Practice Tips: Florida’s financial assistance rule explained
Many lawyers have called the Bar’s ethics hotline to ask whether the rules permit them to use their own money to either advance or pay outright a litigation client’s living expenses such as a rent or mortgage payment, food, medical expenses, or settlement proceeds that have either not yet been paid by a defendant or cleared by the bank. Many times, the lawyers who ask these questions have a genuine humanitarian concern regarding the well-being of a destitute or indigent client and want to help because they are financially able.
Questions arise for other lawyers who want to use their own money for client gifts to express appreciation, for promotional purposes, or to maintain client relationships. For example, some lawyers ask whether they may give their clients thank-you or holiday gifts, and, in one case, a lawyer asked whether it was permissible for him to hold a raffle to obtain clients’ email addresses for solicitation purposes where an expensive electronic device was the prize. Another lawyer asked whether he could loan a similar electronic device to his personal injury clients to enhance lawyer-client communication and reduce costs. More recently, a lawyer asked whether his law firm could agree to indemnify a client for litigation losses, such as attorney’s fees, costs, penalties, and damages of any kind.
These questions are primarily governed by Rule 4-1.8(e), Rules Regulating The Florida Bar, which prohibits a lawyer from providing financial assistance to litigation clients and states:
(e) Financial Assistance to Client. A lawyer is prohibited from providing 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.
There are two exceptions to the general prohibition stated in the rule. First, Rule 4-1.8 (e)(1) permits a lawyer to advance court costs and expenses of litigation provided the client repays the advances if there is a recovery. The second and more liberal exception stated in Rule 4-1.8 (e)(2), permits a lawyer to pay an indigent client’s court costs and litigation expenses without any reimbursement requirement. The two exceptions authorized by the rule are permissible because they help ensure access to the courts without encouraging frivolous litigation or giving the lawyer too great a financial stake in the case.
The comment to Rule 4-1.8(e) explains the reasons for the prohibition against financial assistance and the exceptions, and 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 financial 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.”
Michigan Ethics Opinion RI-14 (1989) provides additional background regarding the origin of the prohibition against financial assistance:
“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.”
Rule 4-1.7(a)(2) addresses a lawyer’s duty of undivided loyalty and applies when the lawyer’s personal financial interest impairs the lawyer’s independent professional judgment in representing a client, and states:
(a) Representing Adverse Interests. Except as provided in subdivision (b), a lawyer must not represent a client if:
(1) the representation of 1 client will be directly adverse to another client; or
(2) there is a substantial risk that the representation of 1 or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”
A lawyer whose financial assistance to a client poses a significant financial risk for the lawyer may compromise the lawyer’s ability to keep the client’s interests paramount and would likely create a conflict of interest in violation of Rule 4-1.7(a)(2).
Rule 4-1.8(e) prohibits lawyers from using their own money to either advance or pay outright a litigation client’s living expenses such as rent or mortgage payment, food, medical expenses, or settlement proceeds that have either not yet been paid by a defendant or cleared by the bank, even if the lawyer’s motives are charitable or humanitarian and the lawyer is financially able. None of the foregoing expenses, inter alia, can be categorized as “court costs or expenses of litigation.”
Similarly, there is no exception for living expenses or gifts to indigent litigation clients under the plain language of Florida’s Rule 4-1.8(e), other than expenses of litigation under subdivision (e) (2). However, in The Florida Bar v. Taylor, 648 So. 2d 1190 (Fla. 1995), a case of first impression, the Florida Supreme Court declined to find a rule violation or impose discipline and considered the lawyer’s humanitarian motives in providing used clothing to a client’s child and $200 for the client’s necessities that the referee asserted were not in connection with litigation. See id. at 1191-92 (“[T]he giving of used clothing to a client is not regarded as unethical when there is no agreement for repayment and the clothing is not given in an effort to maintain employment.”).
Except for Taylor, Florida courts have consistently upheld the prohibition against financial assistance to litigation clients as plainly expressed in Rule 4-1.8(e). See The Florida Bar v. Roberto, 59 So. 3d 1101 (Fla. March 3, 2011) (suspending lawyer for one year for, among other violations, giving money to criminal clients); The Florida Bar v. Rue, 643 So. 2d 1080, 1082-83 (Fla. 1994) (suspending lawyer for 91 days for, among other things, providing improper financial assistance to clients in violation of the rule); The Florida Bar v. Suprina, 468 So. 2d 988, 989 (Fla. 1985) (ordering public reprimand for lawyer who improperly advanced loans to clients); The Florida Bar v. Wooten, 452 So. 2d 547, 548 (Fla. 1984) (ordering public reprimand of lawyer for advancing $20,000 to personal injury client for medical bills, maintenance, and support, which was secured by promissory notes and to be repaid from any recovery); The Florida Bar v. Rogowski, 399 So. 2d 1390, 1391 (Fla. 1981) (suspending lawyer for 60 days for, among other things, advancing money to clients in connection with pending litigation that were not expenses of litigation); The Florida Bar v. Dawson, 318 So. 2d 385 (Fla. 1975) (disbarring lawyer for, among other things, repeatedly advancing money to his clients for purposes unrelated to the litigation); State of Florida ex rel. The Florida Bar v. Rhubottom, 132 So. 2d 395 (Fla. 1961) (suspending lawyer for 12 months for, among other things, advancing living expenses to litigation client).
