Can a contingent-fee lawyer agree to pay the attorney-fee award entered against the client if an appeal of a defense verdict fails?

Plain-English summary

The Committee was asked whether a plaintiff's attorney who has a defense verdict returned in a contingency-fee case may agree to pay the attorney-fee award entered against the client if an appeal of that verdict is unsuccessful. In the scenario, the case has strong points for appeal, counsel will not be paid unless the appeal succeeds, and the client may be reluctant to proceed, possibly because of a settlement offer conditioned on foregoing the appeal.

The opinion concludes that such an agreement is permissible. The Committee interprets the "expenses of litigation" that may be made contingent on the outcome under Alaska RPC 1.8(e) to include costs and attorney fees awarded against a client. It reasons that, although "expenses of litigation" is not defined in the Alaska rules, there is no practical or rational basis for excluding an attorney-fee award from that definition, and that an agreement to pay such an award is a natural extension of, or at least not sufficiently distinguishable from, a traditional and permissible contingency-fee agreement. The opinion also reads Rule 1.8(j), which restates the traditional rule against acquiring a proprietary interest in litigation (rooted in the common-law rules against champerty and maintenance), as excepting reasonable contingency fees and the cost-advance allowance in paragraph (e).

The Committee states that it considered the concerns this conclusion may raise, including whether guaranteeing a fee award is an impermissible loan guarantee, whether it could reduce a client's incentive to weigh the merits before suing, or whether it conflicts with Civil Rule 82's objectives of encouraging settlement and avoiding protracted litigation, along with risks of frivolous litigation, compromised loyalty, or overreaching. The opinion concludes that these risks are generally inherent and acceptable in any contingency-fee representation, and that treating them differently where the contingency is paying an attorney-fee award is not justified.

In practice

Under this opinion, as the Alaska rules stood at the time, a plaintiff's contingent-fee attorney may agree to assume responsibility for an attorney-fee award entered against the client if an appeal fails, because the opinion interprets such an award as an "expense of litigation" under Rule 1.8(e) whose repayment may be made contingent on the outcome. The opinion treats the arrangement as an extension of a permissible contingency fee and states that the attendant risks (compromised loyalty, reduced incentive to assess the merits, frivolous litigation) are the same risks inherent in any contingency-fee representation.

Common questions

Q: Can a lawyer promise to pay the other side's fee award if the client loses?

A: The opinion concludes yes. It interprets an adverse attorney-fee award as an "expense of litigation" under Rule 1.8(e), so the lawyer may agree to pay it with repayment contingent on the outcome.

Q: Isn't paying the client's fee award an improper loan or financial assistance?

A: The opinion says it considered whether the arrangement is an impermissible loan guarantee and concluded it is not; it treats the payment as an advance of an expense of litigation allowed by Rule 1.8(e).

Q: Does Rule 1.8(j)'s ban on a proprietary interest in litigation forbid this?

A: Per the opinion, Rule 1.8(j) restates the traditional champerty-and-maintenance rule but excepts reasonable contingency fees and the cost-advance allowance in paragraph (e), so it does not bar the arrangement.

Background and rules framework

The opinion interprets Alaska Rule of Professional Conduct 1.8(e) and 1.8(j) (Model Rule 1.8). Rule 1.8(e) bars a lawyer from providing financial assistance to a client in connection with litigation, except that a lawyer may advance court costs and "expenses of litigation," the repayment of which may be contingent on the outcome, and may pay such costs for an indigent client. Rule 1.8(j) prohibits acquiring a proprietary interest in the cause of action or subject matter, except for a lien to secure the fee or expenses and a reasonable contingent fee in a civil case. The opinion situates Rule 1.8(j) in the common-law rules against champerty and maintenance and reads the two provisions together to permit the agreement.

