Tag Archives: Rule 4-1.8(e) financial assistance to client

Can a lawyer forgive a client’s costs which were contingent on the outcome and the client’s responsibility under the fee agreement?

Hello everyone and welcome to this Ethics Alert which will discuss whether a lawyer can forgive a client’s costs client’s which were contingent on the outcome of the matter and the client’s responsibility under fee agreement.  Florida Bar Ethics Opinion 16-1 states that this would be ethical if the client was not unconditionally responsible for the payment of costs under the fee agreement, the cost forgiveness occurs after the settlement. and the lawyer does not receive any fees for the representation.  The Ethics Opinion is here: Florida Bar Ethics Op. 16-1 and it provides a thorough analysis of ethical considerations surrounding the ethics rule which prohibits providing financial assistance to a client.

Under the facts of the ethics opinion, the lawyer represented a client in a negligence case.  After a lawsuit was filed, an appellate decision changed the law and eliminated the cause of action. A settlement was reached and client’s outstanding medical bills and costs were nearly double the amount of the settlement.  The settlement exceeded the amount of costs advanced by the lawyer by a small amount.

The lawyer had paid the litigation costs on behalf of the client and repayment was contingent on the outcome of the matter. The lawyer stated that he or she would not take fee and would like to reduce the amount of costs owed to the lawyer to allow the client to receive some of the settlement proceeds after payment of liens and any other amounts.

The lawyer requested an opinion as to whether he or she could reduce the amount of the costs that the client owes notwithstanding Florida Bar Ethics Opinion 96-1, which discusses Florida Bar Rule 4-1.8(e) (Financial Assistance to Client) and states that a lawyer cannot agree to be unconditionally responsible to pay for a client’s litigation costs.

The opinion reviewed Florida Bar Rule 4-1.8(e) and discussed Michigan Ethics Opinion RI-14 (1989) which sets forth the underlying reasons for the financial assistance rule.  The Michigan Ethics Opinion states:

“Lawyers may not subsidize lawsuits or administrative proceedings brought on behalf of their clients, including making or guaranteeing loans to their clients for living expenses, because to do so would encourage clients to pursue lawsuits that might not otherwise be brought and because such assistance gives lawyers too great a financial stake in the litigation. These dangers do not warrant a prohibition on a lawyer advancing a client court costs and litigation expenses, including the expenses of diagnostic medical examination used for litigation purposes and the reasonable costs of obtaining and presenting evidence, because these advances are virtually indistinguishable from contingent fees and help ensure access to the courts. Similarly, an exception allowing lawyers representing indigent clients to pay court costs and litigation expenses regardless of whether these funds will be repaid is warranted.”

“MRPC 1.8 (e) is the result of the common law rules against champerty and maintenance. Champerty is an investment in the cause of action of another by purchasing a percentage of any recovery. Maintenance is another form of investment by providing living or other expenses to finance litigation. When a lawyer has a financial stake in the outcome of a client’s lawsuit, there is a legitimate concern that the lawyer’s undivided loyalty to the client may be compromised in an effort to protect the lawyer’s personal financial investment in the outcome. Also financial support to a client could interfere with settlement efforts, by enabling the client to prolong the dispute.”

The opinion then discusses Florida Ethics Opinion 96-1, which addressed the issue of financial assistance to clients.

Under the facts in Ethics Opinion 96-1, a lawyer agreed to be responsible for costs in representing a state agency, regardless of whether there was a recovery.  After discussing Rule 4-1.8(e) and the reasons underlying the rule, the opinion concluded that, “under the plain language of Rule 4-1.8(e), it would be ethically impermissible for the inquiring attorney to unconditionally be responsible for all costs and expenses as provided in the proposed agreement.”

The opinion provides the following summary:

“…the committee is of the opinion that the inquirer’s proposal not to seek reimbursement for some of the costs the inquirer has advanced on behalf of the client is permissible under these specific circumstances: where there has been no agreement for the inquirer to be unconditionally responsible for the costs at the outset of representation, the cost “forgiveness” occurs after settlement, and the inquirer will receive no fees for the representation. The committee believes that the rule’s prohibition is inapplicable because there was no agreement at the outset of representation for the inquirer to be responsible for the costs, and the committee believes that application of the exception to Rule 4-1.8(e) leads to the same result, as the recovery is insufficient to cover all medical bills and litigation costs and the repayment of the costs is therefore “contingent on the outcome of the matter” under the rule.”

Bottom line:  Ethics Opinions are not binding; however, this Florida opinion states that it is not unethical for a lawyer to forgive a client’s costs after settlement, even if the costs are the client’s responsibility under the fee agreement, as long as the client was not unconditionally responsible under the fee agreement, the cost forgiveness occurs after the settlement, and the lawyer does not receive any fees for the representation.

Be careful out there.  

Disclaimer:  this e-mail is not an advertisement, does not contain any legal advice, and does not create an attorney/client relationship and the comments herein should not be relied upon by anyone who reads it.

