Can an Ohio lawyer refer a client to a company that buys part of the client's money judgment for cash during an appeal, and can the lawyer take such funding too?

Currency note

The Board withdrew this opinion on October 3, 2003, citing Rancman v. Interim Settlement Funding Corp., 99 Ohio St. 3d 121, 2003-Ohio-2721. Because the opinion has been withdrawn, it is not current guidance; it is indexed here as historical research only.

This opinion also issued in 1999, before Ohio's adoption of the Ohio Rules of Professional Conduct (effective February 1, 2007). The DR 5-103, DR 5-104, and DR 5-107 provisions discussed here have been replaced by Ohio Prof. Cond. R. 1.8 and 5.4. Treat this page as historical context, not current guidance, and verify against current rules and case law (including Rancman) before relying on anything here.

Plain-English summary

The Board addressed whether an attorney may refer a client who has won a money judgment to a company that purchases an interest in the judgment and advances cash to the client (and potentially the attorney) during an appeal, repayable only if the judgment is upheld. The Board expressly declined to opine on whether such judgment-purchase arrangements are legally proper in Ohio, confining itself to the ethics rules.

On money from the company to the client, the Board reviewed DR 5-103(A) (a lawyer may not acquire a proprietary interest in the litigation, with narrow exceptions) and DR 5-103(B) (a lawyer may advance or guarantee litigation expenses, with repayment contingent on outcome after the June 14, 1999 amendment). It concluded these rules govern lawyers, not non-lawyer companies, so the Code does not prohibit an attorney from referring a client to such a company. The Board added that the lawyer must determine the referral is in the client's best interest, discuss the client's need and the agreement's terms frankly, inform the client of the option to seek independent advice, and ensure the company will not interfere with the attorney-client relationship; it stated that requiring company-approved appellate counsel to assist trial counsel is an improper interference.

On money from the company to the attorney, the Board concluded it is improper for an attorney to receive financing from the company in exchange for the company taking an interest in the attorney's anticipated proceeds. It reasoned that the client's and attorney's agreements are sufficiently related to be a business transaction with a client under DR 5-104(A) with differing interests that a client should not be asked to consent to, that the arrangement could improperly influence the attorney's judgment about settlement and the appeal contrary to DR 5-107(B), and that DR 5-107(A) does not authorize paying an attorney's fees in exchange for a part of the client's judgment proceeds.

Common questions

Q: Could an Ohio lawyer refer a judgment-holding client to a company that buys part of the judgment for cash?

A: Yes, subject to conditions. The opinion concluded the Code did not prohibit the referral because DR 5-103 governs lawyers, not the non-lawyer company, but the lawyer had to determine the referral was in the client's best interest.

Q: Could the company require the client to hire its own approved appellate counsel?

A: No. The opinion concluded that requiring company-approved appellate counsel to assist trial counsel was an improper interference with the attorney-client relationship.

Q: Could the lawyer also take cash from the company against the lawyer's own anticipated fees?

A: No. The opinion concluded it was ethically improper for an attorney to receive financing in exchange for the company receiving an interest in the attorney's anticipated proceeds from the client's judgment.

Q: Did the Board decide whether these funding deals are legal?

A: No. The opinion expressly stated it took no view on whether the company's acquisition of an interest in a money judgment is legally proper in Ohio.

Background and rules framework

The opinion interprets former Ohio Code of Professional Responsibility DR 5-103(A) and (B) (proprietary interest in litigation; financial assistance to clients), DR 5-104(A) (business transactions with clients), and DR 5-107(A) and (B) (avoiding influence by, and compensation from, persons other than the client), provisions now addressed by Ohio Prof. Cond. R. 1.8 and 5.4 (Model Rules 1.8 and 5.4). It was later overtaken by Rancman v. Interim Settlement Funding Corp.

Citations and references

Rules of Professional Conduct:

• Former Ohio Code of Professional Responsibility DR 5-103(A), DR 5-103(B), DR 5-104(A), DR 5-107(A)(1), (2), DR 5-107(B), EC 5-7

Cases:

• Rancman v. Interim Settlement Funding Corp., 99 Ohio St. 3d 121, 2003-Ohio-2721 (basis for the Board's later withdrawal of this opinion)

See also

• Ohio BPC Op. 2000-001: Referral Fee From a Financial Services Group
• Ohio BPC Op. 1999-007: Out-of-State Attorney as Equity Holder in an Ohio Firm

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/03/Op-99-006.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 99-6
                               Issued December 2, 1999

[Withdrawn-by Board on October 3, 2003 due to Rancman v. Interim Settlement Funding
Corp., 99 Ohio St.3d 121, 2003-Ohio-2721]

SYLLABUS: An attorney may ethically refer a client who has been awarded a money
judgment in a civil suit to a company that purchases a minority interest in the judgment
and puts immediate cash in the hands of the client during an appeal of the judgment. The
attorney must determine that the referral is in the best interest of the client. The company
must not interfere with the attorney-client relationship and must not attempt to influence
the litigation. A requirement that appellate counsel approved by the company be hired to
assist the trial counsel in the appeal is an improper interference with the attorney-client
relationship between the trial counsel and the client. It is ethically improper for an
attorney to receive financial assistance from a company in exchange for the company
receiving an interest in the attorney’s anticipated proceeds from a client’s money
judgment.

