Can a lawyer charge interest and service fees on litigation advances and unpaid bills, co-sign a client's litigation loan, and deduct phone, postage, and copying costs from a contingent fee?

Plain-English summary

The committee answered four fee-and-financing questions, drawing heavily on ABA opinions. On charging a service and interest charge on litigation advances (Question 1), it relied on ABA Formal Opinion 338 (permitting interest on delinquent accounts with the client advised and in agreement) and on KBA E-51 / DR 5-103(B), under which a lawyer may advance or guarantee the expenses of litigation; the committee reasoned that an interest charge on advancements is simply a further expense of the litigation that may be charged to the client, emphasizing the client must be told of the interest charge.

On co-signing a client's litigation note (Question 2), the committee worked from DR 5-103 and Canon 10 (barring a lawyer from acquiring an interest in the subject matter of the litigation) and from ABA Formal Opinion 320, which approved bar-sponsored note-financing plans but distinguished notes with recourse against the attorney from notes the bank executes without recourse against the attorney. The committee concluded a lawyer may co-sign such a note for litigation funds so long as the note is not without recourse as to the attorney. On interest on unpaid fees (Question 3), it again applied ABA Formal Opinion 338 and saw no ethical problem with charging interest on delinquent fees provided the client is told and agrees. On contingent-fee costs (Question 4), the committee relied on Canon 13, Canon 42, and ABA Formal Opinion 246 (client remains responsible for advanced expenses) and ABA Informal Opinion 337 (the contingent fee must be reasonable regardless of the agreement), concluding that a contingent-fee contract may provide for deducting long-distance calls, postage, stationery, and photocopying from the client's share, but it would be improper if the arrangement made the lawyer's fee unreasonably high.

Currency note

This opinion was issued in 1979 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer charge interest on a client's delinquent bill?

A: Yes, under this opinion, if the client is told the lawyer intends to charge interest and agrees to it. The committee followed ABA Formal Opinion 338.

Q: Can a lawyer charge interest or a service charge on money advanced for litigation?

A: Yes, with disclosure and consent. The committee treated an interest charge on advancements as a further expense of the litigation chargeable to the client.

Q: Can a lawyer co-sign a bank note to fund a client's litigation?

A: Yes, so long as the note is not without recourse against the attorney. The committee followed ABA Formal Opinion 320, which limited the approved arrangement to avoid conflicts of interest.

Q: Can a lawyer deduct phone, postage, and copying costs from a contingent fee?

A: Yes, a contingent-fee contract may specify deducting those costs from the client's share, but not if it makes the lawyer's fee unreasonably high.

Background and rules framework

The opinion applies the former Code's fee and financial-assistance rules, DR 2-106 (reasonable fees), DR 5-103(A) and (B) (proprietary interest in litigation and advancing expenses), and EC 2-20, as elaborated by a series of ABA opinions. The modern analogs are Model Rule 1.5 (fees, including contingent-fee requirements) and Model Rule 1.8(e) (financial assistance to a client in litigation).

Citations and references

Rules of Professional Conduct:

• DR 2-106 (fees), DR 5-103(A) and (B) (litigation interest and expenses), EC 2-20, Canon 10, Canon 13, Canon 42; modern analogs Model Rule 1.5 and Model Rule 1.8(e)

Other opinions cited:

• KBA E-51 (advancing litigation expenses)
• ABA Formal Opinions 246, 320 (Feb. 1968), 338 (Nov. 1974); ABA Informal Opinions 337, C-741
• Missouri Bar Administration 15 (deducting expenses from client's share)

See also

• KBA Ethics Op. E-217: Lawyer Acquiring an Interest in Property
• KBA Ethics Op. E-233: Offsetting Unrelated Fees

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-216.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-216
Issued: May 1979

This opinion was decided under the Code of Professional Responsibility, which was in effect from 1971 to 1990. Lawyers should consult the current version of the Rules of Professional Conduct and Comments, SCR 3.130 (available at http://www.kybar.org), before relying on this opinion.

Question 1:

May an attorney with full consent and disclosure charge a service and interest charge on advancements in litigation?

Answer 1:

Yes.

Question 2:

May an attorney “co-sign” notes for a client in pending litigation for the purpose of advancing funds to cover the cost of litigation?

Answer 2:

Qualified Yes.

Question 3:

May an attorney charge interest and a service charge on unpaid fees with full disclosure and consent of the client?