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

29605 U.S. Highway 19, N., Suite 150

Clearwater, Florida 33761

Office (727) 799-1688

Fax     (727) 799-1670

jcorsmeier@jac-law.com

www.jac-law.com

 

Leave a comment

Filed under Attorney Ethics, financial assistance to client, Florida Bar, Florida Bar Rule 4-1.8(e) financial assistance to client, Florida Ethics Opinion 16-1 lawyer cost forgiveness, Florida Lawyer Ethics and Professionalism, joe corsmeier, Joseph Corsmeier, Lawyer ethics, Lawyer Ethics and Professionalism, Uncategorized

Florida Bar’s Professional Ethics Committee concludes that a lawyer can forgive advanced costs after a negligence case is resolved

Hello everyone and welcome to this Ethics Alert blog which will discuss the Bar Professional Ethics Committee’s (PEC) Proposed Advisory Opinion 16-1, which concludes that a lawyer can forgive advanced costs at the conclusion of a negligence case when the lawyer also does not take a fee and inform lien holders and the lawyer advises third parties with an interest in the settlement.  The proposed advisory opinion is here:  Proposed Advisory Op. 16-1.

The PEC considered the issue at its June 17, 2016 meeting at the Bar’s Annual Convention in Orlando.  The underlying circumstances were as follows:  the lawyer had a contingency fee contract with the client and agreed to advance the costs of litigation.  After the case was filed, an appellate decision in another matter eliminated the cause of action.  The parties later reached a settlement, but the settlement amount only slightly exceeded the lawyer’s costs and was about 1/2 of the client’s total medical bills and the costs.

The lawyer waived the contingency fee and then asked the Bar ethics department if he could reduce the amount of the advanced costs so that the client could receive some of the settlement proceeds after the outstanding medical liens and other interests were resolved..  The Bar ethics department opined that this was prohibited under the Bar rules; however, a request was made for the PEC to review it.

The underlying circumstances potentially implicate Florida Bar Rule 4-1.8(e), which prohibits financial assistance to clients “in connection with pending or contemplated litigation” (except for an initial agreement to advance of litigation costs which is contingent upon the outcome (no recovery, no costs), or paying the costs and expenses of an indigent client).

The proposed advisory opinion states the lawyer’s forgiveness of the advanced costs is permitted under the Bar rules since the fee agreement did not make the lawyer unconditionally responsible for the costs “at the outset of the representation”, the cost forgiveness occurred after the settlement of the case, and the lawyer has waived the fees.  The advisory opinion concludes:

In summary, the committee is of the opinion that the inquirer’s proposal not to seek reimbursement for some of the costs the inquirer has advanced on behalf of the client is permissible under these specific circumstances: where there has been no agreement for the inquirer to be unconditionally responsible for the costs at the outset of representation, the cost “forgiveness” occurs after settlement, and the inquirer will receive no fees for the representation. The committee believes that the rule’s prohibition is inapplicable because there was no agreement at the outset of representation for the inquirer to be responsible for the costs, and the committee believes that application of the exception to Rule 4-1.8(e) leads to the same result, as the recovery is insufficient to cover all medical bills and litigation costs and the repayment of the costs is therefore “contingent on the outcome of the matter” under the rule.

The proposed opinion also states that “(i)n negotiating liens, the inquirer must disclose to lien holders that the inquirer will not be taking a fee, will not seek reimbursement for some of the inquirer’s costs, and is seeking to disburse some of the recovery to the client.”  The proposed advisory opinion was published on the Bar’s website and the PEC will consider any comments from Bar members when it meets in October 2016.

Bottom line:  This proposed advisory opinion is clearly a correct result based upon both the language and intent of Florida Bar Rule 4-1.8(e).  In my opinion, the forgiveness of advanced costs after a matter is settled should never be considered to be financial assistance “in connection with pending or contemplated litigation.”

Be careful out there.

Disclaimer:  this Ethics Alert is not an advertisement and does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.

Please note:  Effective June 27, 2016, my new office address is:

29605 U.S. Highway 19 N., Suite 150, Clearwater, Florida 33761

E-mail addresses and telephone numbers below will remain the same. 

My main office number, (727) 799-1688, is temporarily unavailable due to a telephone company issue.  Please call (727) 286-6625 (my rollover number) if you need to contact me immediately.   Thank you. 

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

2454 McMullen Booth Road, Suite 431

Clearwater, Florida 33759

Office (727) 799-1688

Fax     (727) 799-1670

jcorsmeier@jac-law.com

www.jac-law.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leave a comment

Filed under Attorney Ethics, Florida Bar, Florida Lawyer Ethics and Professionalism, joe corsmeier, Joseph Corsmeier, Lawyer ethics, Lawyer Ethics and Professionalism, Lawyer ethics opinions, Lawyer waiving costs and fees, Waiver of costs, waiver of costs financial assistance to client