Can a lawyer refer a personal injury client to a finance company that will lend the client money for living expenses, repayable only if the claim succeeds?
NY State Bar Ethics Opinion 666: Referring a client to a lender for living expenses
Short answer: The opinion concluded that a lawyer may refer a personal injury client to a financial institution that lends the client money for living expenses, with repayment contingent on the outcome of the claim, provided the lawyer does not advance or guarantee the loan, holds no ownership interest in the lender, accepts no fee or other compensation from it, and protects the client's confidences.
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
A lawyer asked whether he could refer a client to a financial institution that would lend the client money for living expenses, where repayment was contingent on the successful resolution of the client's personal injury claim. The committee answered yes, subject to qualifications, and was careful to separate the ethical question from the legal one.
The committee first noted that New York has long proscribed "maintenance," and that the First Department's court rule (22 NYCRR 603.18) forbids a lawyer from paying, directly or indirectly, the expenses of a client's claim as consideration for a retainer. Whether the proposed arrangement would amount to indirectly paying a client, and whether champerty or maintenance concerns still apply in an era of lawyer advertising, were questions of law on which the committee declined to opine. It observed only that if the conduct is illegal, it is also unethical.
On the ethics, the committee located the relevant principle in DR 5-103(B), which bars a lawyer from advancing litigation expenses on a basis where the client is not ultimately liable. Here, though, the lawyer was not lending or guaranteeing anything; the lawyer's sole role was to refer the client to a lender that would independently assess the claim and take a lien on its proceeds. A bare referral of that kind, the committee held, is not unethical per se, citing Philadelphia Op. 91-9 (1991).
The committee attached three conditions. The lawyer must not compromise confidentiality: any disclosures to the lender must be made only with the client's fully informed consent (DR 4-101(B), (C)(1)). The lawyer must not own an interest in the lending institution, because that would indirectly make the loan a loan by the lawyer. And the lawyer must not be paid a fee or receive any other compensation from the lender. Subject to those qualifications, the committee answered the question in the affirmative.
Currency note
This opinion was issued in 1994, 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, and the law governing third-party litigation funding has developed substantially since. 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 steer a personal injury client to a company that lends against the case for living expenses?
A: Under this opinion, a bare referral is permitted. The committee held the lawyer was not advancing or guaranteeing anything; the lender independently assesses the claim and takes a lien on its proceeds, so the referral is not unethical per se.
Q: What conditions did the committee attach?
A: The lawyer must protect the client's confidences and disclose to the lender only with the client's informed consent, must not own any interest in the lender, and must not accept a fee or other compensation from the lender.
Q: Did the opinion decide whether this violates the maintenance or champerty laws?
A: No. The committee expressly declined to opine on whether the arrangement violates New York's substantive law against maintenance, noting only that if the conduct is illegal it would also be unethical.
Background and rules framework
The opinion interpreted DR 5-103(B) of New York's former Code, which prohibits a lawyer from advancing litigation expenses unless the client remains ultimately liable, together with the confidentiality provisions of DR 4-101(B) and (C)(1). The closest Model Rule analogues are Rule 1.8(e) (financial assistance to a client in connection with litigation) and Rule 1.6 (confidentiality). The committee treated the maintenance and champerty questions as matters of substantive law outside its jurisdiction. New York replaced the Code with the Rules of Professional Conduct in 2009; the provisions cited here are historical.
Citations and references
Rules of Professional Conduct:
- MR 1.8(e) (financial assistance to a client)
- MR 1.6 (confidentiality of information)
- NY DR 5-103(B); DR 4-101(B), (C)(1)
Other opinions cited:
- Philadelphia Op. 91-9 (1991): proper to refer clients to a finance company that lends based on its own assessment of the case
- Fla. Op. 75-24 (1975): improper where the lawyer in effect guarantees the loan
- S.C. Op. 92-06; Md. Op. 84-11: related limits on lawyer-arranged loans
See also
- NY State Bar Op. 1051: Taking a contingent fee from a litigation-funding advance
- NY State Bar Op. 962: Paying a witness's travel expenses and legal fees
Source
- Landing page: https://nysba.org/opinion-666/