Ethics Advisory Opinion 13-05

Utah State Bar

 Ethics Advisory Opinion Committee

Opinion Number 13-05

 Issued September 10, 2013

 ISSUE

 

1.         To what extent may an attorney participate in an “on-site” fee/retainer funding program to obtain and finance attorney retainer or litigation funds?

 OPINION

 

2.         A lawyer may not participate in an “on-site” fee/retainer funding program, under the circumstances set forth herein, as such would violate the provisions of Rules of Professional Conduct 1.7(a) (Conflict of Interest: Current Clients), Rule 1.8(a) (Acquire a pecuniary interest adverse to the client).  The lawyer may, however, obtain a waiver of the conflict by complying with the terms of Rules 1.7(b) and 1.8(a), including making full disclosure and obtaining “informed consent” confirmed in writing.  Adequate measures must also be taken to safeguard the lawyer’s independent judgment under Rule 5.4(c) (A third party may not direct or regulate the lawyer’s professional judgment.)

 BACKGROUND

 

3.         A financing company, “Instant Legal Fee Funding” (the “finance company”), offers a same as cash funding program for law firm retainers and fees.  The finance company provides the physical equipment necessary to carry out the mechanics of the arrangement on site at the lawyer’s office.  To initiate the process at the lawyer’s office, the client swipes an item of personal financial identification through the finance company’s identifying device.  The finance company also provides the law firm with an imaging machine that scans the client’s personal check in order to facilitate the finance company’s collection of periodic loan repayments directly from the client’s banking account.

4.         The finance company then may qualify the client for a loan of up to $5000.  The finance company charges a transaction fee ranging from 9.95% interest to 28.95% depending on risk factors it considers, including the repayment period.  If the client qualifies, the law firm provides the client with the finance company’s contractual agreement to repay the finance company.  The finance company has no recourse against the lawyer if the client does not pay the money.

 ANALYSIS

 

5.         Rule 1.7(a)(2) requires an attorney to refrain from representation if “There is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to …a third person or by a personal interest of the lawyer.”  Comment 10 to that section provides:

The lawyer’s own interests should not be permitted to have an adverse effect on representation of a client…In addition, a lawyer may not allow related business interests to affect representation, for example, referring clients to an enterprise in which the lawyer has an undisclosed interest.

6.         Because of the necessarily close relationship which must exist between the finance company and the lawyer, it is apparent that a conflict exists under 1.7(a) which may create a “significant risk” that the lawyer’s representation of the client would be “materially limited.” Additionally, Rule 1.8(a) prohibits a business transaction or other pecuniary interests adverse to a client.[1]  For the reasons set forth herein, the arrangement contemplated is sufficiently adverse to the client so that a conflict appears to exist under 1.8(a) as well.

7.         Under both rules, the material question concerns the involvement of the attorney in both the attorney obtaining the retainer by this method and the finance company’s ability to collect the retainer fee back from the client.  We presume from the stated facts that the attorney has no direct interest in the finance company.  That, however, does not resolve all issues.  The question that must be answered is whether the financial arrangement, albeit indirect, between the lawyer and the finance company, may adversely affect the representation of the client.  Although, the finance company has no recourse against the lawyer if a client defaults on a loan, it is only natural that the lawyer will want to keep the finance company happy in order to assure perpetuation of the relationship between the lawyer and finance company.  The lawyer will be under pressure to assure that the finance company is repaid.  The lawyer may very well feel obliged in litigation to make certain the client achieves a recovery, even if it requires settlement at a lesser amount than would otherwise be accomplished, in order to avoid the risk that the finance company would go unpaid.  Thus, the lawyer obviously has a financial and personal interest adverse to the client in continuing the advancement of fees program solely for the benefit of the lawyer in future cases.  This places both Rules 1.7(b) and 1.8(a) in issue.
(more…)

Ethics Advisory Opinion No. 04-01

March 29, 2004
¶1 Issue:
What action, if any, may a lawyer for an employer ethically undertake on behalf of a vanished former employee who, along with the employer, has been named as a defendant in an action arising when the person was an employee?

