American Bar Association Standing Committee on Ethics and Professional Responsibility

Lawyers may direct clients to fee financing

On November 27, 2018, the American Bar Association issued ABA formal opinion 484 addressing attorneys’ ethical obligations when clients use companies or brokers to finance their fees. ABA Formal Opinion 484 considers fee financing arrangements of the types described below as ethically permissible provided that the lawyer complies with relevant Model Rules of Professional Conduct.

The opinion analyses the following types of fee financing.

• First, a lawyer may know of a finance company in which the lawyer has no ownership or other financial interest. An interested client applies for a loan for the lawyer’s full fee with the finance company, which determines whether to make a loan.
• Second, the lawyer agrees to pay an initial fee to the finance company in exchange for the right to submit loan applications from clients.
• Third, the lawyer knows of a finance company in which the lawyer has no ownership or other interest. If the client is interested in financing the fee, the lawyer provides the client with additional information about the financing plan. The client then completes the credit application and if the company approves it, the company will establish a credit facility for the payment of the lawyer’s fees up to the established credit limit.
• Fourth, the lawyer knows of a finance company in which the lawyer has no ownership or other interest, and gives clients the finance company’s contact. If the client completes the application, the finance company decides whether to lend the client money and on what terms.
• Fifth, a finance company offers a “same as cash” funding program for the lawyer’s fees or retainer in which the company provides the physical equipment necessary to carry out the mechanics of the arrangement on-site in the lawyer’s office.
• Sixth, the lawyer associates with a financial brokerage company that helps clients obtain legal fee financing. The broker locates banks willing to finance the client’s legal fees. The broker charges the lawyer an initial setup fee and a monthly fee, as well as a “merchant fee” on the amount of the financed legal fee.

Synopsys from the opinion

Lawyers may refer clients to fee financing companies or brokers in which the lawyers have no ownership or other financial interests provided they comply with Model Rules 1.2(c), 1.4(b), 1.5(a) and (b), 1.6, 1.7(a)(2), and 1.9(a). If a lawyer were to acquire an ownership or other financial interest in a finance company or brokerage and thereafter refer clients to that entity to finance the lawyer’s fees, the lawyer would be entering into a business transaction with a client, or obtaining a security or pecuniary interest adverse to the client, or both. In that instance, the lawyer would also be required to comply with Model Rule 1.8(a).

The full text of “A Lawyer’s Obligations When Clients Use Companies or Brokers to Finance the Lawyer’s Fee” is available at: https://www.americanbar.org…

Model Rule of Professional Conduct:

• Model Rule 1.2(c)(Scope of Representation and Allocation of Authority Between Client and Lawyer)
  • Model Rule 1.4(b) (Communications)
  • Model Rule 1.5(a) and (b) (Fees)
  • Model Rule 1.6 (Confidentiality of Information)
  • Model Rule 1.7(a)(2) (Conflict of Interest: Current Clients)
  • Model Rule 1.9(a) (Duties to Former Clients)

Referenced Ethics Opinions:

• ABA Comm’n on Ethics & Prof’l Responsibility, Formal Op. 00-419(2000)
• Ill. State Bar Ass’n Advisory Op. 14-01(2014)
• N.Y. State BarAss’n, Comm on Prof’l Ethics Op. 1112 (2017)
• Or. State Bar Ass’n, Bd. of Gov’rs Op. 2005-172(2005)
• Fla. State Bar Ass’n, Comm. on Prof’l Ethics Op. 16-2(2016)
• Ill. State Bar Ass’n Advisory Op. 92-9(1993)
• Or. State Bar Ass’n, Bd. of Gov’rs Op. 2005-133
• N.Y. State Bar Ass’n, Comm. on Prof’l Ethics Op. 1104 (2016)
• Utah State Bar, Ethics Advisory Opinion Comm. Op. 13-05(2013)
• N.C. State Bar Formal Op. 4 (2018)
• N.C. State Bar Formal Op. 4 (2010)
• Phila. Bar Ass’n, Prof’l Guidance Comm. Op. 00-10(2000),