In Kentucky, may a lawyer on a contingent fee agree to advance litigation expenses that the client will never have to repay, win or lose?

Plain-English summary

The Committee was asked whether a lawyer representing commercial creditors in collection cases on a contingent fee may agree to advance litigation expenses without the clients ever being liable to repay them, win or lose. It answered "No."

The opinion explained that Rule 1.8(e)(1) permits a lawyer to advance court costs and litigation expenses and allows the client's responsibility for repayment to be contingent on the outcome; if the case fails to generate a fund for repayment, the lawyer need not sue the client, and the fee contract may declare that the client need not repay the advances if the case is not won. The opinion described this as a modest change from DR 5-103(B), under which the client had to be "ultimately responsible" for repayment even when the case was lost. What the requestor proposed, however, was different: that litigation expenses simply be absorbed by the lawyer in every case, no doubt as a condition of employment, in effect requiring the lawyer to buy the client's legal work. The opinion concluded that practice cannot be reconciled with either the old Code or the new Rules.

Currency note

This opinion was issued in 1990, before the substantial 2009 revisions to Kentucky's Rules of Professional Conduct (SCR 3.130); the Kentucky Bar Association notes the rules are amended periodically. 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 Treat this page as historical context, not current guidance.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 make a client's repayment of advanced costs depend on winning?

A: Yes. The opinion concluded Rule 1.8(e)(1) permits advancing court costs and litigation expenses with repayment contingent on the outcome, so the fee contract may say the client need not repay if the case is lost.

Q: Can a lawyer agree to absorb all litigation expenses in every case, win or lose?

A: No. The opinion concluded that absorbing expenses entirely in every case, in effect buying the client's legal work, cannot be reconciled with the rules or the former Code.

Q: How does Rule 1.8(e)(1) differ from the old Code?

A: The opinion described it as a modest change from DR 5-103(B), under which the client had to be "ultimately responsible" for repayment even when the case was lost.

Background and rules framework

The opinion interprets KRPC 1.8(e)(1) (advancing court costs and litigation expenses with repayment contingent on outcome; Model Rule 1.8(e)), contrasting it with former Code DR 5-103(B), to mark the line between permissible contingent repayment and an impermissible blanket absorption of all expenses.

Citations and references

Rules of Professional Conduct:

• MR 1.8(e) / KRPC 1.8(e)(1) (advancing litigation costs; contingent repayment)

Other authorities:

• DR 5-103(B) (former Model Code; client "ultimately responsible" for repayment)

See also

• KBA Ethics Op. E-359: Defense Contingent Fees
• KBA Ethics Op. E-364: Divorce Contingent Fees
• AL Ethics Op. 1998-01: Contingent Fees for Child Support

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-342.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-342
Issued: November 1990

The Rules of Professional Conduct are amended periodically. Lawyers should
consult the current version of the rules and comments, SCR 3.130 (available at
http://www.kybar.org), before relying on this opinion.

Question:

May a lawyer representing commercial creditors in collection cases on a
contingent fee basis agree to advance litigation expenses without the clients
having liability to repay these advances (under any circumstances of success
or failure of the case)?

Answer:

No.

References:

Rule 1.8(e)(1).
OPINION

Rule 1.8(e)(1) permits the lawyer to advance court costs and expenses of litigation,
and allows the client's responsibility for repayment to be contingent on the outcome of the
litigation. In other words, if the case fails to generate a fund for repayment of the advances,
the lawyer need not sue the client, and it is proper to declare in the fee contract that the
client need not repay the advances if the case is not won.
This represents a modest change from DR 5-103(B), according to which the client
had to be "ultimately responsible" for repayment of advances even when a case was lost.
Neither the letter nor the spirit of the new Rule permits the practice suggested.
What is being suggested is that litigation expenses simply be absorbed by the lawyer in
every case - no doubt as a condition of employment. In other words, the lawyer is
invited - indeed required - to buy the client's legal work. This practice cannot be reconciled
with either the old Code or the new Rules.

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.