Under the former Ohio Code of Professional Responsibility, could an attorney advance litigation expenses for a contingent-fee client, and what happened if the client could not repay?

Ohio BPC Opinion 87-001: Advancement of Litigation Expenses by a Contingent-Fee Attorney

Short answer: The opinion concluded that under former DR 5-103(B) of the Ohio Code of Professional Responsibility, an attorney could advance expenses of litigation (including in class-action and multi-district litigation as well as traditional two-party cases) provided the client remained ultimately liable for those expenses, and that the degree to which the lawyer sought reimbursement was a legal or business question for the lawyer to decide. The Board of Commissioners later withdrew this opinion on August 11, 2000 in light of an amended DR 5-103(B) effective June 14, 1999.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the bar'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. The opinion text is reproduced at the bottom; the official source (linked) controls.

View original opinion

Currency note

The Board of Commissioners' status list flags this opinion as Withdrawn by Board action on August 11, 2000, in light of an amended DR 5-103(B) effective June 14, 1999. The opinion was issued under the former Ohio Code of Professional Responsibility, which was superseded by the Ohio Rules of Professional Conduct effective February 1, 2007. The current Ohio Prof. Cond. R. 1.8(e) governs financial assistance to clients in connection with pending or contemplated litigation and differs from former DR 5-103(B). Treat this page as historical context, not current guidance. Do not rely on the DR 5-103(B), EC 2-22, EC 5-8, or Canon 2 references as current Ohio rules. Verify against current rules before acting.

Plain-English summary

This opinion responded to questions from a contingent-fee attorney about three points: whether it was ethically proper to advance expenses of litigation; whether it was ethically proper not to seek reimbursement from a client if the suit was unsuccessful; and whether it was ethically proper to advance expenses where, at the outset of the litigation, it appeared the client might never be able to reimburse the lawyer.

On the first question, the Board concluded that DR 5-103(B) (then in force) and EC 5-8 permitted advances of litigation expenses (court costs, investigation expenses, medical-examination expenses, costs of obtaining and presenting evidence) provided the client remained "ultimately liable" for those expenses. The Board reproduced the text of former DR 5-103(B) in full.

On the second and third questions, the Board read DR 5-103(B)'s "ultimate liability" requirement as a guard against an attorney's acquiring an interest in the litigation that might interfere with the lawyer's independent professional judgment, citing Brame v. Ray Bills Finance Corp., 85 F.R.D. 568, 578 (N.D.N.Y. 1979). The Board further cited In re Mid-Atlantic Toyota Antitrust Litigation, 93 F.R.D. 485, 490 (D. Md. 1982), where the court held that an agreement to advance costs while informing clients that the attorneys never sought reimbursement if the suit was unsuccessful violated DR 5-103(B). The Board concluded that whether the lawyer actually pursued collection of advanced costs was not an ethical question, but a legal or business one for the lawyer to decide, and that EC 2-22 (suggesting lawyers should not sue clients for fees absent fraud or gross imposition) applied by analogy to costs and expenses as well as fees.

On clients apparently unable to pay, the Board pointed to Canon 2's duty to assist the profession in making counsel available, and cited the federal disbarment proceeding In the Matter of John Ruffalo, Jr., 249 F. Supp. 432, 443 to 445 (N.D. Ohio 1965), which held that the prospect of difficulty in obtaining reimbursement did not render the advancement improper.

The Board then addressed class actions specifically. Citing In re Agent Orange Product Liability Litigation, 611 F. Supp. 1452, 1459 to 1460 (E.D.N.Y. 1985), and academic commentary, the Board recognized that DR 5-103(B) created practical obstacles for class counsel, that alternative cost arrangements binding on named plaintiffs could create their own conflicts, and that ironclad ultimate-liability requirements could prevent meritorious class cases from being filed. The Board nonetheless concluded that the rule applied to class-action and mass-tort litigation as well as to traditional two-party litigation, with the client (or class representatives) remaining ultimately liable for the advanced expenses, and noted Fed. R. Civ. P. 23(e) and judicial oversight as backstops against ethical abuse in certified class actions.

Common questions

Q: What did former DR 5-103(B) allow a lawyer to advance?

A: As quoted in the opinion, DR 5-103(B) permitted a lawyer to advance or guarantee "the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses."

Q: What did the opinion say about routinely waiving reimbursement?

A: The Board concluded that an arrangement disclosed to the client as a practice of never seeking reimbursement on an unsuccessful suit would violate DR 5-103(B), citing the In re Mid-Atlantic Toyota holding. The Board distinguished this from a case-by-case decision not to pursue collection, which it treated as a legal or business question rather than an ethical one.

Q: Did the opinion apply the rule to class actions?

A: Yes. The Board acknowledged the Agent Orange court's critique of DR 5-103(B) as a "formidable obstacle" to class litigation but applied the same ultimate-liability rule to class-action, multi-district, and mass-tort litigation as to traditional two-party cases.

Q: Why was the opinion withdrawn?