Answer 3:

Yes.

Question 4:

May an attorney on a contingency fee charge long distance phone calls, postage, stationery and photocopying to the client as “cost” of litigation on a contingent fee arrangement?

Answer 4:

Qualified Yes.

References:

Opinion KBA E-51; Canon 10, 13, 42; DR 2-106, 5-103(A)(B); EC 2-20; ABA Formal Opinion 246, 320 (Feb 1968), 338 (Nov 1974); ABA Informal Opinion 337, C-741
OPINION

Question 1
As stated in ABA Formal Opinion 338, “a necessary corollary to the use of credit cards is the charging of interest on delinquent accounts. It is the Committee’s opinion that it is proper to use a credit card system which involves charging of interest on delinquent accounts.” Furthermore the opinion extends to the lawyer the right to charge his client interest on delinquent accounts provided that the client is advised and agrees to a charging of interest.

It should be emphasized that the client must be told that there is going to be an interest charge on the delinquent accounts.
Opinion KBA E-51, which refers to DR 5-103(B), states that when representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to his client, except that a lawyer may advance or guarantee the expenses of litigation. An interest charge on advancements would seem to be only a further expense of the litigation and as such could be charged against the client.
Question 2
This is an area that lately has received much consideration by the American Bar Association.
ABA Disciplinary Rule 5-103 as well as ABA Canon 10, forbids a lawyer from purchasing any interest in the subject matter of the litigation which he is conducting. DR 5-103 prohibits a lawyer from advancing or guaranteeing financial assistance to his client except that a lawyer can advance or guarantee the expenses of litigation provided the client remains ultimately liable for such expenses. Opinion KBA E-51 prevents an attorney from subsidizing a client during the course of litigation.
ABA Formal Opinion 320 considered whether a bar association could approve a plan which allowed attorneys to participate in a plan for financing legal fees. This plan called for any member of the association, after executing an agreement with the bank, to co-sign a note for a client in pending litigation for the purpose of advancing funds to cover the cost of litigation. ABA Formal Opinion 320 said that it was not unethical per se for a local or state bar association to approve a plan as set out above. The opinion did make a distinction though of a note co-signed by the attorney which was with recourse against the attorney and a note executed without recourse by the bank against the attorney. The opinion stated that possible conflicts of interest would be avoided if recourse against the bank is limited to the client (as it is by endorsement by the attorney without recourse).
Therefore, an attorney can co-sign notes for a client in pending litigation for the purpose of advancing funds to cover the costs of litigation as long as the note is not without recourse as to the attorney.
Question 3
In ABA Formal Opinion 338, it was stated that a lawyer can charge his client interest on accounts that are delinquent for more than a stated period of time. The client, though, must be advised that the lawyer intends to charge interest and agrees to the payment of interest on the delinquent accounts.
Considering ABA Formal Opinion 338, which was addressed to the use of credit cards with an interest charge, there would appear to be no ethical problem for the Kentucky Bar to permit the charging of interest on unpaid fees, provided that the client is told and agrees.
Question 4

ABA Canon 13 permits a contract for a reasonable contingency fee where sanctioned by law but the client must remain responsible to the lawyer for expenses advanced by the latter (ABA Formal Opinion 246). This is reinforced by ABA Canon 42, which allows a lawyer in good faith to advance expenses as a matter of convenience but subject to reimbursement.
Considering that a lawyer is allowed to make various agreements as to how he will set his contingency fee (See ABA Informal Opinion 337, which says that a contingency fee must be responsible, irrespective of agreements) and that a lawyer does not have to advance expenses, it would appear that a provision on a contingent fee contract which would specify that long distance phone calls, postage, stationery and photocopying be deducted from the client’s share would be proper. Of course, it would be improper if it would make the lawyer’s fee unreasonably high.
Other states have considered this issue and have permitted deductions from client’s share of expenses incurred by the lawyer (Missouri Bar Administration 15).
As well, Opinion KBA E-51, citing DR 5-103, states that a lawyer cannot give financial assistance to his client “except that a lawyer may advance or guarantee the expenses of litigation”, provided the client remains ultimately liable. The wording clearly suggests that a lawyer need not advance funds for the cost of litigation. There is no mention in the KBA Opinion that under a contingency basis, this would not be true also.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor rule). The Rule provides that formal opinions are advisory only.