¶2 Answer: Under certain narrowly prescribed conditions, an employer’s lawyer may ethically take limited action to protect the interests of the vanished former employee, provided the lack of direct contact with that defendant is brought to the attention of the relevant tribunal.
¶3 Facts: Plaintiff filed suit naming a company and its former employee as defendants. The employer concedes that the former employee was acting in the course and scope of his employment and has asked the company’s lawyers to represent the missing defendant. Absence of a formal answer to the complaint may result in a default judgment being entered against the absent former employee. We have no information about the reasons for the employee’s absence, but we assume that a reasonable effort has been made to locate the person and determine the reason for the absence. We also assume that, at this early stage of the proceeding, the interests of the employer and former employee are not in conflict.1The lawyer requesting this opinion also indicated that the employer has liability insurance that covers the incident giving rise to the lawsuit.2The company has requested that the lawyer represent the missing ex-employee.
¶4 Analysis: This case presents two fundamental, but competing ethical principles: On the one hand, a basic ingredient of the representation of a client is that, under Rule 1.4, the lawyer communicate with the client, keep the client informed about the status of the case, and provide sufficient information to the client that he may make informed decision.3On the other hand, lawyers have a general obligation to advance the administration of justice.4
¶5 A formal application of Rule 1.4, without reference to any other parts of the Rules of Professional Conduct, would produce the following syllogism: The lawyer hasn’t communicated with the absent ex-employee and cannot formally satisfy the requirements of Rule 1.4; a violation of Rule 1.4 constitutes an ethical transgression; ergo, the lawyer may not ethically represent the ex-employee. Yet, we find this result inconsistent with the greater public policy of providing safeguards for an individual’s rights to the extent practicable and when it can be done without infringing on the rights of others. After all, the Utah Rules of Professional Conduct are “rules of reason . . . [that] should be interpreted with reference to the purpose of legal representation.”5
¶6 Further, before a mechanical application of Rule 1.4 to the absent defendant leads us to conclude that lack of initial attorney-client communication mandates no representation, we consider the intent of Rule 1.4. It is constructed around the normal relationship of an attorney-client contact already having been established and provides the guidelines that require a lawyer to keep that client properly informed “to the extent the client is willing and able” to be so informed.6Here, for reasons that are not known—and perhaps not contemplated by the drafters and adopters of the Rules—the (prospective) client is not “willing and able.” Without further analysis, we, therefore, decline to conclude that Rule 1.4 prevents all forms of representation of the missing employee. (more…)

Ethics Advisory Opinion No. 04-01a

December 2, 2004
Amendment of Opinion No. 04-01: On March 29, 2004, the Utah Ethics Advisory Opinion Committee issued Utah Ethics Advisory Op. No. 04-01, 2004 WL 870583 (Utah St. Bar).1 The Office of Professional Conduct of the Utah State Bar filed a petition for review with the Board of Bar Commissioners pursuant to § III(e)(1) of the Ethics Advisory Opinion Committee Rules of Procedure and § VI(a)(1) of the Utah State Bar Rules Governing the Ethics Advisory Opinion Committee. The Commission asked the Committee to reconsider Opinion No. 04-01. Having reviewed the issues raised by the Office of Professional Conduct, we issue this amended opinion, which revises the conclusion and analysis of Opinion No. 04-01. Accordingly, this amended opinion replaces and supersedes Opinion No. 04-01.
Issue: What action, if any, may a lawyer for an employer ethically undertake on behalf of a vanished former employee who, along with the employer, has been named as a defendant in an action arising when the person was an employee?


