Can a North Carolina lawyer help a client raise money from the public to pay the client's legal fees?

Plain-English summary

A terminated county employee, pursuing an administrative appeal and a federal lawsuit that both sought attorneys' fees, set up a legal-defense fund with the help of his two lawyers, who circulated a press release to a local paper soliciting donations to a "blind trust" at a bank. The committee addressed ten questions about a lawyer's role in raising and handling third-party funds for a client's fees.

The opinion held the Revised Rules do not prohibit a lawyer from participating in soliciting third-party funds to defray a client's legal expenses, provided the lawyer complies with Rule 1.8(f): 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 Rule 1.6. It did not matter that the lawyer agreed to solicit funds in connection with or in lieu of a written fee agreement, so long as the lawyer did not charge or collect an illegal or clearly excessive fee (Rule 1.5(a)), and it did not matter that attorneys' fees were also sought in the litigation, provided there was no misrepresentation or fraud to donors or the court. A lawyer who participates in the solicitation is responsible for the honest administration of the funds (Rule 8.4(c)), and must deposit any funds the lawyer personally receives into the trust account and safekeep them under Rules 1.15-1 and 1.15-2. The lawyer must also ensure the press release contains no false or misleading communications (Rule 8.4(c); Rule 7.1). A contributor may remain anonymous if disclosure is not otherwise required by law, even one who may be called as a witness.

On excess funds, if necessary to avoid a clearly excessive fee under Rule 1.5(a), the funds must be returned to donors or disposed of as represented to them; to avoid misrepresentation, donors must be told in advance how excess will be handled if the client wins a fee award, and there must be full disclosure to the court of the fund and the disposition of any excess at the fee hearing (Rule 3.3(a)). The same analysis applied where the lawyers also had a contingent fee on the damages and the client recovered both damages and a fee award. Questions of the lawyer's civil liability to contributors were outside the committee's purview, but dishonest or fraudulent fund management, or failure to comply with the trust-account rules, could subject the lawyer to discipline.

Currency note

This opinion was issued in 1999, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the rules under the numbering then in effect (Rule 1.8(f), Rule 1.5(a), Rule 8.4(c), Rule 7.1, Rule 1.15-1, Rule 1.15-2, Rule 3.3(a)). 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 requirement mentioned here.

Common questions

Q: Can a North Carolina lawyer help solicit donations to pay a client's legal fees?

A: Yes. The opinion held the rules do not prohibit it if Rule 1.8(f) is satisfied: client consent after consultation, no interference with the lawyer's independent judgment or the relationship, and protection of client information.

Q: If the lawyer holds the donated funds, where must they go?

A: The opinion held that any funds the lawyer personally receives must be deposited in the lawyer's trust account and safekept under Rules 1.15-1 and 1.15-2, and that the lawyer is responsible for the honest administration of the funds (Rule 8.4(c)).

Q: Is the lawyer responsible for the accuracy of the fundraising press release?

A: Yes. The opinion held the lawyer must ensure the press release contains no false or misleading communications (Rule 8.4(c); Rule 7.1).

Q: What happens to leftover funds if the client also wins a court fee award?

A: The opinion held that, to avoid a clearly excessive fee, excess funds must be returned or disposed of as represented to donors; donors must be told the plan in advance, and the fund and disposition must be disclosed to the court at the fee hearing (Rule 3.3(a)).

Background and rules framework

The opinion applied North Carolina Rule 1.8(f) (third-party compensation), Rule 1.5(a) (clearly excessive fees), Rule 8.4(c) (honesty), Rule 7.1 (communications), Rules 1.15-1 and 1.15-2 (trust accounting), and Rule 3.3(a) (candor to the tribunal), the analogues to the corresponding Model Rules, to a lawyer's participation in raising third-party funds for a client's fees.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (third-party compensation) / NC Rule 1.8(f)
• MR 1.5 (fees) / NC Rule 1.5(a)
• MR 8.4 (misconduct; honesty) / NC Rule 8.4(c); MR 7.1 / NC Rule 7.1
• MR 1.15 (safekeeping property) / NC Rules 1.15-1, 1.15-2; MR 3.3 / NC Rule 3.3(a)

See also

• NY State Bar Op. 1000: Fees Paid by a Third Party With Adverse Interests
• NC State Bar Op. 98 FEO 17: Insurance Carrier Billing Guidelines

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/98-formal-ethics-opinion-14/

Original opinion text

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

Inquiry #1:

Client P was terminated from his position as an employee of the county. He filed an administrative appeal with the county as well as a lawsuit in federal court. In both proceedings, Client P seeks to recover attorneys' fees and costs in addition to damages. Client P is represented by Attorney A1 and Attorney A2 who practice with different law firms.

Attorney A1 and Attorney A2 helped Client P to establish a fund to defray Client P's legal expenses. To solicit donations to the fund, the following press release was submitted to the local paper for publication:

Supporters of Client P have announced the establishment of a legal fund to assist Client P in his litigation against the county for wrongful dismissal from his job as an employee of the county.

