The Florida Bar
An attorney's involvement with a proposed corporation that would loan money to claimants in personal injury matters would be unethical. Under the proposed plan, in order to ensure repayment of the loan from the recovery the attorney and the client would sign a trust declaration by which the attorney would become a trustee for benefit of the loan company.
March 1, 1993
March 1, 1993
Note: This opinion was approved by the Board of Governors at its February 1993 meeting.
RPC: 4-1.7, 4-1.8(e), 4-3.7(a), 4-8.4(a)
CPR: DR 5-103(B)
Case: The Florida Bar v. McAtee, 601 So.2d 1199 (Fla. 1992)
The inquiring attorney previously received an informal staff opinion concerning the inquiry presented below. At the inquirer's request, the Committee reviewed the staff opinion. Following the Committee's affirmance of the staff opinion, the inquirer petitioned for Board of Governors review. The Board approved the result reached in the staff opinion, but directed that the Committee render an advisory opinion to provide guidance to the practicing bar.
The inquiring attorney states that his client is considering forming a corporation that would loan money to claimants in personal injury matters. The loans would be made pursuant to the following arrangement:
(1) In consideration of the proceeds of the loan, the personal injury claimant would execute and deliver to the lender an interest-bearing promissory note.
(2) In addition to the execution and delivery of the promissory note, the personal injury claimant would execute a trust declaration by which his or her lawyer would become a trustee for the benefit of the lender.
(3) The personal injury claimant's lawyer would sign the trust declaration, thereby accepting responsibility for repayment to the lender of the loan out of the proceeds of the personal injury claim.
(4) The personal injury claimant's lawyer would receive no pecuniary compensation from any source for his or her service as trustee.
(5) The personal injury claimant's lawyer would advance none of his or her funds, either directly or indirectly, to his or her client.
(6) The ownership and management of the lender would be completely independent of the personal injury claimant's lawyer.
The inquiring attorney has asked whether the participation of the personal injury claimant's lawyer in the proposed financing arrangement would be ethically permissible. For the reasons expressed below, the Committee is of the opinion that an attorney's participation in this financing arrangement would be unethical.
In Opinion 75-24 we concluded that it would be improper for an attorney to participate in an arrangement in which a lender would agree to make loans to the attorney's clients for living expenses on the condition that attorney and client sign an agreement that the loan would be repaid from the settlement proceeds. Although Opinion 75-24 was decided under the former Code of Professional Responsibility, for purposes of this inquiry former DR 5-103(B) and present Rule 4-1.8(e) are substantially similar. Rule 4-1.8(e) provides:
(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, the repayment of which may be contingent on the outcome of the matter; and
(2) A lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.
In reality, an attorney who routinely refers clients to a loan company and actively participates in the loan transactions would be providing financial assistance to those clients. Such conduct would be unethical even though the attorney would be providing financial assistance indirectly rather than directly. An attorney may not violate the Rules of Professional Conduct through the acts of another. Rule 4-8.4(a). Therefore, if the loan proceeds were used for anything other than "court costs and expenses of litigation," the attorney would be acting unethically by participating in the proposed financing arrangement.
Other practical problems exist. For example, in some cases a client might stand to receive no cash from a recovery because the client's entire share of the expected recovery proceeds had been "advanced" by, and thus was owed to, the loan company. Upon realizing that no cash would be forthcoming, the client could decide to cease cooperating with the attorney or simply to forego pursuing the matter. In such a situation, the fact that the client's share of the expected recovery already had been received by the client could adversely affect the relationship between attorney and client. The attorney's interest would be served by settlement of the case, yet the client might have little incentive to settle or even to cooperate in pursuing the case.
An attorney's involvement in the loan process to the extent contemplated by the proposed arrangement also would raise the issue of the attorney's duty to arrange for financing on the most advantageous terms available for the client. Would the attorney be obligated to "shop" the client's case to various loan companies in order to obtain the best deal? Must the attorney counsel the client on how much money the client should borrow?
Additional ethical concerns could arise as a result of the attorney's participation in the proposed arrangement. It is apparent that, in the event of a dispute between the client and the loan company, the attorney would be placed squarely in the middle. A principal purpose underlying Rule 4-1.8(e) is to prevent unnecessary conflict between attorney and client. In the view of the Committee, an attorney's involvement in the proposed financing arrangement would serve only to increase the likelihood of such conflict. Furthermore, the attorney's extensive involvement in the loan process could result in the attorney being ethically precluded from representing the client in litigation resulting from the dispute-for example, Rule 4-3.7(a) would prohibit the attorney from representing the client in the litigation if the attorney would be a necessary witness on the client's behalf.
Finally, under existing ethics rules a potential conflict of interest would be present if an attorney acted to protect the lender's interest by agreeing to act as trustee for benefit of the lender. See The Florida Bar v. McAtee , 601 So.2d 1199 (Fla. 1992), and Rule 4-1.7. Attorney McAtee was disciplined for representing a personal injury client while, without that client's knowledge or consent, simultaneously representing the medical provider that had filed a notice of lien against the personal injury client's recovery. Although such conflicts often can be waived by the affected clients, it is evident that our statement in Opinion 75-24 seems especially applicable to the financing arrangement proposed by the inquiring attorney:
Where the lawyer initiates the loan by recommending his client to the loan company, it seems to us that he is inherently representing to the loan company that the client's claim is meritorious. It becomes unclear whether the lawyer is acting for the client or the loan company.
In closing, it is noted that the Committee's opinion is directed at the financing arrangement presented by the inquiring attorney; we have not been asked, nor do we attempt, to provide an opinion concerning ethically proper use of "letters of protection" in personal injury cases.