Can a New Jersey lawyer participate in a bar-sponsored plan that finances clients' legal fees through a bank?

Plain-English summary

The State Bar Association submitted a plan, sponsored by the State Bar Foundation, under which legal fees could be financed for clients of participating attorneys. A participating attorney would enter an agreement with a bank; a client seeking to finance a fee would apply for credit; if approved, the attorney and client would contract for the fee, the attorney would assign the contract to the bank, the bank would pay the attorney the fee less a discount and then collect from the client with interest, and the bank would pay the Foundation 5% of the gross amount financed. The contract also addressed when the attorney must repurchase a fee contract, chiefly on a fee dispute.

The Committee recounted that it had twice disapproved a similar arrangement (the Erie County, New York plan) in Opinions 115 and 180, and had disapproved credit cards (Opinion 175) and interest on clients' accounts (Opinion 293), largely on the ground that such practices connote the commercialization of the practice of law. It then catalogued the changes since: the ABA had concluded such a bar-sponsored plan is not per se unethical; Goldfarb v. Virginia State Bar subjected the profession to the antitrust laws; Bates permitted advertising; the Legislature authorized lawyers' use of credit cards; and the Supreme Court advised in 1978 that Opinion 293 and contrary authority were modified or vacated.

The Committee concluded that Opinions 115 and 180 could no longer stand and should be reversed. While acknowledging the plan advances commercialization, it agreed with the ABA that the profession has a duty to use developing methods to bring its services to those who need them, ethically and with dignity. It approved attorney participation in the Foundation's plan, expressing no opinion on the merits of the plan's details beyond noting that none of its provisions appeared ethically improper.

Currency note

This opinion was issued in 1980, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and predates the 1984 replacement of the Disciplinary Rules by the RPCs. It reversed Opinions 115 and 180. The fee principles it applied now correspond broadly to RPC 1.5. Treat this page as historical context, not current guidance.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: Could a lawyer join a bar-sponsored plan financing clients' fees through a bank?

A: Yes. The opinion approved participation in the State Bar Foundation's plan and found no ethically improper provisions in it.

Q: What earlier opinions did this change?

A: It reversed Opinions 115 and 180, which had disapproved similar fee-financing plans as commercializing the practice of law.

Q: Why did the Committee change course?

A: It pointed to intervening developments, including the ABA's conclusion that such plans are not per se unethical, Goldfarb, Bates, statutory authorization of credit cards, and the Supreme Court's modification of contrary authority.

Background and rules framework

The opinion reassessed the older "commercialization of the practice" objection to fee financing in light of antitrust and commercial-speech developments. In current New Jersey terms the analysis maps onto RPC 1.5 (fees). The Committee's holding was that a bar-sponsored bank-financing arrangement, with its discounts and assignment mechanics, is not unethical and that its earlier contrary opinions were reversed.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NJ RPC 1.5 (fees)

Cases:

• Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (legal profession subject to antitrust laws)
• Bates v. State Bar of Arizona, 433 U.S. 350 (1977)

Other opinions cited:

• NJ ACPE Opinion 115, 90 N.J.L.J. 681 (1967) (reversed)
• NJ ACPE Opinion 180, 93 N.J.L.J. 481 (1970) (reversed)
• NJ ACPE Opinion 175, 93 N.J.L.J. 132 (1970)
• NJ ACPE Opinion 293, 97 N.J.L.J. 929 (1974)
• NJ ACPE Opinion 383, 100 N.J.L.J. 1205 (1977)

See also

• NJ ACPE Op. 457: Advertising a Fee Discount for Members of a Large Group
• NJ ACPE Op. 472: Representing a Brokers' Group Legal-Services Plan

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp455-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

105 N.J.L.J. 441, May 15, 1980

OPINION 455

Bar Foundation Legal Services Financing Plan Reversing Prior Opinions 115 and 180

The New Jersey State Bar Association has submitted a proposed plan for the financing of legal fees. In broad outline the plan contemplates that the New Jersey State Bar Foundation as sponsor will enter into an agreement with one or more financial institutions in the State whereby legal services may be financed for clients of attorneys who participate in the plan.