Sources close to the case indicate that to date, county officials have spent $250,000 of taxpayers' money for legal expenses against Client P. Sources also state that officials may end up spending as much as $800,000 if the county does not settle the case. A high ranking county official has threatened to appeal the case for years.

Client P's attorney, unlike the county attorneys, has not been paid. Meanwhile, out-of-pocket costs for depositions, travel, court reporters, and the like continue to rise.

In order that the playing field may be leveled and "trial by ambush" may be avoided, Client P supporters are requesting that anyone who wishes to aid the legal efforts of Client P make a donation to the Client P Legal Defense Trust at ABC Bank.

The identity of those contributing to the trust will be protected and funds from the blind trust will be used solely to defray the legal defense of Client P in his efforts to oppose and redress the alleged illegal actions of a small group of county officials.

Donations may be mailed to or taken by any ABC Bank. Checks should be made to: Client P Legal Defense Fund Trust.

May a lawyer participate in the solicitation of funds from third parties to pay the legal expenses of a client?

Opinion #1:

The Revised Rules of Professional Conduct do not prohibit a lawyer from participating in a solicitation of third parties for funds to defray the legal expenses of a client provided the lawyer complies with Rule 1.8(f) which states:

[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.

Inquiry #2:

Does it matter that the lawyer agreed to solicit funds for a client in connection with or in lieu of a written fee agreement with the client?

Opinion #2:

No, provided the lawyer does not enter into an agreement for, charge, or collect an illegal or clearly excessive fee in violation of Rule 1.5(a).

Inquiry #3:

Would the answer to inquiry #1 be different if an award of attorneys' fees is sought as a part of the recovery in the pending litigation?

Opinion #3:

No, provided there is no misrepresentation or fraud in the lawyer's representations to prospective contributors to the fund or to the court at the time of the hearing on the request for attorneys' fees. See opinion #9 below.

Inquiry #4:

Is the lawyer responsible for ensuring that the funds collected from donors are used to defray the client's legal expenses?

Opinion #4:

Yes, if a lawyer participates in the solicitation of funds for a client's legal representation, the lawyer is responsible for the honest administration of those funds. Rule 8.4(c). If the lawyer personally receives any of the funds, the lawyer must deposit the funds into the lawyer's trust account and safekeep those funds in accordance with the requirements of Rule 1.15-1 and Rule 1.15-2.

Inquiry #5:

Is the lawyer liable to contributors if the funds are improperly administered or disbursed?

Opinion #5:

The question of the lawyer's liability to contributors is a legal question outside the purview of the Ethics Committee. However, to the extent that a lawyer engages in dishonest or fraudulent conduct in the management of the funds, or fails to comply with the trust account requirements set forth in Rule 1.15-1 and Rule 1.15-2, the lawyer may be subject to professional discipline.

Inquiry #6:

Is the lawyer responsible for ensuring the accuracy of the information contained in a press release relative to the solicitation of funds for a client's representation?

Opinion #6:

Yes, if a lawyer participates in the solicitation of funds for a client in this manner, the lawyer must ensure that the press release does not contain false or misleading communications. Rule 8.4(c); see also Rule 7.1.

Inquiry #7:

If the information contained in the press release is not accurate, is the lawyer potentially liable to the contributors for misrepresentation?

Opinion #7:

This is a legal question outside the purview of the Ethics Committee. However, to the extent that a lawyer engages in unethical conduct in the solicitation of funds to defray the legal expenses of a client, the lawyer may be subject to professional discipline.

Inquiry #8:

May a contributor to the fund remain anonymous if the contributor may be called as a witness in the case?

Opinion #8:

Yes, if the disclosure of the identity of a contributor is not otherwise required by law.

Inquiry #9:

If Client P prevails and attorneys' fees are awarded to Client P by the court, are Attorney A1 and Attorney A2 required to return the donations to the contributors to Client P's legal representation?

Opinion #9:

If necessary to avoid the collection of a clearly excessive fee in violation of Rule 1.5(a), the funds must be returned to the donors or otherwise disposed of in accordance with the representations made to prospective donors. To avoid misrepresentation at the time that donations are solicited, prospective donors must be informed of the intended disposition of any excess funds in the event that the client is successful on the claim for attorneys' fees. Rule 8.4(c). To avoid misrepresentation to the court at the time of the hearing on the request for attorneys' fees, there must be full disclosure to the court as to the existence of the legal representation fund and the disposition of any excess funds if the court awards attorneys' fees. See Rule 3.3(a).

Inquiry #10:

If Attorney A1 and Attorney A2 have a contingent fee agreement with Client P that provides that, in the event damages are collected as a result of the federal court action, Attorney A1 and Attorney A2 will receive a percentage of those damages as their fee. If Client P is successful at trial and receives both an award of damages as well as an award of attorneys' fees, are the lawyers obligated to reimburse the donors to Client P's legal fund?

Opinion #10:

See opinion #9.