Can a lawyer let a third party (here a university and its insurer) pay the client's defense fees under conditions like consultation rights and a no-future-adversity clause?

Plain-English summary

A lawyer had represented a university professor on appeal of an affirmative-action finding of sexual harassment, obtaining a reversal. The student then filed an assault and battery charge against the professor, and the university and its insurer were willing to provide and pay for the professor's defense, under conditions including a "reservation of rights" (repayment if the defense failed), a bar on the lawyer ever representing anyone adverse to the university arising from the circumstances (including the professor and family), disclosure of legal theories and defenses, and "consultation" before any "major turn in the direction of the defense," though the agreement did not cede control of the defense.

The opinion analyzed the arrangement under the third-party-payment and independence rules. MRPC 1.8(f) permits accepting compensation from someone other than the client only if the client consents after consultation, there is no interference with the lawyer's independent professional judgment or the client-lawyer relationship, and client information is protected under MRPC 1.6. MRPC 5.4(c) bars a lawyer from letting a payer direct or regulate the lawyer's professional judgment. MRPC 2.1 requires independent judgment and candid advice, and MRPC 1.7(b) bars a representation materially limited by the lawyer's responsibilities to a third person absent the conditions it sets.

The opinion concluded the lawyer must exercise judgment about whether the agreement is appropriate, and that the client's consent is not sufficient if the agreement would adversely affect the representation, would regulate the lawyer's judgment, would interfere with the lawyer's independence or the client-lawyer relationship, or would fail to protect privileged information. On these terms, the opinion found nothing that necessarily required any of those factors to come into play, so absent more, the agreement could be entered into with the client's full and knowing consent, though the lawyer must consider whether known facts make a violation of those limits likely. The opinion noted the standard is not entirely subjective, quoting the Comment to MRPC 1.7 that where a disinterested lawyer would conclude the client should not agree, the lawyer cannot ask for that agreement, and it called it prudent to recommend the client seek independent advice from a disinterested lawyer.

Currency note

This opinion was issued in 1997, before later amendments to the Michigan Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can someone other than the client pay the lawyer's fees?

A: Yes, but only under MRPC 1.8(f): the client must consent after consultation, there must be no interference with the lawyer's independent judgment or the client-lawyer relationship, and client information must be protected.

Q: Is the client's consent always enough?

A: No. The opinion concluded consent cannot cure an arrangement that would adversely affect the representation, regulate the lawyer's judgment, interfere with independence or the relationship, or fail to protect privileged information.

Q: Can the third-party payer get consultation rights and disclosures?

A: The opinion concluded that on the terms presented, nothing necessarily triggered the prohibited factors, so absent more the agreement could be entered into with the client's full and knowing consent; the lawyer must judge whether known facts make a violation likely.

Q: Should the client get separate advice?

A: The opinion concluded it would be prudent to recommend that the client seek independent advice from a disinterested lawyer on the arrangement.

Background and rules framework

The opinion interpreted MRPC 1.8(f) (Model Rule 1.8) on accepting compensation from a third party, MRPC 5.4(c) (Model Rule 5.4) barring a payer from directing the lawyer's judgment, MRPC 2.1 (Model Rule 2.1) on independent judgment and candid advice, and MRPC 1.7(b) (Model Rule 1.7) on material limitation by duties to a third person, quoting its disinterested-lawyer Comment. It cited CI-976.

Citations and references

Rules of Professional Conduct:

• MR 1.8 / MRPC 1.8(f) (compensation from one other than the client)
• MR 5.4 / MRPC 5.4(c) (no direction of judgment by a payer)
• MR 2.1 / MRPC 2.1 (independent judgment; candid advice)
• MR 1.7 / MRPC 1.7(b) (material limitation by duties to a third person)

Other opinions cited:

• Michigan CI-976: third-party payment of legal fees

See also

• Mich Ethics Op. RI-132: third-party-paid settlement and limited-scope representation
• Mich Ethics Op. RI-275: lawyer-owned ADR business serving related lawyers' clients
• Mich Ethics Op. RI-114: splitting probate and wrongful-death fees from one estate