The procedure is essentially as follows. An attorney who wishes to participate enters into an agreement with the bank which provides the basis for the bank to accept contracts for fees from the attorney. A client wishing to finance his fee fills out a credit application which is submitted to the bank. If the bank approves the credit, the attorney and the client enter into a contract for the fee and the contract is assigned by the attorney to the bank. The bank pays the attorney the amount of the fee specified in the contract less a discount and thereafter collects the amount due plus interest from the client. The bank also pays to the Bar Foundation 5% of the gross amount financed. The contract between the attorney and the bank provides among other things for the circumstances under which the attorney will be obligated to repurchase from the bank a fee contract assigned to it, the principal circumstance relating to a dispute between the attorney and the client as to services rendered.

In 1966 one of the county bar associations submitted to this Committee a proposed legal services financing plan not unlike the one now being considered. This plan was referred to as the Erie County, New York Plan. That plan had received the award of merit from the American Bar Association and was also presented to the Committee on Professional Ethics of the American Bar Association, but at the time our Opinion 115, 90 N.J.L.J. 681 (1967), was issued, no opinion had been rendered by the American Bar Association. In Opinion 115 we said the plan should be disapproved, not so much because it violates any particular canon of ethics, but because it connotes the commercialization of the practice of law. "A lawyer is not a tradesman and therefore he should not be a retail seller of his services." Subsequently to the adoption of Opinion 115, we had occasion to consider an inquiry from the New Jersey State Bar Association which submitted essentially the Erie County Plan in slightly revised form. Once again we disapproved the plan, Opinion 180, 93 N.J.L.J. 481 (1970). At about the same time we also issued our Opinion 175, 93 N.J.L.J. 132 (1970), disapproving the use of credit cards in payment of clients' bills essentially for the reasons expressed in Opinion 115. Later Opinion 293, 97 N.J.L.J. 929 (1974), disapproved of attorneys' demanding interest on clients' accounts.

Since the adoption of Opinions 115, 175 and 180 many changes have occurred which bear on the propriety of participation in a legal services financing plan. Not long after Opinion 115 was published, the American Bar Association's Standing Committee on Ethics and Professional Responsibility did have occasion to consider the Erie County Plan. It reviewed all the pertinent canons, considered the commercialization aspect of such plan and concluded that it is not per se unethical for an attorney to participate in a plan of this nature sponsored by a bar association. The opinion of the American Bar Association Committee quotes at length from a Los Angeles Bar Association Committee opinion disapproving a similar plan, referring to that opinion as the best statement of the objections to the plan. In essence the principal objection of the Los Angeles County Committee was the same as ours in Opinion 115, namely that of commercialization of the practice of law. Nevertheless, the American Bar Association, after noting some distinguishing features of the Los Angeles County Plan, concluded that the plan before it should be approved. In the mid-1970's other changes came quickly. The legal profession was held to be subject to the antitrust laws of the United States. Goldfarb v. Virginia State Bar Association, 421 U.S. 773, 95 S.C. 2004, 44 L. Ed. 2d 572 (1975); advertising was permitted, Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.C. 2691, 53 L. Ed. 2d 810 (1977); and the New Jersey Supreme Court promulgated rules covering advertising by New Jersey attorneys, DR 2-101, et seq. The Legislature of New Jersey authorized the use of credit cards by lawyers, N.J.S.A. 17:16C-1 et seq.; the Supreme Court of New Jersey advised our Committee in March 1978 that Opinion 293 and every authority to the contrary were modified or vacated; and we have approved participation in a nationwide prepaid legal services plan, Opinion 383, 100 N.J.L.J. 1205 (1977).

We conclude that our Opinions 115 and 180 can no longer stand scrutiny and should be reversed. While the proposed plan no doubt advances the commercialization of the practice of law with such terms as buy-sell agreements, discounts, franchises, retail installment contracts and the like appearing throughout the plan, nevertheless we agree with the American Bar Association that it is the duty of the profession to utilize such methods as may be developed to bring the services of its members to those who need them so long as this can be done ethically and with dignity. As society changes, these methods must necessarily change; otherwise the profession will become dormant and static and fail to fulfill its proper function. Accordingly, participation of attorneys in this plan sponsored by the New Jersey State Bar Foundation is approved. We express no opinion on the merit of the details of the plan other than to say there do not appear to be any ethically improper provisions in the plan submitted to us.