Can a New York contingency-fee lawyer charge interest on litigation disbursements the lawyer advanced but the client did not pay, and must the lawyer use the 9% statutory rate?
NYSBA Ethics Opinion 1181: Charging Interest on Unpaid Disbursements in a Contingency-Fee Case
Short answer: The opinion concludes that a New York contingency-fee lawyer may impose an interest charge on disbursements the lawyer advanced but the client has not paid, provided a written agreement signed by the client fully discloses the terms, the client is billed promptly with a chance to pay before interest accrues, the disbursement and the timing are reasonable, and the interest rate is reasonable; the lawyer is not required to use the 9% statutory rate.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's view of New York's Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
A lawyer with a contingency-fee practice noted that recent changes in the law governing contingency cases, including provisions letting a lawyer fund disbursements rather than seek immediate reimbursement, had created confusion about prior opinions on charging interest on disbursements. The lawyer asked whether a flat interest charge on lawyer-funded disbursements is permitted, whether the client must be advised of each expense and offered a chance to pay it as incurred, and whether the 9% statutory rate in CPLR § 5004 sets the ceiling or a benchmark.
The opinion answers only the ethics questions and disclaims any interpretation of the statutes and court rules that govern contingency fees and mandatory disclosures (it cites the Departmental retainer-disclosure rules, e.g., 22 NYCRR 806.27(c)(2)). On the ethics, the committee reaffirms N.Y. State 729 (2000): a lawyer may charge interest on disbursements in a contingency case (whether the rate is flat or fluctuating) if (a) the client is clearly advised in writing that disbursements unpaid within a stated period are subject to interest; (b) the client is billed promptly after the disbursement so the client may pay before interest accrues; (c) the time between the bill and the interest charge is reasonable; (d) the disbursement itself is appropriate; (e) the interest rate is reasonable; and (f) the client gives informed written consent before the arrangement takes effect. That answers the first two questions: interest is permitted, but the client must get a reasonable chance to pay before interest is charged.
On the rate, the committee declines to fix an amount beyond requiring reasonableness. It sees no necessary link between the legislative 9% judgment rate and the ethical reasonableness of interest on unpaid disbursements; reasonableness varies with the facts of the particular lawyer-client relationship, so a lawyer is not required to use the statutory rate. The committee notes a lawyer may pass on the actual interest rate (but no more) the lawyer incurs by borrowing from a bank to fund disbursements (N.Y. State 754 (2002)), and that whether the lawyer uses borrowed or own funds should not matter because there is an economic cost either way; usury and other laws still apply.
In practice
Under this opinion, a New York contingency-fee lawyer may charge interest on disbursements the lawyer advanced and the client has not timely paid, but the opinion holds the arrangement must satisfy the conditions reaffirmed from Op. 729: a signed written agreement disclosing the alternative payment methods and consequences and the client's selection, clear advance written notice that interest will be charged on disbursements unpaid within a stated period, prompt billing so the client can choose to pay first, a reasonable interval before interest accrues, an appropriate disbursement, and a reasonable rate. Per the opinion, the lawyer need not adopt the 9% CPLR § 5004 rate; reasonableness depends on the facts, and a lawyer may pass on no more than the actual bank rate the lawyer incurs to fund the disbursements.
Common questions
Q: Can a contingency-fee lawyer charge interest on disbursements the client has not paid?
A: Per the opinion, yes, if a signed written agreement discloses the terms, the client gets prompt billing and a reasonable chance to pay before interest accrues, the disbursement is appropriate, and the rate is reasonable.
Q: Must the lawyer offer the client a chance to pay each expense before charging interest?
A: Per the opinion, yes. The client must be billed promptly after the disbursement is incurred and given a reasonable opportunity to pay it before any interest charge applies.
Q: Does the lawyer have to use the 9% statutory interest rate?
A: No. Per the opinion, the lawyer is not required to use the CPLR § 5004 rate; the rate need only be reasonable in the facts and circumstances, and a lawyer may pass on no more than the actual rate incurred to borrow funds for the disbursements.
Background and rules framework
The opinion addresses the ethical reasonableness of fees and expenses charged to a contingency-fee client, governed by Rule 1.5 (fees and expenses), with the lawyer's advancing of litigation costs under Rule 1.8(e) as the backdrop. These correspond to ABA Model Rules 1.5 and 1.8. The committee emphasizes that statutes, court rules, and mandatory disclosure provisions governing contingency fees (cited from the Departmental rules) are outside its jurisdiction; it opines only on the Rules.
Citations and references
Rules of Professional Conduct:
- New York Rules of Professional Conduct 1.5 (reasonable fees and expenses); 1.8(e) (advancing litigation costs)
- ABA Model Rules 1.5, 1.8 (analogues)
Statutes and court rules (referenced, not interpreted by the committee):
- CPLR § 5004 (9% statutory interest rate); Judiciary Law § 488(2)(d); 22 NYCRR 806.27(c)(2), 603.25(e)(3)(ii), 691.20(e)(3)(ii)
Other opinions cited:
- N.Y. State 729 (2000): conditions for charging interest on disbursements in a contingency case
- N.Y. State 754 (2002); N.Y. City 1997-1: passing on the lawyer's actual cost of borrowed funds
- ABA Formal Op. 93-379 (1993): appropriate disbursements billed to clients
See also
- NY State Bar Op. 1202: Flat Fees, Advance Payments, and a Client-Satisfaction Discount
- NY State Bar Op. 1183: Designated Counsel Selected and Paid by the Counterparty in a Financing Transaction
Source
- Landing page: https://nysba.org/ethics-opinion-1181/