of a civil suit against a client to collect fees except to avoid fraud or gross imposition by the client.
Opinion Number 91-23 (November 25, 1991) found that an attorney may not agree to settle a fee dispute with a client on the condition that the client agree not to file a bar complaint against the attorney. While not directly covered by ER 1.8(h), which applies to malpractice claims, not bar complaints, this Opinion reasoned:
[A]greements such as the one the inquiring attorney proposes involve the very same evils that ER 1.8(h) is designed to prevent: the strong potential of coercion and overreaching on the attorney's part, and the potential conflict between the lawyer's interests and those of his client.
Opinion Number 96-04 (February 7, 1996) found a non-waivable conflict of interest to exist where a firm represented a driver and passenger in a personal injury action, later referred the passenger case out, and then sought to continue representation of the driver while having a claim to a portion of the passenger's recovery for contingent fees.
Opinion Number 98-05 (March, 1998) found that a law firm ethically may not sell its accounts receivable to a factor because it would require disclosure of confidential information and involve the sharing of legal fees with a non-lawyer.
The ABA/BNA Lawyer's Manual on Professional Conduct at 41:2011, based on ER 1.7(b), states: "Generally, a lawyer may not sue a client over unpaid fees until the lawyer has withdrawn from the representation of the client. Otherwise the lawyer's own pecuniary interest might interfere with his duty to advance the client's interest."
ER 1.7 applies both when the representation of a client is directly adverse to another client and when representation of the client would be materially limited by other interests or responsibilities of the lawyer (here the lawyer's own pecuniary interest). The Restatement (Third) of the Law Governing Lawyers, 209 (Proposed Final Draft No. 1, March 29, 1996), provides that unless all clients consent, "a lawyer in civil litigation may not . . . represent one client in asserting or defending a claim against another client currently represented by the lawyer, even if the matters are not related." Comment e provides the following rationale:
A lawyer's representation of Client A might require the lawyer to file a lawsuit against Client B whom the lawyer represents in an unrelated matter. Because the matters are unrelated, no confidential information is likely to be used improperly, nor will the lawyer take both sides in a single proceeding. However, the client on whose behalf suit is filed might fear that the lawyer would pursue that client's case less effectively out of deference to the other client. Thus, a lawyer may not sue a current client on behalf of another client, even in an unrelated matter, unless consent is obtained under the conditions and limitation of 202.
Although Restatement 209 and ER 1.7(a) refer to suing a client on behalf of another client, nothing in their rationale suggests the results should be any different because the suit is on the lawyer's own behalf. The duty of loyalty would be equally violated in both situations, if not more egregiously where the lawyer is pursing the lawyer's own interests.
Michigan Ethics Opinion RI-159 (April 13, 1993) considered the issue of a lawyer suing a continuing client for an owed fee and concluded "a lawyer may not sue a client while still representing the client" on the basis of Michigan Rules of Professional Conduct 1.6 and 1.7. Florida Ethics Opinion No. 88-1 (July 15, 1988) reached the same conclusion.
Michigan Ethics Opinion RI-168 (August 5, 1993) approves a lawyer accepting credit card payment, but only on a number of conditions, including: "the lawyer's agreement with the credit card company that prohibits the credit company from instituting litigation against any client of the lawyer during any period of time in which the lawyer still represents the client on any matter."
In addition to the conflict of interest issue, it is reasonable to anticipate that during an action for legal fees and costs owed by a client in an ongoing litigation, confidential information about the legal services rendered and the client's financial condition will be disclosed. This disclosure is not permitted under ERs 1.6, 1.7 and 1.8, except as provided in ERs 1.6(d) and 1.9(b).
Any civil action for legal fees by an attorney raises the issue of assertion by the client of affirmative defenses and counterclaims. Those counterclaims include potential claims for legal malpractice. Any settlement or adjudication of such potential counterclaims in a fee collection action, while the underlying action from which the fees arose still continues, could easily raise an issue of prospective waiver of such claims in violation of the provisions of ER 1.8(h).
A lawyer may, but is not required, to withdraw from continued representation of a client when fees and costs are not paid as agreed. ER 1.16(b)(4). However, in the facts of the instant case, bringing a civil action for accrued and unpaid costs and fees against a current client while continuing to represent the client in the litigation from which the fees and costs arose would be in violation of the Rules of Professional Conduct as discussed above. Such a violation would trigger a mandatory withdrawal of the lawyer in the underlying litigation pursuant to ER 1.16(a)(1).
The lawyer might, after the fee dispute arises, consider suggesting alternatives to the client such as private mediation or State Bar fee arbitration, perhaps with independent legal representation for the client. Indeed, both of the types of conflicts addressed by ER 1.7 are waivable by the client's consent if the lawyer reasonably believes the representation will not be adversely affected, and Restatement 209 concurs that the conflict is potentially waivable. While it seems unlikely at first blush that a client would consent to be sued, it is not entirely out of the question. For example, there might be a good faith dispute as to the terms of a complex fee agreement that the parties are agreeable to being resolved by a neutral party, and the contractual dispute does not otherwise affect their relationship in the underlying litigation. In such circumstances the conflict could be waived. Except for such a rare, non-contentious dispute, however, it would be almost impossible for the lawyer to reasonably believe that suing the client would not adversely affect the continued representation, and in that situation the conflict is not waivable. Consequently, in order to sue the client for fees, the lawyer must either first withdraw under ER 1.16(b)(4) or must wait until the representation ends.