Can a D.C. lawyer pass on to the client the interest the firm pays on a line of credit it used to advance the costs of the client's case?

Plain-English summary

Opinion 345 (published July 2008) responds to a personal-injury firm that wants to use its bank line of credit to pay litigation costs (copying, deposition transcripts, court costs, expert witnesses, and similar disbursements) and then pass the resulting bank interest on to the client at the end of the case. The Committee concludes the firm may do so, subject to conditions.

The opinion frames the alternatives: either the client pays disbursements as they are incurred (perhaps borrowing and paying interest directly), or the firm absorbs them and likely spreads the cost across all clients through higher fees. Rule 1.8(d) permits, but does not require, a lawyer to advance the costs of litigation, so neither alternative is mandated. Charging a client for the costs of prosecuting that client's own case is clearly allowed: Comment [2] to D.C. Rule 1.5 lets a lawyer seek payment for expenses such as filing fees, copying, and transcripts, and Rule 1.5(b) requires that, when the lawyer has not regularly represented the client, the basis of those expenses be communicated to the client in writing before or within a reasonable time after the representation begins. Neither the Rules nor the Comments mention interest specifically.

The opinion sets several conditions. The interest must be directly attributable to that client's case; a lawyer may not pass on the carrying cost of a credit line used for general operating expenses, because those overhead costs should be absorbed by the lawyer or spread fairly among all clients. The lawyer must keep detailed accounts of the amount of any advance and the interest the lender charges attributable to the client's costs (and may wish to maintain a separate credit line for cost advances). The interest charged must be reasonable, and the opinion states the lawyer "will have the burden of establishing the reasonableness" of the charges. It is improper to pass on late fees or account-maintenance costs that result from the lawyer's own inefficient or imprudent management of the credit line. The opinion also concludes that any fee agreement including interest costs should be made at the start of the representation; citing Opinion 310 (2002), it notes that changing a fee agreement mid-representation is subject to "strict scrutiny" because of the possibility of overreaching (quoting Chase v. Gilbert).

In practice

Under the D.C. rules as they stood at the time of the opinion, a lawyer may bill a client for the interest the firm incurs on a line of credit used to advance that client's litigation costs, if the client is informed in advance and agrees, the charge is reasonable and separately accounted for, and it is tied to that client's case rather than to firm overhead. The opinion concludes the lawyer bears the burden of establishing the reasonableness of the interest charged.

The opinion concludes that a lawyer may not pass on interest from a credit line used for general operating expenses, nor late fees or maintenance charges arising from the lawyer's own mismanagement, and that any arrangement to charge interest should be set at the outset of the representation. Because the opinion predates later rule developments, verify the current D.C. rules before relying on specific requirements.

Common questions

Q: Can a lawyer charge a client interest on money the firm borrows to advance the costs of that client's case?

A: The opinion concludes yes, if the client is informed in advance and agrees, the charge is reasonable, the lawyer keeps a separate accounting, and the interest is directly attributable to that client's case.

Q: Can a lawyer spread the cost of the firm's general line of credit across clients?

A: No. The opinion concludes a lawyer may charge only interest directly attributable to a client's case; interest on a credit line used for overhead must be absorbed by the lawyer or recovered through fees.

Q: What record-keeping does the opinion require?

A: The opinion concludes the lawyer must keep detailed accounts of the amount advanced and the interest the lender charges attributable to the client's costs, and the lawyer bears the burden of establishing that the interest is reasonable.

Q: When should the interest arrangement be agreed?

A: The opinion concludes the arrangement should be made at the beginning of the representation. Citing Opinion 310, it notes that changing a fee agreement during an ongoing representation faces strict scrutiny for overreaching.

Background and rules framework

The opinion interprets D.C. Rule 1.5 (fees), including Comment [2] (expenses a lawyer may seek payment for) and Rule 1.5(b) (written communication of the basis of fees and expenses), together with D.C. Rule 1.8(d), which permits but does not require a lawyer to advance the costs of litigation. The D.C. financial-assistance provision is Rule 1.8(d); the analogous Model Rule provision is Model Rule 1.8(e). The opinion builds on Opinion 310 (2002), which addressed charging interest on unpaid fees.

Citations and references

Rules of Professional Conduct:

• D.C. RPC 1.5, Comment [2], and 1.5(b) / Model Rule 1.5 (fees; written communication of the basis of fees and expenses)
• D.C. RPC 1.8(d) / Model Rule 1.8(e) (advancing the costs of litigation)

Cases:

• Chase v. Gilbert, 499 A.2d 1203 (D.C. 1985) (overreaching in changing fee terms)

Other opinions cited:

• D.C. Ethics Op. 310 (2002) (charging interest on fees not paid promptly; strict scrutiny of mid-representation fee changes)

See also

• CA Op. 1976-38: Advancing Litigation Costs for a Client
• ABA Formal Op. 484: Client Fee-Financing Companies
• DC Ethics Op. 348: Credit Cards for Legal Fees

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-345