Opinion
: The lawyer may not act on behalf of or purport to represent the vanished former employee unless the lawyer has an existing attorney-client relationship with the former employee or the former employee agreed to the representation prior to vanishing and, in either case, the lawyer complies with Rules 1.7 and 1.8(f) of the Utah Rules of Professional Conduct. The lawyer who represents the employer may engage in acts that may benefit the vanished former employee provided the lawyer makes it clear that he is acting on behalf of the employer as the employer’s lawyer and not on behalf of the vanished former employee as the former employee’s lawyer.
Facts: Plaintiff filed suit naming a company and its former employee as defendants. The company concedes that the former employee was acting in the course and scope of his employment and has asked the company’s lawyers to represent the missing former employee. The company is concerned that absence of a formal answer to the complaint by the former employee may result in a default judgment being entered against the absent former employee. We have no information about the reasons for the employee’s absence, but we assume that a reasonable effort has been made to locate the person and determine the reason for the absence. We also assume that, at this early stage of the proceeding, the interests of the employer and employee are not directly adverse with respect to the matter.2 The lawyer requesting this opinion also indicated that the employer has liability insurance that covers the incident giving rise to the lawsuit.3 The company has requested that the lawyer represent the vanished former employee.
Analysis: This case presents two competing concerns: On the one hand, a basic ingredient of the representation of a client is that, under Rule 1.4, the lawyer communicate with the client, keep the client informed about the status of the case, and provide sufficient information to the client that the client may make informed decisions; and, under Rule 1.2, the lawyer must abide by the client’s decisions regarding the goals of the representation. On the other hand, the interests of a party missing from a proceeding will go unprotected with an application of the Rules. The Rules of Professional Conduct are rules of reason,4 to be interpreted to further the administration of justice when the Rules are unclear. However, in this instance, we conclude the Rules are clear and must be applied despite arguments of countervailing public policy.5 (more…)

Ethics Advisory Opinion No. 03-04

Issued October 14, 2003
¶1 Issue
: May a lawyer threaten to present criminal charges against an opposing party or witness during negotiations in a private civil matter?

¶2 Opinion: In the course of representing a client in a civil matter, it is not per se unethical for a lawyer to threaten that the client may pursue criminal charges against an adverse party where the civil and criminal matters are related. However, such a threat will be a violation of the Utah Rules of Professional Conduct if it constitutes “extortion,” if the lawyer does not have a reasonable belief that such charges are warranted by the law and the facts, or if it involves “abusive treatment” of a witness.
¶3 Background: This query arose when counsel, during a mediation, stated that the opposing party’s witness was in violation of Utah law and that the County Attorney’s office “would be interested” to learn of the alleged violation.
¶4 The Former Rule. Prior Disciplinary Rule 7-105 of the Model Code of Professional Responsibility barred a lawyer from using criminal charges to gain leverage in a civil action: “A lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter.”1 The stated intent of DR 7-105 was to prevent lawyers from using the criminal justice system for oppressive purposes, and the rule set the boundaries of acceptable lawyer conduct clearly.
¶5 The drafters of the American Bar Association Model Rules of Professional Conduct (“Model Rules”), however, deliberately left out the provisions of DR 7-105. The rationale behind this omission was the drafters’ belief that “extortionate, fraudulent, or otherwise abusive threats were covered by other, more general prohibitions in the Model Rules and thus that there was no need to outlaw such threats specifically.”2 The prior rule was thought to be overbroad because it prohibited legitimate pressure tactics and negotiation strategies.3 The current Utah Rules of Professional Conduct also include no analog to DR 7-105, but instead prohibit a lawyer from using “means that have no substantial purpose other than to embarrass, delay or burden a third person”4 and from engaging “in conduct involving dishonesty, fraud, deceit or misrepresentation [or] . . . in conduct that is prejudicial to the administration of justice.”5
¶6 ABA Opinion 92-363: The American Bar Association addressed the permissibility of threats in 1992 in Formal Opinion 92-363 (“Opinion 363”). Opinion 363 concluded that a lawyer may use the possibility of presenting criminal charges against the opposing party in a private civil matter to gain relief for the client, as long as the criminal and civil matters are related, the lawyer has a reasonable belief that threat is warranted by the law and the facts, and the lawyer does not suggest she possesses improper influence over the criminal process or try to exert such influence.6 Correspondingly, a lawyer may agree to refrain from presenting criminal charges as part of a settlement so long as the agreement does not violate applicable law.7
¶7 The same factors apply to threats against an opposing party’s witness. Opinion 363 notes that “abusive treatment” of witnesses may implicate Model Rule 4.4. Abusive treatment exists if the lawyer’s purpose in suggesting charges may be brought is merely to embarrass, delay or burden a third person. If, however, the lawyer has a well-founded belief that criminal charges related to the civil action may be justified, and the lawyer does not suggest the presence of improper influence over the criminal process, the conduct is not abusive. (more…)

