State Bar of Arizona Ethics Opinions
91-14: Conflict of Interest; Financial Assistance to Client
It is not ethically proper to make a loan or advancement to a client toward payment for her daughter's medical care. An attorney may, however, ethically make a gift of money to his client, under certain circumstances.
May 8, 1991
The inquiring attorney represents a mother who has brought a personal injury action on behalf of her 15-year-old daughter who was injured in a motor vehicle accident. This young girl sustained an extremely serious head injury and spent many days at Barrows Neurological Institute. Within a short time, all available medical insurance was exhausted, and she is now receiving some care through AHCCCS. To date, this care has not been sufficient to address her residual neurological deficits. In the aftermath of her head injury, and directly related thereto, the girl's behavior has become unmanageable. She can no longer exercise proper judgment and cannot be controlled by her mother. She now has a serious substance problem and exhibits no control or judgment in her sexual behavior. She has become increasingly angry and this aggressive behavior is directed toward all persons around her. If the girl does not receive immediate professional help in the form of some type of behavior modification, she is certainly going to injure herself or even those who love her.
The girl is presently under the care of a Phoenix neurologist who has recommended that she be sent to a specialized neurocare facility in San Diego for at least one month. This institution charges $650 per day and anticipates that she will have to stay at least 30 days. The girl's mother is a single parent and has no funds to pay for this treatment. The attorney has been in contact with the neurocare facility, and has inquired as to whether they will provide the necessary care to the girl on a recovery/lien-type basis. The neurocare facility has declined to care for the girl on this latter basis.
The attorney has already filed a personal injury lawsuit to recover for the girls' injuries and damages and said case is presently in the midst of litigation. The inquiring attorney acknowledges that he is aware of the ethical restrictions on an attorney advancing money to clients. Nonetheless, the attorney would like to know if there is any way for his law firm to advance some portion of the money for the out-of-state neurocare that the girl presently requires. The attorney suggests that an advance payment to the neurocare facility may possibly convince the facility to assume the girl's care, and to take a lien on the potential future recovery for the balance of its services.
May the individual attorney or his law firm, with ethical propriety, advance money for the medical care of the client's daughter in the above situation?
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.
The inquiring attorney is understandably concerned about the injured girl's inability to receive necessary care in the absence of his advancement of at least a portion of the neurocare facility's charges. Nonetheless, ER 1.8 proscribes such financial assistance to a client in connection with pending or contemplated litigation," except in two specific instances. Neither of these latter exceptions applies to the instant facts.
This committee has previously addressed a similar matter in our Opinion No. 75-17 (September 8, 1975) wherein we stated that an attorney could not make a personal loan to a client for living expenses to be repaid out of the proceeds of a judgment where the matter was on appeal. We also addressed a comparable issue in our Opinion No. 76-26 (December 29, 1976) wherein we stated that it would be unethical for an attorney to advance money to a client for living expenses during the pendency of litigation. Consistently, the Arizona Supreme Court has held that attorneys are ethically prohibited from making advances (or loans) to clients for living expenses in connection with contemplated or pending litigation. Matter of Stewart, 121 Ariz. 243, 589 P.2d 886 (1979); Matter of Carroll, 124 Ariz. 80, 602 P.2d 461 (1979). This committee's opinions, along with these Arizona cases, involved the interpretation of DR 5-103(B) of the former Code of Professional Responsibility, the forerunner of ER 1.8(e), and have relied upon the following two reasons for prohibiting an attorney from lending money to his client.
The first rationale against advancing money to a client is that of preventing an attorney from acquiring a personal interest in the litigation. In Matter of Stewart, supra, the Arizona Supreme Court held that loans to a client for his living expenses were prohibited where the money was to be repaid out of temporary welfare stipends. The Court reasoned that, when an attorney advances living expenses to a client, he has, in effect, acquired a proprietary interest in the underlying litigation he is conducting. 121 Ariz. at 245. When an attorney acquires an interest in the litigation, the obvious fear is that the attorney may place his interest in recovering the loaned money ahead of the client's interest in the litigation.
The second rationale for prohibiting an attorney from providing financial assistance to a client is that it may serve as an improper inducement for prospective clients to employ the attorney. This reasoning was discussed by the Arizona Supreme Court in Matter of Carroll, supra, wherein the Court stated:
It is obvious that as between a lawyer who offers such an agreement 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.
While the inquiring attorney is ethically prohibited from advancing or guaranteeing financial assistance to his client for the daughter*s necessary medical treatment, there is no prohibition against him rendering financial assistance to his Client by way of a "gift of money made out of a motive of detached and disinterested generosity." In our Opinion No. 84-03 (April 18, 1989), we held that, subject to certain restrictions, an attorney was ethically permitted to make a gift of money or tangible items to a pro bono client. There, we approved of such a gift to a pro bono client if it truly resulted from a "charitable motivation by the attorney," and so long as the gift was not accompanied by any "business, proprietary or pecuniary overtures," and there was "no expectation by the attorney of any repayment by the client at any future time."
We do not feel that our holding in Opinion No. 89-03 should be restricted exclusively to pro bono clients. Instead, we feel that there is a rational basis for extending our prior holding to certain other attorney-client relationships where the client comes upon circumstances making him or her impecunious, and where the attorney's motivations for providing such a gift are truly charitable in nature. As we stated in Opinion No. 89-03:
It would be an unfortunate and unreasonable limitation upon members of the Bar to prohibit them from making gifts which are truly charitable in nature. (Opinion No. 89-03 at 2)
Our holding in this matter must necessarily be restricted to the giving of money to previously-retained clients, as opposed to prospective clients. Otherwise, such gifts could be directly or indirectly utilized as a means of inducement by the attorney to attract the client's business, as opposed to being solely motivated by humanitarian concerns. Consistently, we believe that it would be unethical for an attorney directly or indirectly to represent or otherwise imply to a prospective client that such a gift may be made in consideration for the attorney's retention.
In summary, it is this committee's opinion that the inquiring attorney may not ethically make a loan or advancement to his client toward payment for her daughter’s medical care. The inquiring attorney is, however, ethically permitted to make a gift of money to his client, to enable her daughter to receive the necessary medical care, so long as: (a) the transfer of money truly results from a charitable motivation by the attorney; (b) the client must have already retained the attorney before any direct or indirect communication between the attorney and the client concerning the transfer, or prospective transfer, of this gift of money takes place; and (c) there must be no expectation by the attorney of any repayment by the client at any future time.
One member of the committee dissented from the above opinion as follows:
With two exceptions not applicable here, ER 1. 8(e) plainly prohibits a lawyer from providing financial assistance to a client in connection with pending litigation. The result reached by the majority requires a change in the rule.
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