State Bar of Arizona Ethics Opinions
91-13: Conflict of Interest; Financial Assistance to Client
Attorney's offer to waive his contingent fee and reimbursement of costs advanced, if client will accept a settlement offer, is permitted whether or not client is indigent.
May 8, 1991
This inquiry is from the Discipline Department of the State Bar, which has provided the committee with the following set of facts:
Lawyer A represents client C in a medical malpractice cause of action on a contingency fee basis. Pursuant to the contingency fee contract, C is responsible for litigation costs. A lawsuit is filed, and substantial costs are incurred and advanced by A. During settlement negotiations, A offers to waive his fees and all costs advanced by him if C accepts a pending offer. C agrees, the case is settled, and A receives neither a fee nor reimbursement of costs.
1. Does A's conduct violate ER 1.8(e)?
2. Must C be indigent for A's waiver of costs to be ethically proper?
ETHICAL RULE INVOLVED
ER 1.8. Conflict of Interest: Prohibited Transactions
(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:
(1) a lawyer may advance court costs and expenses of litigation, provided the client remains ultimately liable for such costs and expenses; and
(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.
RELEVANT PRIOR ARIZONA OPINIONS
Opinions Nos. 75-17 (September 8, 1975), 76-26 (December 29, 1976), 81-3 (February 19, 1981), and 89-03 (April 18, 1989).
A lawyer may not provide any financial assistance to a client in connection with pending or contemplated litigation, except that he may advance court costs and expenses of litigation. The client must remain ultimately liable for the advanced costs and expenses, unless the client is indigent. Rule 42, Ariz.R.S.Ct., ER 1.8(e).
Arizona's version of ER 1.8(e) is not the same as the version adopted by the American Bar Association in its Model Rules of Professional Conduct. The A.B.A. rule allows an attorney to advance court costs and expenses of litigation, "the repayment of which may be contingent on the outcome of the matter." Arizona specifically rejected this language and retained the language of former DR 5-103(B) of the Code of Professional Responsibility, which required that the client remain “ultimately liable” for any advances. Therefore, despite a relaxation in the requirement by the American Bar Association, the Arizona Supreme Court decided that there is still significant danger involved in allowing an attorney to advance costs and expenses of litigation for a client who is not indigent, unless the client remains ultimately liable therefor.
Arizona cases and ethics opinions specify two reasons for this: first, by advancing funds to a client, the lawyer acquires a personal interest in the outcome of the litigation. This conflict will result in the attorney potentially placing his own interest in recouping the advanced funds ahead of his client's interests in the litigation. See Matter of Stewart, 121 Ariz. 243, 589 P.2d 886 (1979) (under-former DR 5-103(B), loans to clients for living expenses, to be repaid out of temporary welfare stipends, are unethical). By requiring that the client remain ultimately liable for court costs and expenses advanced by the attorney for him, regardless of the outcome of the case, ER 1.8(e) ensures that the attorney's independent judgment will not be affected.
Second, financial assistance to clients encourages prospective clients to seek out an attorney's services for improper reasons. A prospective client might select an attorney on the basis of his willingness to lend money rather than upon his legal skills. In Matter of Carroll, 124 Ariz. 80, 602 P.2d 461 (1979), an attorney was suspended from the practice of law in Arizona for one year for, inter alia, making cash payments to his clients for living expenses in violation of former DR 5-103(B). The court concluded:
We are compelled to point out that the practice of making advances to clients, if publicized, would constitute an improper inducement for clients to employ an attorney. . . .It is obvious that as between a lawyer who offers [a fee agreement which relieves the client of his obligation to pay costs and expenses unless money is obtained through judgment or settlement] and a lawyer who does not, the client will choose the lawyer who offers the lesser financial obligation, regardless of the skill of the lawyers involved, and regardless of the other factors to be considered in the employment of legal counsel.
124 Ariz. at 86, 602 P.2d at 467. See also our Opinions Nos. 75-17 (September 8, 1975) and 76-26 (December 29, 1976). Because of this potential for improper publicity, our Opinion No. 89-03 (April 18, 1989) allowed money gifts to clients only where the lawyer represents the client pro bono. This is because pro bono clients do not select their lawyers, do not incur a financial obligation with a lawyer, and have no incentive to choose on« lawyer over another. Opinion No. 89-03 at 3.
Turning to the facts of the present inquiry, it is clear that the inquiring attorney will have no personal interest in obtaining repayment of the advanced costs. By waiving all fees as well as all costs, the inquiring attorney will receive nothing from his representation of the client. Therefore, the fear expressed in Stewart, that the expectation of repayment would affect an attorney's independent judgment on behalf of his client, is not present in the facts of this inquiry.
It is also very unlikely that any improper publicity will be generated by Lawyer A's waiver of fees and costs. He is not offering the waiver as an inducement to a prospective client to retain him. Rather, he is making a judgment at the conclusion of the litigation to waive the fees and costs of a client he has already represented for some time. This distinguishes the present inquiry from Carroll, which discussed a fee agreement with a provision in which the attorney agreed to assume the costs and expenses of litigation. 124 Ariz. at 85, 602 P.2d at 466.
Therefore, it is the opinion of the committee that Lawyer A does not violate ER 1.8(e) when he waives all fees and all costs at the conclusion of the case. It makes no difference whether or not the client is indigent.
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.
©State Bar of Arizona 1991