Can a Florida lawyer help arrange loans for clients' living expenses repaid from their case settlements?

Plain-English summary

A small loan company registered under Chapter 516, Florida Statutes, was willing to lend living expenses to persons awaiting estate settlements or involved in personal injury or divorce cases. The company would consider an application only on the recommendation of the applicant's lawyer, then make its own determination about the security (the probability of success and recovery), and, if it lent, require both borrower and lawyer to sign a loan disbursement agreement obligating both to see that the loan was repaid from the proceeds before other funds were disbursed. The lawyer had no personal liability on the loan but was obligated to comply with the disbursement agreement.

The committee concluded the lawyer may not participate. DR 5-103(B) forbids a lawyer from advancing or guaranteeing financial assistance to clients, though it allows advancing or guaranteeing litigation expenses if the client remains ultimately liable; EC 5-8 and Opinion 72-27 were to the same general effect, and Opinion 70-8 said a lawyer should not guarantee a client's financial obligation for litigation expenses. The committee declined to expand the limited concept of advancing litigation costs. It reasoned that where the lawyer initiates the loan by recommending the client to the company, he is inherently representing to the company that the client's claim is meritorious, making it unclear whether the lawyer is acting for the client or the lender; and that the relationship between the recovery and the loan amount creates problems for the lawyer's right to recover advanced costs, to a contingent fee, and to pay other litigation expenses. Citing Opinion 65-39, the committee said a lawyer may suggest where a client might try to obtain financial help, but should not become part of the loan process.

Currency note

This opinion was issued in 1975, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Code of Professional Responsibility, which has since been replaced. Treat this page as historical context, not current guidance. Verify against current Rule 4-1.8 before relying on any specific requirement mentioned here.

Common questions

Q: Can a lawyer co-sign a client's loan for living expenses pending settlement?

A: The opinion concluded the lawyer may not participate in such an arrangement, reading DR 5-103(B) to forbid advancing or guaranteeing financial assistance to clients beyond litigation expenses for which the client remains liable.

Q: Why is the lawyer's recommendation a problem?

A: Per the opinion, when the lawyer initiates the loan by recommending the client, he inherently represents to the lender that the claim is meritorious, making it unclear whether the lawyer is acting for the client or the loan company.

Q: Can the lawyer do anything to help a client who needs money?

A: The committee said a lawyer may suggest where a client might try to obtain financial help, citing Opinion 65-39, but should not become part of the loan process.

Background and rules framework

The opinion applied DR 5-103(B) and EC 5-8 of the former Code of Professional Responsibility, governing a lawyer providing financial assistance to a client. That subject corresponds to Model Rule 1.8(e) (financial assistance to clients in litigation); the current Florida counterpart is Rule 4-1.8.

Citations and references

Rules of Professional Conduct (as cited, former Code):

• CPR EC 5-8; DR 5-103(B) (financial assistance to clients)

Statutes:

• Chapter 516, Florida Statutes (small loan businesses)

Other opinions cited:

• Florida Bar Opinions 65-39; 68-15; 70-8; 72-27

See also

• FL Bar Ethics Op. 75-40: Title Company Fee to Lawyer
• FL Bar Ethics Op. 75-17: Suing and Defending the Same Insurer

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-75-24/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-75-24-1.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 75-24
November 30, 1975
Advisory ethics opinions are not binding.
A lawyer may not participate in an arrangement in which a small loan company agrees to make loans for living expenses to the attorney's clients awaiting settlements on the condition that the attorney and client sign an agreement that the loan will be repaid from the settlement proceeds.
CPR: EC 5-8; DR 5-103(B)
Opinions: 65-39, 68-15, 70-8, 72-27
Statute: F.S. §516
Vice Chairman Sullivan stated the opinion of the committee:
A company, duly registered as a small loan business pursuant to Chapter 516, Florida Statutes, is willing to make loans to persons who are awaiting settlement of estates or are involved in personal injury suits or in divorce cases and who are in immediate need of funds for living expenses.
The company considers an application for such a loan only upon the recommendation of a member of The Florida Bar representing the client seeking the loan. The company then makes its own determination about the basic security for each loan, i.e., the probability of success and recovery in the court proceeding. If it decides to make the loan, the company requires both the borrower and his lawyer to sign a loan disbursement agreement which obligates both lawyer and client to see that the loan is repaid from the proceeds of the settlement or judgment before other funds are disbursed.
The loans average between $100 and $600 although on occasion the company makes loans up to its legal limit of $2,500. The loan agreement calls for monthly payments, but in practice the loans are repaid from the proceeds of funds received from court proceedings or not at all. A lawyer representing a loan applicant has no personal liability on the loan but obviously is obligated to comply with the terms of the loan disbursement agreement.
We are asked whether a lawyer may ethically participate in this arrangement, and our answer is that he may not.
DR 5-103(B) forbids a lawyer from advancing or guaranteeing financial assistance to clients except it allows a lawyer to advance or guarantee litigation expenses provided the client remains ultimately liable for them. EC 5-8 and our Opinion 72-27 are to the same general effect. In Opinion 70-8 the Committee said that a lawyer should not guarantee a client's financial obligation for litigation expenses.
In Opinion 65-39, decided under the former Canons, the Committee said a lawyer should not advance living expenses to a client pending settlement of a lawsuit. The Opinion did state that generally lawyers can assist clients in obtaining financial support but did not suggest how this could be done.
In Opinion 68-15, also decided under the former Canons, the Committee disapproved a proposal similar in many ways to the present one. A lawyer proposed instituting a non-profit lending fund financed by contributions from lawyers. The lawyers would process loans to accident victims, and the loans would be secured by assignments of claims and repaid by proceeds of settlements or judgments.
Although the CPR allows a lawyer to advance litigation costs under certain conditions, we do not believe that concept should be expanded. Where the lawyer initiates the loan by recommending his client to the loan company, it seems to us that he is inherently representing to the loan company that the client's claim is meritorious. It becomes unclear whether the lawyer is acting for the client or the loan company.
Even though the lawyer recommending a loan applicant has no personal liability on the loan, the amount of the recovery in court in relation to the amount of the loan also presents problems in relation to the lawyer's right to recover costs he may have advanced and the lawyer's right to a contingent fee from that recovery, as well as payment of other outstanding litigation expenses.
A lawyer may suggest to a client where the client may try to obtain financial help for individual needs, Opinion 65-39, but the lawyer should not become part of the loan process.