The Professional Ethics Committee has issued Proposed Advisory Opinion 16-1 reprinted below. Pursuant to Rule 4(c) and (d) of The Florida Bar Procedures for Ruling on Questions of Ethics, comments from Florida Bar members are solicited on the proposed opinion. The committee will consider any comments received at a meeting to be held on Friday, October 21, 2016, from 9:30 a.m. until 12:30 p.m. at the Tampa Airport Marriott in conjunction with The Florida Bar Fall Meeting. Comments must contain the proposed advisory opinion number and clearly state the issues for the committee to consider. A written argument may be included explaining why the Florida Bar member believes the committee's opinion is either correct or incorrect and may contain citations to relevant authorities. Comments should be submitted to Elizabeth Clark Tarbert, Ethics Counsel, The Florida Bar, 651 E. Jefferson Street, Tallahassee 32399-2300, and must be postmarked no later than 30 days from the date of this publication.
PROPOSED ADVISORY OPINION 16-1 (June 17, 2016). Advisory ethics opinions are not binding.
A member of The Florida Bar has requested an advisory ethics opinion. The operative facts as presented in the inquiring lawyer's letter are as follows.
The inquirer represents a client in a negligence case. Subsequent to stating a cause of action, an appellate decision changed the law, which eliminated the cause of action. The parties then reached a settlement. The total of the client’s outstanding medical bills and costs are nearly double the amount of the settlement. The inquirer advanced the litigation costs on behalf of the client, to be repaid by the client contingent on the outcome of the matter. The settlement exceeds the amount of costs advanced by the inquirer by a small amount. The inquirer, who is not taking a fee, would like to reduce the amount of costs owed to the inquirer by the client so that the client may receive some of the settlement after resolving outstanding medical liens and subrogated interests.
The inquirer asks whether the inquirer may reduce the amount of the costs that the client owes the inquirer in light of Florida Ethics Opinion 96-1, which states that a lawyer cannot agree to be unconditionally responsible to pay for a client’s litigation costs.
Rule 4-1.8(e), Rules Regulating the Florida Bar, is the rule regarding financial assistance to clients. The rule states:
(e) Financial Assistance to Client. 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.
The comment to the rule elaborates and explains the reasons for the prohibition against financial assistance:
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.
This rule prohibits an attorney from providing financial assistance to a client in connection with pending or contemplated litigation. The rule, however, contains an exception permitting the attorney to advance court costs and expenses of litigation on behalf of a non-indigent client, the repayment of which may be contingent on the outcome of the matter. See, e.g., Florida Ethics Opinion 72-27; Iowa Opinion 93-2; Mississippi Opinion 225; North Carolina Opinion 124. Although this exception permits attorney and client to agree that the client's repayment of advanced costs and expenses will be contingent on the outcome of the matter, it clearly contemplates that such repayment will be made if a sufficient recovery is obtained. In contrast, the inquiring attorney proposes an outright payment of costs for a non-indigent client, rather than an advancement.
The concerns raised by Rule 4-1.8(e) are that of the common law doctrines of champerty and maintenance, as well as the conflict of interest created when an attorney has a personal economic interest in the outcome of the matter. The committee recognizes that the concerns underlying the rule may be minimized when the client is a state agency, but is constrained to apply the rule as it is written. Accordingly, the committee concludes 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 committee is of the opinion that the inquirer’s proposal is permissible under the specific circumstances presented. The committee is of the opinion that the prohibition against a lawyer providing financial assistance to a litigation client expressed by Rule 4-1.8(e) and Florida Ethics Opinion 96-1 is inapplicable to the inquirer’s circumstances. The committee believes that both the rule and opinion were intended to prohibit agreements made at the outset of representation for the lawyer to be unconditionally responsible for costs of litigation.
Even assuming the general prohibition against financial assistance is applicable to these circumstances, the committee is of the opinion that the underlying basis for the rule, the common law concerns of champerty and maintenance, does not appear to be present with the inquirer’s facts. The inquirer proposes to forgo reimbursement of advanced costs at the end of the matter. The inquirer’s decision at the end of representation to “forgive” some of the advanced costs did not affect the inquirer’s independent professional judgment during the representation, including giving advice on settlement. The committee is of the opinion that in particular, there is no effect on the inquirer’s judgment where the inquirer will not take any fees for the representation.
The committee also is of the opinion that the inquirer’s proposal is permissible under these circumstances because, under the facts presented, the settlement is insufficient to cover the client’s medical bills and costs associated with the representation. Thus, the committee is of the opinion that the exception allowing a lawyer to advance costs of litigation and make those advanced costs “contingent on the outcome of the matter” would permit the inquirer to reduce the amount of the costs the inquirer seeks to be reimbursed from the recovery, as the recovery is insufficient to cover all medical bills and litigation costs. The inquirer’s decision to not seek reimbursement from the client for some of the costs that the inquirer has advanced on behalf of the client is thus contingent on the outcome of this matter: that the settlement does not cover the total amount of the client’s medical bills and the costs advanced by the inquirer.
The committee cautions the inquirer to be mindful of the inquirer’s obligations to third parties to whom the inquirer owes a legal duty and who have an interest in the settlement funds held in trust by the inquirer under Rule 5-1.1(f) and the comment, and the inquirer’s general obligation of candor expressed in Rules 4-4.1 and 4-8.4(c). In 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.
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.