Source

• Landing page: https://www.michbar.org/opinions/ethics/numbered_opinions?OpinionID=1163&Type=6

Original opinion text

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

RI-293

June 2, 1997

SYLLABUS

A lawyer cannot enter into an agreement to have fees paid by a third party, if the circumstances lead the lawyer to believe that there would be any interference with the lawyer's independence of professional judgment or with the client-lawyer relationship, nor can the agreement be made if any of its terms lead the lawyer to believe that the representation would be adversely affected, regardless of the consent of the client. If the lawyer is satisfied that there would be no interference with the lawyer's professional judgment, and if the agreement would not adversely affect the lawyer's representation, the agreement can be entered into only if the client consents after full disclosure.

References: MRPC 1.9(b), 1.8(f), 2.1, 5.4(c); CI-976.

TEXT

A lawyer represented a university professor on appeal of an affirmative action proceeding wherein a university affirmative action officer determined that the professor had sexually harassed a student. The lawyer prepared a report in representation of the professor which resulted in the reversal of the decision by the university's dean. Apparently the reversal was based on a lack of credibility of the complainant, and errors in the affirmative action officer's investigation.

The student filed an assault and battery charge against the professor arising out of the circumstances. The university and its insurer are willing to enter into an agreement to provide the legal defense, and pay the legal fees for the lawyer that represented the professor in the affirmative action proceeding. The payment will be made with certain conditions, including a "reservation of rights," in that the university is to be repaid if the defense to the civil cause of action is unsuccessful.

The university seeks various agreements as a contingency to the attorney's representation of the client. These restrictions include a prohibition on the lawyer's future representation or participation "directly or indirectly" in any action adverse to the interests of the university arising out of the circumstances. This includes any potential party, including the professor or the professor's family. The university also demands disclosure of information relative to ongoing legal theories and defenses. While the agreement does not cede any control of the defense to the university or it's insurer, it does require "consultation" before there is any "major turn in the direction of the defense" of the case.

MRPC 1.7(b) states:

"(b) a lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests unless:

"(1) the lawyer reasonably believes the representation will not be adversely affected; and

"(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved." Emphasis added.

The attorney-client relationship is not simply one to appear and prosecute a legal proceeding. "In representing a client, a lawyer shall exercise independent professional judgement and shall render candid advise. In rendering advise, a lawyer may fully refer not only to the law but to other considerations such as moral, economic, social, and political factors that may be relevant to the client's situation." MRPC 2.1.

MRPC 5.4(c) states:

"(c) A lawyer shall not permit a person who recommends, employs, or who pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgement in rendering such legal services."

Finally, the transaction involved must comply with MRPC 1.8(f) which states:

"(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:

"(1) the client consents after consultation;

"(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and,

"(3) information relating to representation of a client is protected as required by Rule 1.6." Emphasis added.

The lawyer representing the party must exercise judgment in determining whether the agreement is appropriate. Consent is not sufficient to allow the agreement if any of the following will result:

• The agreement will in any way adversely affect the representation of the client;

• The agreement is thought by the lawyer to represent an attempt to regulate the lawyers professional judgment and advice;

• If the lawyer determines that there will be any interference in the independence of professional judgment, or otherwise interfere with the client-lawyer relationship; or

• If the agreement fails to protect privileged information relating to representation of the client.

There is nothing in the terms of the retention that would ethically prohibit the arrangement. There does not appear to be any provision which would necessarily require any of the above factors to come into play, and result in an inability to enter into the contract. It is possible that the lawyer is aware of circumstances of facts that would cause one or more of the above factors to be present. The lawyer must consider whether there are factors which make the violation of the above terms likely. Absent more, the agreement could be entered into, provided there is full and knowing consent by the client. However, consent would not allow the agreement if any of the factors specified above were present.

It should be noted that the standard is not entirely subjective on the part of the lawyer. The Comments to MRPC 1.7 states in part:

". . . when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent."

It would be prudent to recommend that the client seek independent advice on the arrangement from a disinterested lawyer. This would allow a better development of all facts and likely future scenarios. It would also eliminate any possibility that the lawyer's interest in being retained would affect the lawyer's judgment and advice relative to entering into the agreement.