ABA 2018-11-27

Can a lawyer refer a client to a finance company or broker to borrow money to pay the lawyer's fee?

Short answer: Yes. The opinion concludes a lawyer may refer a client to a fee-financing company or broker in which the lawyer has no financial interest, provided the lawyer complies with Rules 1.2(c), 1.4(b), 1.5(a) and (b), 1.6, 1.7(a)(2), and 1.9(a). If the lawyer owns an interest in the finance company, Rule 1.8(a) on business transactions with clients also applies.

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ethics opinion (PDF)

ABA Formal Opinion 484: Clients Using Companies or Brokers to Finance a Lawyer's Fee

Short answer: The opinion concludes that a lawyer may refer a client to a fee-financing company or broker in which the lawyer has no ownership or other financial interest, provided the lawyer complies with Model Rules 1.2(c), 1.4(b), 1.5(a) and (b), 1.6, 1.7(a)(2), and 1.9(a); if the lawyer acquires an ownership or other financial interest in such a company and then refers clients to it, the lawyer is entering a business transaction with the client and must also comply with Rule 1.8(a).

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the American Bar Association's Model Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

Plain-English summary

The opinion addresses arrangements in which a client borrows money from a third-party finance company, or works through a broker who locates a lender, to pay the lawyer's fee. After surveying several common scenarios (where the finance company pays the lawyer directly minus a financing fee, or pays the client who then pays the lawyer), the opinion concludes these arrangements are permissible if the lawyer satisfies a set of Model Rules.

The opinion applies Rule 1.4(b) to require the lawyer to explain the arrangement enough for the client to make informed decisions, which depending on the facts may include the lawyer's relationship with the finance company or broker, any fees the lawyer pays the company, how the lawyer's fee will be paid, the costs and benefits to the client, the lawyer's confidentiality obligations toward the finance company, and any other material factor. Under Rule 1.2(c), a lawyer who does not want to advise the client on the costs, benefits, or terms of the financing may limit the scope of the representation with the client's informed consent, given the risk a client might otherwise assume the lawyer has evaluated and endorsed the loan terms.

On fees, the opinion applies Rule 1.5(a): the fee must be reasonable, and "if the lawyer increases the fee for the representation above what the lawyer normally charges... the fee charged to the client must still be reasonable," with the increase disclosed under Rule 1.4(b). Loan proceeds used to pay a flat fee must be handled under the jurisdiction's flat-fee rules, with unearned amounts refunded. Under Rule 1.6, the lawyer "may not reveal information regarding the client's representation to the company, broker, or lending bank except as permitted under Rules 1.6(a) or (b)."

The opinion flags conflicts. Under Rule 1.7(a)(2), the lawyer must watch for a material-limitation conflict, the chief risk being that the lawyer recommends financing to assure payment even where it is not in the client's interest; the lawyer may avoid this by not recommending financing, or proceed with the client's informed consent under Rule 1.7(b). If the lawyer previously represented the finance company, Rule 1.9(a) requires considering material adverseness and obtaining the former client's informed consent where needed. The opinion concludes that a financing or subscription fee deducted from the lawyer's payment is not impermissible fee-sharing under Rule 5.4(a), likening it to a credit-card merchant fee, and that "this is not a situation to which the Model Rule 5.4(a) prohibition on fee-sharing is meant to apply." Finally, a lawyer who owns the finance company and refers clients to it must comply with Rule 1.8(a).

In practice

Under this opinion, a lawyer may point a client to a fee-financing company or broker the lawyer has no stake in, so long as the lawyer explains the arrangement, keeps the total fee reasonable, protects client confidences, and manages conflicts. The opinion holds that the lawyer must disclose the relationship and any fees the lawyer pays the company under Rule 1.4(b), may limit the scope of advice about the financing under Rule 1.2(c), may not raise the fee to an unreasonable level to recoup a financing fee, and may not share client information with the lender beyond what Rule 1.6 permits. It holds that a financing fee deducted from the lawyer's payment is not impermissible fee-sharing, and that a lawyer who owns the finance company must satisfy Rule 1.8(a)'s requirements for business transactions with a client.

Common questions

Q: Can I refer my client to a company that will lend them money to pay my fee?

A: Per the opinion, yes, if you have no ownership interest in the company and you comply with Rules 1.2(c), 1.4(b), 1.5(a) and (b), 1.6, 1.7(a)(2), and 1.9(a).

Q: Can I raise my fee to cover the financing fee the company charges me?

A: The opinion says any fee, including one increased to account for a financing or subscription fee, must still be reasonable, and the lawyer must tell the client about the higher fee under Rule 1.4(b).

Q: Is the financing fee the company deducts from my payment improper fee-sharing with a nonlawyer?

A: The opinion says no. It treats the deducted financing or subscription fee like a credit-card merchant fee and concludes Rule 5.4(a)'s fee-sharing prohibition is not meant to apply.

Q: What if I own a piece of the finance company?

A: The opinion says referring a client to a company the lawyer owns is a business transaction with the client, so the lawyer must also comply with Rule 1.8(a), including fair terms, written disclosure, advising the client to seek independent counsel, and informed written consent.

Background and rules framework

The opinion interprets Model Rule 1.5 (fees), Model Rule 1.4(b) (communication), and Model Rule 1.2(c) (limiting scope), and applies Model Rule 1.6 (confidentiality), Model Rule 1.7(a)(2) (material-limitation conflicts) with 1.7(b), and Model Rule 1.9(a) (former clients). It analyzes Model Rule 5.4(a) (fee-sharing with nonlawyers) and Model Rule 1.8(a) (business transactions with clients) for the case where the lawyer owns the finance company.

Citations and references

Rules of Professional Conduct:

ABA Model Rule 1.2(c), 1.4(b), 1.5(a) and (b) (scope, communication, reasonable fees)
ABA Model Rule 1.6 (confidentiality), 1.7(a)(2) and (b) (conflicts), 1.9(a) (former clients)
ABA Model Rule 5.4(a) (fee-sharing), 1.8(a) (business transactions with clients)

Other opinions cited:

ABA Formal Op. 00-419 (2000): use of credit cards to pay legal fees

Source

Landing page: ABA Formal Ethics Opinions index
Original PDF: aba-formal-opinion-484.pdf