Citations and references

Rules of Professional Conduct:

• Alaska RPC 1.8(e) (financial assistance; advancing expenses of litigation)
• Alaska RPC 1.8(j) (proprietary interest in litigation; champerty and maintenance)
• Alaska RPC 1.5 (fees; contingent fee agreements)

Other opinions cited:

• State Bar of Michigan Informal Op. RI-14 (1989) (defining champerty and maintenance)

See also

• ABA Formal Op. 04-432: Posting Bail for a Client
• AK Bar Ethics Op. 2014-4: Lawyer Indemnifying Parties
• ABA Formal Op. 00-416: Buying a Client's Receivables

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/2004-2.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION NO. 2004-2
May An Attorney Contingently Agree to Pay Attorney’s Fees Assessed Against a Client if the Client Loses on Appeal? I. Introduction The Committee has been asked to give an opinion as to whether a plaintiff’s attorney, who has a defense verdict returned in a contingency fee case, is ethically permitted to agree to pay the attorney fee award against his or her client, should an appeal of the verdict be unsuccessful. In the scenario presented, the case has excellent points for appeal, plaintiff’s counsel will not be paid absent a successful appeal, and plaintiff may be reluctant to proceed for various reasons, potentially including a settlement offer made contingent on foregoing appeal. It is the Committee’s opinion that such an agreement is permissible. The Committee interprets “expenses of litigation,” that may be made contingent on the outcome of a matter under Alaska Rule of Professional Conduct 1.8(e), to include costs and attorney fees awarded against a client. II. Analysis The Committee’s analysis is based on its interpretation of Alaska Rule of Professional Conduct 1.8 (e) and (j) which provide: (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 indigent client.
.....
(j) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting for a client, except that the lawyer may:

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(1) acquire a lien authorized by law to secure the lawyer’s fee or expenses; and (2) contract with a client for a reasonable contingent fee in a civil case. While there are no Rule comments to 1.8(e), the section (j) comment notes that paragraph (j) is the traditional rule prohibiting lawyers from acquiring a proprietary interest in litigation, arising out of the common law rules on champerty and maintenance.1 Excepted from this prohibition are “reasonable contingency fees set forth in Rule 1.5 agreements and the exception for certain advances of the costs of litigation set forth in paragraph (e).” Comment, ARPC 1.8 (j). Although the “expenses of litigation” referenced in paragraph (e) are neither defined or explained in the Alaska Rules, the Committee can see no practical or rational basis for excluding an attorney fee award from the definition of “expenses of litigation.” The Committee is also of the opinion that an attorney’s agreement to pay an attorney fee award, is a natural extension of, or at least not sufficiently distinguishable from, a traditional and permissible contingency fee agreement. The Committee is not unaware of concerns its opinion may raise. Consideration was specifically given as to whether permitting an attorney to guarantee the payment of an attorney fee award could be construed as an impermissible loan guarantee or whether it could reduce a client’s incentive to weigh the merits of his or her case before filing suit, or run counter to the other Civil Rule 82 objectives of encouraging settlement and avoiding protracted litigation. Risks of frivolous litigation, compromised loyalty or overreaching on account of an attorney’s economic self-interest were also taken into account. Ultimately, however, it is the Committee’s opinion that all of these risks are generally inherent and acceptable in any contingency fee representation and that viewing them any differently where the contingency is that of paying an attorney fee award is not justified. Thus, the Committee interprets the language, and policy behind, Alaska Model Rule 1.8 (e) and (j) to permit a plaintiff’s attorney to agree to assume responsibility for a clients’ adverse attorney award in the event that an appeal taken is unsuccessful.

1 Champerty has been defined as “an investment in the cause of action of another by

purchasing a percentage of any recovery” and maintenance has been considered “another form of investment by providing living or other expenses to finance litigation.” State Bar of Michigan Informal Opinion RI-14 (1989).

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III. Conclusion
The Committee concludes that “expenses of litigation” may be interpreted to include an adverse attorney fee award, and that under Alaska Model Rule 1.8(e) and (j), the client’s obligation to pay such expense may be made contingent on the outcome of the matter. Approved by the Alaska Bar Association Ethics Committee on February 5, 2004. Adopted by the Board of Governors on April 27, 2004.

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