Can a lawyer help a client get a loan to pay the lawyer's fees and litigation costs?

Plain-English summary

The Board addressed the ethical propriety of an attorney arranging for a client to obtain loan financing to pay the attorney's fees and litigation expenses. The opinion concludes that referring a client to a bank or other lending institution for a loan covering legal fees and costs is generally consistent with the attorney's duty to make legal services available, preserving the integrity and independence of the legal profession. In making such a referral, the attorney need not determine that the credit arrangements are fair or otherwise become involved, provided the attorney has complied with HRPC 1.2(c), which permits limiting the scope of representation where reasonable and with the client's consent after consultation.

The opinion concludes that an attorney may provide substantial assistance in arranging financing for fees and litigation expenses if four conditions are met: the credit charges are not usurious; the client is fully informed of the terms of the credit arrangement; if the attorney or firm has a financial interest in the lender or will gain financially from the arrangement, that fact is disclosed to the client in advance of the application; and, although the attorney need not determine that the terms are objectively fair, the attorney should suggest that the client consult independent counsel for that determination.

The opinion defines "substantial assistance" as personal involvement in assisting and securing financing, beyond the mere referral to a lending institution.

In practice

Under this opinion, a Hawaii lawyer who does more than hand a client a lender's name, by personally helping arrange the financing, takes on the four conditions the opinion sets: non-usurious charges, full disclosure of terms, advance disclosure of the lawyer's own financial stake in the lender, and a recommendation that the client get independent advice on fairness. The opinion holds that a bare referral carries the lighter obligation of complying with HRPC 1.2(c)'s limited-scope requirements.

Common questions

Q: Can a lawyer refer a client to a bank to borrow money for the lawyer's fees?

A: The opinion concludes yes; such a referral is generally consistent with making legal services available, provided the attorney complies with HRPC 1.2(c).

Q: What if the lawyer actively helps arrange the loan?

A: Per the opinion, that "substantial assistance" is permitted only if the charges are not usurious, the client is fully informed of the terms, any financial interest of the lawyer in the lender is disclosed in advance, and the lawyer suggests the client consult independent counsel on fairness.

Q: Must the lawyer guarantee the loan terms are fair?

A: No. The opinion concludes the attorney need not determine that the terms are objectively fair, but should suggest the client obtain an independent determination.

Background and rules framework

The opinion interprets HRPC 1.2(c) (limiting the scope of representation with the client's consent), read against the lawyer's interest in the financing arrangement. The disclosure-of-interest and independent-counsel conditions reflect the concerns of Model Rule 1.8 on business and financial dealings affecting a client, and HRPC 1.2(c) corresponds to Model Rule 1.2(c).

Citations and references

Rules of Professional Conduct (Hawaii; cf. Model Rules):

• HRPC 1.2(c) (limited-scope representation) (cf. Model Rule 1.2(c))
• Disclosure of the lawyer's financial interest in the lender (cf. Model Rule 1.8)

See also

• Alaska Ethics Op. 79-1: Charging Interest on Unpaid Legal Bills
• Alaska Ethics Op. 74-3: Contingent Fee When the Client Could Pay Hourly

Source

• Landing page: https://dbhawaii.org/legal-ethics-advice-for-hawaii-lawyers/
• Original PDF: https://dbhawaii.org/wp-content/uploads/FO_34.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.
Disciplinary Board of the Hawai#i Supreme Court
201 Merchant Street, Suite 1600
Honolulu, Hawai#i 96813
Telephone (808) 599-1909
www.odchawaii.com
Chairperson

Hon. Clifford L. Nakea (Ret.)
Vice Chairperson

Hon. Leslie A. Hayashi
Secretary

Nathan J. Sult, Esq.
Treasurer

Joy M . M iyasaki, Esq.
Filing Clerk

Board M embers
James L. Branham, Esq.
Gary M . Farkas, Ph.D., M BA
Diane D. Hastert, Esq.
Philip D. Hellreich, M .D.
Shelton G.W. Jim On, Esq.
Harrilynn K. Kame#enui, Esq.
Hon. Evelyn B. Lance (Ret.)
Philip H. Lowenthal, Esq.
Jeffrey P. M iller, Esq.
Carolene N. Kawano Neely, M .S.W., M .Ed.
Jeffrey S. Portnoy, Esq.
Irwin J. Schatz, M .D.
Judith A. Schevtchuk, Esq.
Asst. Chief Eugene Uemura, (Ret.), M A.Ed.

Faye F. Hee
Board Counsel

Bradley R. Tamm, Esq.

FORMAL OPINION NO. 34
Inquiry has been made regarding the ethical propriety of an
attorney arranging for a client to obtain loan financing to pay
(a) the attorney's fees, and (b) litigation expenses.
An arrangement whereby an attorney refers a client to a bank
or other lending institution to obtain a loan for legal fees and
costs is generally regarded as consistent with the attorney's duty
to make legal services available, thus preserving the integrity
and independence of the legal profession. In making such a
referral, an attorney need not determine that the credit
arrangements are fair to the client or otherwise become involved
in such arrangements, provided the attorney has complied with HRPC
Rule 1.2(c) (“A lawyer may limit the scope of the representation
if the limitation is reasonable under the circumstances and the
client gives consent after consultation”).
An attorney may provide substantial assistance in arranging
financing for a client to pay the attorney's legal fees and to pay
litigation expenses provided the following conditions are met: (a)
the credit charges are not usurious; (b) the client is fully
informed as to the terms of the credit arrangement; (c) if the
attorney or law firm has a financial interest in the lending
institution or will gain financially in any way from the credit
arrangement, that fact is made known to the client in advance of
the client's application for financing, and (d) although an
attorney is not required to determine that the terms of a
particular credit arrangement are objectively fair to the client,
the attorney should suggest that the client consult with
independent counsel for that determination. "Substantial
assistance" is defined as personal involvement in assisting and
securing financing, beyond the mere referral to a lending
institution.

The Disciplinary Board’s mission is to maintain the integrity of the legal profession
and protect the public from professional misconduct by attorneys.

DATED:

Honolulu, Hawai#i, August 2, 1994
James A. Kawachika
Chairperson, Disciplinary Board

UPDATED:

Honolulu, Hawai#i, March 19, 2015

Hon. Clifford L. Nakea (Ret.)
Chairperson, Disciplinary Board

FORMAL OPINION NO. 34, Page 2.