Many other jurisdictions support the prohibition against financial assistance to litigation clients. See, e.g., In Re Hoffmeyer, 656 S.E.2d 376, 378 (S.C. 2008) (“[T]he term ‘financial assistance’ is unambiguous and encompasses both loans and gifts of money.”); Accord In the Matter of Minor Child K.A.H., 967 P.2d 91, 97 (Alaska 1998) (declining to award reimbursement to lawyer who advanced money for client’s living expenses in violation of the financial assistance rule); Mississippi Bar v. Attorney HH, 671 So. 2d 1293, 1298 (Miss. 1996) (reprimanding a lawyer who loaned an indigent personal injury client money for living expenses during pendency of case); Maryland Attorney Grievance Comm’n v. Kandel, 563 A. 2d 387, 391 (Md. App. 1989) (publicly reprimanding lawyer for advancing payments for client’s transportation to obtain medical treatment, which were not litigation expenses).
Other jurisdiction’s ethics opinions provide additional support for the prohibition against financial assistance to litigation clients. See, e.g., Connecticut Ethics Opinion 2011-10 (prohibiting lawyer from paying indigent client’s water bill as impermissible financial assistance in violation of the rule); Accord Missouri Ethics Opinion 125 (prohibiting a lawyer from agreeing to indemnify a client’s opponent for debts owed by the lawyer’s client); Arizona Ethics Opinion 95-01 (prohibiting lawyer from advancing money for rental car, car repair, or insurance deductible to client in connection with pending or contemplated litigation because they are living expenses, not litigation expenses); Illinois Ethics Opinion 95-6 (permitting lawyer to advance costs of medical examination for litigation purposes, but prohibiting lawyer from advancing cost of medical treatment); Connecticut Ethics Opinion 90-3 (prohibiting a lawyer from advancing $300 to prevent a client and his family from being evicted, because there is no “humanitarian” exception to the rule prohibiting financial assistance); South Carolina Ethics Opinion 89-12 (prohibiting lawyer from advancing payment for client’s medical expenses, but permitting lawyer to advance cost of medical reports).
Accordingly, Rule 4-1.8(e) prohibits lawyers from using their own money to buy gifts for litigation clients to express appreciation, for promotional purposes, or to maintain client relationships. If lawyers have no other social relationship with clients other than through their representation of them in a pending or contemplated lawsuit, it may be assumed that any gifts offered to them are in connection to the litigation and therefore prohibited by Rule 4-1.8(e). See Taylor at 1192 (Grimes, C.J., dissenting). Lawyers are therefore advised against giving thank-you or holiday gifts or gift cards, which may be construed as a cash equivalent. The rule also prohibits a lawyer from raffling off an electronic tablet to litigation clients to obtain their email addresses. Such an offer would likely be unduly manipulative and a prohibited economic incentive under Rule 4-7.15(d). Although advertisements to clients are exempt from the filing requirement, they are not exempt from the lawyer advertising rules, and Rule 4-7.15(d) would apply. Additionally, expensive gifts, such as an electronic tablet, may also create a conflict of interest under Rule 4-1.7(a)(2).
Although Florida’s rules prohibit gifts to litigation clients, some jurisdictions permit or prohibit gifts depending on whether the lawyer’s motives are charitable or pecuniary. Compare Utah Ethics Opinion 11-02 (2011) (prohibiting a gift when the attorney’s motive is to elicit trust from a difficult client) and Arizona Ethics Opinion 95-09 (1995) (prohibiting a client gift “to keep the client happy, to induce the client to refer future clients to him, to improve his firm’s goodwill, or for other business considerations”), with Arizona Ethics Opinion 91-14 (1991) (permitting an attorney to pay outright rather than advance $20,000 in medical expenses for personal injury client, because the attorney was retained prior to his decision to make the gift, the client was not obligated to repay the gift, and the attorney was proceeding from charitable rather than pecuniary motives).
The lawyer who asked whether or not he could loan an electronic device to his personal injury clients to enhance communication and reduce costs was denied an ethics opinion because of no prior precedent under Rule 4-1.8(e), but he was advised by the Standing Committee on Advertising that the loan offer to prospective clients was permissible under Rule 4-7.15(d) and did not provide a prohibited economic incentive to hire the lawyer or view his advertising, because the inquiring lawyer stated that the client’s use of the device would be restricted to review of materials related to the client’s case and disabled to prevent the client’s personal use.
Finally, the lawyer who asked whether his firm could agree to indemnify a client for litigation losses, such as attorney’s fees, costs, interest, penalties, damages, and to otherwise make the client whole, was advised against agreeing to the indemnification terms and was told that the proposed terms went beyond the permissible limits of Rule 4-1.8(e), and that the rule provides no exception for indemnification agreements. The lawyer was further advised that the indemnification terms would likely require the lawyer to provide financial assistance to the client in violation of Rule 4-1.8(e) and create a conflict of interest by requiring the lawyer to assume unreasonable personal financial risk, in violation of Rule 4-1.7 (a)(2).
In sum, the Florida Rules of Professional Conduct expressly prohibit lawyers from providing financial assistance to clients in pending or contemplated litigation other than to advance litigation costs that the client will reimburse or to pay outright the litigation costs incurred by an indigent client.