Can a lawyer charge a contingency-fee client interest on disbursements the lawyer advanced on the client's behalf?
NY State Bar Ethics Opinion 729: Interest on disbursements in contingency cases
Short answer: A lawyer may charge a contingency-fee client interest on unpaid disbursements the lawyer advanced, even without borrowing the funds, if the client is told in advance and consents, is billed promptly, and the interest rate is reasonable and no higher than the lawyer's cost of funds.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association'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
The committee considered whether a lawyer may charge interest on disbursements the lawyer paid on the client's behalf in a contingency-fee representation. It began from N.Y. State 399 (1975), which allowed interest on delinquent fee accounts subject to conditions: advance notice that interest will be charged after a stated, reasonable period, a reasonable rate, a fee that is not excessive, and client consent. It then looked to N.Y. City 1997-1, which permitted a contingency lawyer who actually borrowed bank funds to advance litigation expenses to pass the bank's interest charge to the client, capped at the lawyer's actual cost, with advance disclosure, consent, and the writing required by DR 2-106(D).
The committee held that whether the lawyer borrows the funds is not material. A lawyer who advances funds loses the use of them, which has an economic cost, so in both situations the contingency lawyer has incurred a cost and seeks to pass it on. It therefore concluded that a contingency-fee lawyer may impose an interest charge on unpaid disbursements, subject to law, if five conditions are met: the client is clearly advised in advance and consents before the charge takes effect; the client is billed promptly so the client can choose to pay or incur interest; the period before interest accrues is reasonable; the disbursement itself is appropriate; and the interest rate is reasonable. The committee added that a rate exceeding the lawyer's actual or putative cost of obtaining funds would never be reasonable in a contingency matter.
Because the interest charge is part of a contingent fee, the committee said it must be included in the written statements required at the start and end of a contingent fee representation under DR 2-106(D). It noted that contingent fees in wrongful death and personal injury cases are governed by court rule, and whether the interest charge is permissible under those rules, or in a court's review of a contingent fee, is a question of law it did not decide.
Currency note
This opinion was issued in 2000, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 2009. 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 a lawyer charge a contingency client interest on advanced disbursements?
A: The opinion concluded yes, if not prohibited by law and if the five conditions are met: advance notice and consent, prompt billing, a reasonable accrual period, an appropriate disbursement, and a reasonable rate.
Q: Does it matter whether the lawyer borrowed the money to advance the costs?
A: No. The committee held the distinction is not material, because a lawyer who advances funds loses the use of them and incurs a cost either way.
Q: Is there a cap on the interest rate?
A: The opinion concluded a rate exceeding the lawyer's actual or putative cost of obtaining funds would never be reasonable in a contingency fee matter.
Background and rules framework
The opinion interpreted DR 2-106(A) and (B) (a fee may not be excessive) and DR 2-106(D) (the writings required for a contingent fee) of New York's former Code of Professional Responsibility. The Model Rule analogue is Rule 1.5 (fees, including reasonableness and contingent-fee writings). New York replaced the Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.
Citations and references
Rules of Professional Conduct:
- MR 1.5 (fees; reasonableness; contingent-fee writing)
- NY DR 2-106(A), (B), (D)
Other opinions cited:
- N.Y. State 399 (1975): interest on delinquent fee accounts, subject to conditions
- N.Y. City 1997-1: passing borrowed-fund interest to a contingency client, capped at actual cost
See also
- NY State Bar Op. 754: Passing litigation-loan interest on to clients
- NY State Bar Op. 1181: Charging interest on contingency-case disbursements
- NY State Bar Op. 1051: Taking a contingent fee from a litigation-funding advance
Source
- Landing page: https://nysba.org/opinion-729/