Ethics Advisory Opinion No. 96-08

(Approved November 1, 1996)
Issue:
May an attorney represent a person who seeks to obtain payment under the terms of a client-solicitation agreement entered into with another attorney, where the agreement involved the payment of a “finder’s fee” to the person?

Opinion: Although a “finder’s fee” agreement between an attorney and a client may be a violation of Rule 5.4(a) of the Utah Rules of Professional Conduct, the Rule governs the ethical conduct of attorneys . Thus, the solicitation agreement did not violate any duty of the non-lawyer parties under the Utah Rules of Professional Conduct. Therefore, absent a violation of Rule 3.1 concerning non-meritorious actions, the plaintiff’s new attorney may seek recovery under the solicitation agreement on behalf of his non-lawyer client.
Analysis: In this request for an ethics opinion, the following facts were alleged: A non-lawyer client (“Client”) engaged a Utah attorney (“Attorney A”) to consider a potential case against an employer. Attorney A felt the potential claim had merit, but, given the particular facts of the case, concluded it would be economical only if at least 100 plaintiffs with similar claims were involved. He offered the client a “finders fee of $500 per head” (the “Solicitation Agreement”) if the client could get a least 100 other people to sign up with the attorney as individual plaintiffs. Client agreed and found such other plaintiffs, who engaged Attorney A, and they successfully pursued their claims in court. Attorney A collected contingent fees from the plaintiffs.
Client then made demand on Attorney A to pay under the Solicitation Agreement. Attorney A refused, saying that such an agreement was never entered into, and, even if it was, such an agreement is not permitted under the Utah Rules of Professional Conduct. Attorney B, who has been engaged by Client to pursue a claim against Attorney A to recover under the Solicitation Agreement, seeks guidance as to whether instituting such a suit would itself violate Rules 8.4.1
First, for purposes of this opinion, we will assume, without deciding, that the Solicitation Agreement was entered into by Attorney A and that it violated Rule 5.4(a), which limits the ability of a lawyer to share legal fees with a non-lawyer.2However, the Rules of Professional Conduct only apply to lawyers. Therefore, while Attorney A may have acted unethically and violated the Rules by entering into the Solicitation Agreement, such unethical conduct does not impose any restrictions on Client nor does it automatically render the Solicitation Agreement void or a nullity as a matter of contract law.3
Second, even if the conduct of Attorney A in entering into the Solicitation Agreement was improper, the impropriety occurred at the time of the formation of the agreement. Nothing in the institution of an action later to enforce such an agreement on behalf of Client would amount to Attorney B’s “knowingly assisting or inducing” Attorney A to violate the Rules under Rule 8.4(a).
It is for the courts to decide whether the Solicitation Agreement was void ab initio as violative of public policy.4Attorney B should, however, be aware of Rule 3.1, which reads, in part: “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification, or reversal of existing law.” If there were a clear expression by the Utah Legislature or courts that lawyers’ finders’-fee agreements were void as against public policy and unenforceable, Attorney B could be ethically restrained from pursuing a contract-based theory of recovery for Client under Rule 3.1. The Committee is not aware of any such expression, however. (more…)