A: The Board of Commissioners' status list states the opinion was withdrawn by Board action on August 11, 2000 in light of an amended DR 5-103(B) effective June 14, 1999. The opinion does not itself analyze the post-1999 rule.

Background and rules framework

The opinion interpreted former DR 5-103(B), EC 5-8, EC 2-22, and Canon 2 of the Ohio Code of Professional Responsibility, all of which were superseded when the Ohio Rules of Professional Conduct took effect on February 1, 2007. The current rule on financial assistance to clients is Ohio Prof. Cond. R. 1.8(e), corresponding to ABA Model Rule 1.8(e), which differs in important respects from former DR 5-103(B). The opinion also references ABA Model Rule 1.8(e)(1) and (2) as persuasive authority that was not then adopted in Ohio.

Citations and references

Rules of Professional Conduct:

• Former DR 5-103(B), Code of Professional Responsibility
• Former EC 2-22, Code of Professional Responsibility
• Former EC 5-8, Code of Professional Responsibility
• Former Canon 2, Code of Professional Responsibility

Cases:

• Brame v. Ray Bills Finance Corp., 85 F.R.D. 568, 578 (N.D.N.Y. 1979)
• In re Mid-Atlantic Toyota Antitrust Litigation, 93 F.R.D. 485, 490 (D. Md. 1982)
• In the Matter of John Ruffalo, Jr., 249 F. Supp. 432 (N.D. Ohio 1965)
• Reece v. Kyle, 49 Ohio St. 475 (1892), cited within Ruffalo
• Brotherhood of R.R. Trainmen v. Virginia, 84 S.Ct. 1113 (1964)
• In re Agent Orange Product Liability Litigation, 611 F. Supp. 1452 (E.D.N.Y. 1985)

Other authorities:

• A.B.A. Comm. on Ethics and Professional Responsibility, Opinion No. 1283 (1973)
• Developments in the Law - Class Actions, 89 Harv. L. Rev. 1318, 1619 to 1622 (1976)
• Manual for Complex Litigation Section 20.1 (1982)
• Fed. R. Civ. P. 23(e)

See also

No sibling opinions yet indexed.

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/03/Op-87-001.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
41 SOUTH HIGH STREET-SUITE 3370, COLUMBUS, OH 43215-6105
(614) 644-5800 FAX: (614) 644-5804

OFFICE OF SECRETARY

OPINION 87-001
October 16, 1987

[Withdrawn by Board on Aug. 11, 2000 due to amended DR 5-103(B), eff. Jun. 14, 1999]

SYLLABUS: It is ethically proper for an attorney to advance expenses of litigation on behalf of a client, provided the client remains ultimately liable for such expenses. To what degree the lawyer attempts to seek reimbursement from his or her clients is a legal or business decision for the individual lawyer to make.

OPINION: We have before us your request for our opinion concerning advancement of costs and expenses of litigation by a contingent fee attorney in both the traditional two-party situation and in complex multi-party litigation. In your request letter you inquire:

1. Whether it is ethically proper to advance expenses,

2. Whether it is ethically proper not to seek reimbursement of expenses from a client if the suit is unsuccessful, and

3. Whether it is ethically proper to advance expenses in a situation where it appears at the outset of the litigation that the client may never be able to reimburse the lawyer for expenses advanced.

Your first question can be answered in the affirmative. An attorney can ethically advance expenses for the costs of litigation according to DR 5-103(B) and EC 5-8 of the Code of Professional Responsibility (the Code). Specifically, DR 5-103(B) of the Code states:

[w]hile representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to his client, except that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses. Id.

Your second and third questions cannot be as easily answered because the Code does not specifically address them. In addition, the law, as you will see, is not perfectly clear.

The basic premise behind the Code's requirement that the client remain "ultimately liable" for any expenses advanced by the attorney is to prevent an attorney from acquiring an interest in the litigation which might interfere with his exercise of independent professional judgment. See, e.g., Brame v. Ray Bills Finance Corp., 85 F.R.D. 568, 578 (N.D.N.Y. 1979). Among the alleged dangers of acquiring an interest in the litigation is the possibility the attorney will settle the case prematurely in order to guarantee the recovery of expenses. See, e.g., In Re Mid-Atlantic Toyota Antitrust Litigation, 93 F.R.D. 485, 490 (D. Md. 1982). Consistent with this, the court in Mid-Atlantic held that an agreement by attorneys to advance costs of litigation while informing the clients that the attorneys had a practice of never seeking reimbursement if the suit were unsuccessful violated the Code of Professional Responsibility DR 5-103(B). Id. at 490.

Before a lawsuit is brought, the lawyer should point out to his client that ultimate responsibility for payment of all costs lies with the client. A.B.A. Comm. on Ethics and Professional Responsibility, Opinion No. 1283 (1973). If the client refuses to agree to be ultimately responsible for the costs so advanced, the lawyer should withdraw from the case. Id. Whether or not the attorney pursues collection of the costs and expenses is not an ethical, but a legal question for the individual attorney to decide. However, in this regard, EC 2-22 of the Code states:

[a] lawyer should be zealous in his efforts to avoid controversies over fees with clients and should attempt to resolve amicably any differences on the subject. He should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client. Id.

