Can a New Jersey lawyer buy a client's own judgment at a discount?

Plain-English summary

Against the backdrop of a freeze on payment of Joint Underwriting Association (JUA) judgments, the inquirer asked whether an attorney could buy a client's JUA judgment at a discount after making the disclosures and obtaining the written consent that RPC 1.8(a) requires. The client, who had a pressing personal need for cash before emigrating, approached the attorney to sell the judgment; the attorney prepared an agreement reciting the judgment terms, advising the client to seek independent counsel, and providing that the deal would be undone if the Committee disapproved.

The Committee found that the attorney appeared to comply with RPC 1.8(a) in all respects, but said that did not end the inquiry. RPC 1.8(j) bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting. The Committee held that because judgment had already been entered, the lawyer was no longer "conducting" the litigation when the judgment was purchased, so RPC 1.8(j) was not violated. It drew the line at entry of judgment: a lawyer who negotiates the purchase before judgment violates the rule, while one who does so after entry does not.

The Committee stressed that the opinion is "not a wholesale authorization" to buy JUA judgments. It cautioned that any lawyer doing so must proceed with extreme caution and only in exceptional circumstances, fashioning a discount that bears a direct relationship to the judgment and to the time and effort needed to collect it, and adhering rigidly to RPC 1.8(a) and (j).

Currency note

This opinion was issued in 1992, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and it addressed a specific JUA-freeze situation that may no longer exist. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Can a lawyer purchase the client's own judgment at a discount?

A: Per the opinion, yes, but only after the judgment has been entered. At that point the lawyer is no longer "conducting" the litigation, so RPC 1.8(j) is not violated, provided the RPC 1.8(a) requirements (disclosure, fair and reasonable terms, advice to seek independent counsel, written consent) are met.

Q: What if the lawyer negotiates the purchase before judgment is entered?

A: That violates RPC 1.8(j), which bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting. The Committee drew the line at entry of judgment.

Q: Is this a green light to buy clients' judgments generally?

A: No. The Committee said the opinion is "not a wholesale authorization" and presumes the lawyer proceeds with extreme caution and only in exceptional circumstances, with a discount bearing a direct relationship to the judgment and the effort to collect it.

Background and rules framework

The opinion applied New Jersey RPC 1.8(a) (business transactions with a client, requiring fair and reasonable terms, disclosure, and consent) and RPC 1.8(j) (a lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting); Model Rule 1.8. The dispositive factor was whether the lawyer was still "conducting" the litigation, which the Committee tied to entry of judgment.

Citations and references

Rules of Professional Conduct:

• MR 1.8 / NJ RPC 1.8(a) (business transactions with a client)
• MR 1.8 / NJ RPC 1.8(j) (proprietary interest in litigation being conducted)

Other opinions cited:

• NJ ACPE Op. 650 (128 N.J.L.J. 2), inquiries about already-consummated transactions

See also

• NJ ACPE Op. 670: Sale or Pledge of Final JUA Judgments
• NJ ACPE Op. 682: Attorney-Owned Title Insurance Company and Divided Loyalty

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp663-1.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.

1 N.J.L. 1043, July 13, 1992

131 N.J.L.J. 856, July 13, 1992

OPINION 663

Purchasing Client's JUA Judgment for a Discounted Price

In the context of the current and much publicized freeze on payment of JUA judgments, the inquirer asks whether it is appropriate for an attorney to buy a client's JUA judgment for a discounted price after making appropriate disclosure and securing written consent under RPC 1.8(a). Although we note that this particular inquiry would not ordinarily be cognizable by this Committee because the transaction in question has already been consummated, Opinion 650, 128 N.J.L.J. 2 (1991), we nevertheless address the inquiry not only because the inquirer specifically agreed in advance with the client to "undo" the transaction should this Committee decide that it violates RPC 1.8(a), but also, and more importantly, because the question is a pressing one, given both the existence of the freeze and the current brokering of "frozen" JUA judgments by non-attorneys.

In the present inquiry, the client, through the attorney, secured a JUA judgment. The client, who is a high school graduate and can read and write English, wished to emigrate to Israel on an immediate basis and had pressing personal need for monies underlying the judgment. The client apparently approached the attorney, seeking to sell the judgment. The attorney agreed to buy the judgment at a discount and then prepared an agreement which contained the exact terms of the judgment and the related contingency, and explicit advice to secure an independent attorney. The client signed the agreement with the further acknowledgment that if this Committee did not approve the agreement, the client would receive the totality of the judgment, less attorney's fees and costs. In all respects the attorney appears to have complied with RPC 1.8(a).

This does not, however, end the inquiry. The questioned transaction must also be viewed against the strictures of RPC 1.8(j), which decree that "A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client..." (emphasis added). We observe that judgment had already been entered when this transaction occurred. This to us is a crucial distinction: the lawyer was no longer "conducting" the litigation when the judgment was purchased. Recognizing that the crucial distinction is a fine one, we hold that a lawyer who enters into negotiations with a client prior to the entry of judgment violates RPC 1.8(j), while one who accomplishes this after entry of judgment does not.

In undertaking a transaction of the type outlined by the inquirer, we caution attorneys contemplating similar transactions to steer carefully and fairly between the Scylla of RPC 1.8(a), which derives its validity from the underlying assumption that "the transaction and terms in which the lawyer acquires the [adverse] interest are fair and reasonable to the client," and the Charybdis of RPC 1.8(j), which presumes litigation is concluded. In determining what is fair and reasonable under the specific factual circumstances, the purchasing lawyer must be acutely aware of fashioning a discount which bears a direct relationship not only to the judgment in question, but also to the time and effort that will be expended in collecting the judgment. Stated another way, this Opinion is not a wholesale authorization for the purchase of JUA judgments, but itself presumes that any lawyer undertaking to purchase a client's JUA judgment will do so with extreme caution and only in exceptional circumstances, adhering rigidly to the terms and conditions of RPC 1.8(a) and (j).