Financial Assistance to Clients

Financial Assistance to Clients

Introduction

  • Refers to situations where a lawyer uses their own funds to cover litigation costs for a client.
  • This is usually done with the expectation that the litigation will yield a financial benefit for the lawyer.

Proprietary Interest in Litigation

  • General Rule: Lawyers are typically prohibited from acquiring a proprietary interest in litigation.
  • Exception 1: Contingency fees are allowed.

Model Rule 1.8(e)

  • Addresses the propriety of lawyers providing financial assistance to clients involved in litigation.

General Prohibition

  • Attorneys are generally not allowed to provide financial assistance to litigation clients.

Exception

  • Lawyers can advance litigation expenses, with the expectation of reimbursement from the client.
  • Exception to the Exception: If the client is indigent, the lawyer can cover the costs without expectation of repayment.

Scope of Prohibition

  • In most jurisdictions, lawyers cannot provide financial help to clients for personal or living expenses, irrespective of the client's hardship.
  • Example: A client who lost their home in a fire and is in litigation for insurance benefits cannot receive money from their lawyer for a motel room or rent.
  • Distinction: The rule differentiates between litigation expenses (which can be advanced) and living expenses (which cannot).

Rationale Behind the Rule

Ethical Considerations

  • The policy behind prohibiting financial assistance is a topic of debate, and a few states deviate from this rule.
  • Most states adhere to the model rules and strictly enforce them, even for small amounts of money.
  • Disciplinary authorities take this issue seriously, and lawyers have faced penalties for providing even small amounts for humanitarian reasons.

Arguments Supporting the Rule

  • Preventing Unnecessary Litigation:
    • The argument suggests the rule prevents frivolous lawsuits.
    • However, an increase in litigation is not inherently negative if based on valid claims.
    • Mechanisms already exist to deter frivolous litigation.
  • Preventing Conflict of Interest:
    • Aims to prevent lawyers from gaining excessive interest in the client's litigation, which could create a conflict.
    • Lawyers often have an interest, especially with contingency fees.
  • Preventing Undue Influence:
    • Aims to prevent lawyers and firms from offering perks or rewards to potential clients, preventing clients from choosing lawyers based on financial incentives.
  • Preserving Attorney-Client Balance:
    • Preserves balance of power and maintains distance from clients' personal problems.

Arguments Against the Rule

  • The Model Rules recognize an exception for pro bono representation of indigent clients.
  • Financial assistance is limited to gifts for basic necessities.
    • Lawyers cannot seek reimbursement for these gifts.
    • The availability of financial assistance cannot be publicized to attract clients.

Scope of Exception

  • The exception is narrow and designed to avoid conflicts of interest or abuse.
  • Gifts should be modest and for basic necessities.

Contingency Fees and Advanced Expenses

  • Lawyers may advance litigation expenses, and the repayment can be contingent on the case outcome.
  • Lawyers can recover these expenses, in addition to the fee.

Scenario

  • Attorney represents a plaintiff on a contingency fee basis and advances litigation expenses.
  • The case is lost at trial.

Recovery of Advanced Expenses

  • The lawyer's ability to recover expenses depends on the agreement with the client.
    • If recovery of expenses is contingent on success, the lawyer cannot recover the advanced expenses.
    • If the agreement did not make the recovery of expenses contingent, the lawyer is obligated to pursue the client for expenses, unless the client is indigent.

Practical Considerations

  • Many lawyers avoid pursuing clients for expenses after a loss, even though they are technically obligated to do so.
  • To avoid this situation, lawyers should specify in the fee agreement that recovery of advanced expenses is contingent on the success of the claim.

Conclusion

  • Discussion of financial assistance to clients and related ethical considerations.
  • Recommendations to review questions for class discussion.