We believe that this ethical consideration applies to costs and expenses as well as fees.

With regard to clients who apparently are unable to pay for litigation expenses, we direct you to Canon 2 of the Code. This Canon states that a lawyer should assist the legal profession in fulfilling its duty to make legal counsel available. Furthermore, it was held in a federal disbarment proceeding that "whether it be attorney's fees, the expenses of litigation, or unconditional loans, the fact that it might be difficult or unlikely that the client will be able to reimburse the attorney for the same, absent a recovery on his claim, should not render the attorney's conduct improper." In the Matter of John Ruffalo, Jr., 249 F. Supp. 432, 445 (N.D. Ohio 1965).

In light of the staggering costs of litigation today, the advancement of litigation expenses by attorneys is commonplace. The Court in Ruffalo, citing an Ohio Supreme Court opinion held: "[i]ndeed, such advances by attorneys in the progress of litigation are so common that to denounce the practice as improper would be to condemn the daily acts of most honorable members of the profession." Id. at 443-444, citing Reece v. Kyle, 49 Ohio St. 475 (1892). The Court went on to say that such advancements by attorneys allow many poor people to obtain justice where without such aid, they would be remediless. Id. at 444. In addition, the U.S. Supreme Court held that "a state cannot, through its power to regulate the conduct of attorneys, infringe in any way the right of individuals to be fairly represented in lawsuits authorized by Congress to effectuate a basic public interest." Brotherhood of R.R. Trainmen v. Virginia, 84 S.Ct. 1113, 1117 (1964).

In the context of class actions, the advancement of expenses has become a significant issue. Because the Code applies to all types of litigation, DR 5-103(B) of the Code presents a "formidable obstacle to the practical ability of counsel to prosecute class litigation." In Re Agent Orange Product Liability Litigation, 611 F. Supp. 1452, 1459 (E.D.N.Y. 1985). However, the circumstances of complex litigation require a more sophisticated analysis than would be appropriate in the traditional two-party case that furnishes the model for much of the relevant ethical guides. Id. at 1460.

The alternatives to the attorney advancing the expenses of complex litigation, it has been argued, are often impractical or unfair. Developments in the Law-Class Actions, 89 Harv. L.R. 1318, 1619-1620 (1976). One alternative is an expense arrangement that is binding on some of the members of the class, ordinarily the named plaintiffs. Although such an agreement complies with the Code, it could nonetheless create a conflict of interest for the class attorney between his duty to the entire class and his felt obligation to the financing class members. Id. at 1620. Moreover, financing of the class suit by the named plaintiff or a small group of plaintiffs might well exceed the amount of their expected recovery, in which case the class action suit would never become a reality. Id. at 1620. Essentially, "an ironclad requirement that class representatives remain ultimately liable for expenses incurred would prevent many meritorious cases from ever reaching the courts." In Re Agent Orange Product Liability Litigation, 611 F. Supp. 1452, 1460 (E.D.N.Y. 1985). In short, the importance of class actions for handling multi-party litigation dictates avoiding any disincentives that may unnecessarily discourage counsel from undertaking the expensive and protracted cases necessary to vindicate the rights of a class. Id. at 1460.

Another argument against an attorney advancing litigation costs to a client who is unlikely to be able to repay, is that the attorney would be acquiring an interest in the outcome of the litigation. This argument is undermined in any contingency fee case inasmuch as these cases already have the effect of giving the attorney a financial stake in the outcome of the litigation. Developments in the Law-Class Actions, 89 Harv. L.R. 1318, 1622 (1976). Therefore, any "danger" in advancing costs in a contingency fee arrangement pale in comparison to efficiently resolving complex legal actions that involve hundreds of individual litigants.

Moreover, class actions have additional safeguards designed to protect the interests of the class members. The courts in certified class actions are given enormous control over the litigation including judicial review of all settlements and assessing of attorneys' fees. Fed. R. Civ. P. 23(e). These safeguards spill over to ethical considerations, thereby alleviating much of the concerns discussed herein. In other words, the court has the inherent power to prevent any abuses, which includes ethical violations. See, Manual for Complex Litigation Section 20.1 (1982).

In conclusion, it is our opinion, and you are so advised, that in class action litigation, multi-district or mass litigation, as well as the traditional two-party litigation, a lawyer may advance the expenses of litigation, provided the client remains ultimately liable for such expenses. To what degree the lawyer attempts to seek reimbursement from his or her clients is a legal or business decision for the individual lawyer to make.

This is an informal, non-binding advisory opinion, based upon the facts as presented and limited to questions arising under the Code Professional Responsibility.

James W. Mason, Esq.
Secretary, Board of Commissioners
on Grievances and Discipline