OPINION: This opinion addresses the referral of clients who have been awarded money
judgments in civil suits to companies that will purchase an interest in the money
judgment and provide money to plaintiffs and their attorneys during appeals.

   Is it ethically proper for an attorney to refer a client who has been
   awarded a money judgment in a civil suit to a company that will purchase
   an interest in the money judgment and provide immediate money to
   plaintiffs and their attorney during the appeal of the judgment?

Throughout Ohio and around the nation there are companies offering money to attorneys
and plaintiffs who have been awarded money judgments in civil suits in exchange for an
interest in the proceeds of the judgment if upheld on appeal. The companies are seeking
referrals from attorneys whose clients have been awarded large money judgments. Upon
referral, the company reviews the client’s matter. If the company believes the money
judgment will be upheld on appeal the company will purchase a minority interest in the
judgment and will put immediate money into the hands of the client and attorney without
recourse. If the judgment is overturned on appeal the company gets nothing and the
client and attorney have no obligation to repay the money. The terms of the agreements
vary from company to company. Some companies provide assurances in their
promotional materials that the amount assigned will not exceed 50% of the judgment.
Most companies promise not to control or interfere with the litigation. Some companies
insist that the client obtain appellate counsel approved by the company to assist the trial
Opinion 99-6 2

counsel in defending the appeal. The clients and attorneys who enter the agreements may
use the moneys in any manner.

The offer of immediate financial assistance will be attractive to clients without funds to
pay living expenses, medical expenses, or legal fees and expenses during a lengthy
appeal. The offer of immediate money may also be enticing to an attorney who has
advanced expenses of litigation during the trial court proceeding and who is now
experiencing a delay in recouping the advanced costs while incurring additional
expenditures during the appellate proceeding.

In this opinion, the Board applies the ethical rules to the question raised. The Board
expresses no view as whether the proposed conduct of the company in acquiring an
interest in a money judgment is legally proper in Ohio.

Part 1: Money from company to plaintiff.

The Board acknowledges that there are plaintiffs in need of financial assistance in order
to sustain an appeal. A successful trial outcome is often preceded by years of effort and
thousands of dollars. Appeals take more time and more money and delay a plaintiff from
receiving a money judgment that has been awarded in a trial court. While being sensitive
to the financial needs of clients, the Board is also cognizant of the ethical boundaries that
the Ohio Code of Professional Responsibility places upon financial assistance to clients
and improper influence by one other than the client.

DR 5-103(A) of the Ohio Code of Professional Responsibility prohibits, with narrow
exceptions, a lawyer from acquiring a propriety interest in the cause of action or subject
matter of litigation that the lawyer is conducting for the client.

DR 5-103(A) 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,
except that a lawyer may:

(1) Acquire a lien granted by law to secure the lawyer’s fee or
    expenses.

(2) Contract with a client for a reasonable contingent fee in a civil
    case.

DR 5-103(B) bars a lawyer from providing a client financial assistance other than
advancing or guaranteeing the expenses of litigation. The rule, as amended, effective
June 14, 1999 allows the risk of loss as to expenditures to be shifted from the client to the
client’s lawyer.

   DR 5-103(B) While representing a client in connection with contemplated
   or pending litigation, a lawyer shall not provide financial assistance to a
   client, except that a lawyer may advance or guarantee the expenses of

Opinion 99-6 3

   litigation, including court costs, expenses of investigation, expenses of
   medical examination, and costs of obtaining and presenting evidence, the
   repayment of which may be contingent on the outcome of the matter.

These rules help ensure that an attorney’s loyalties to a client and professional judgment
in a matter will not be impaired or diminished by an attorney’s financial interest in a
matter. “The proscription in DR 5-103 against the attorney’s acquiring an interest in the
outcome of a client’s cause or litigation is grounded upon the possibility that the interest
would adversely influence the attorney’s ability to exercise impartial professional
judgment (EC 5-7).” American Bar Foundation, Annotated Code of Professional
Responsibility 199 (1996).

However, these rules do not govern the conduct of non-lawyers. DR 5-103(A) and (B)
are rules of attorney ethics and do not serve as a bar to others such as a business company
acquiring a proprietary interest in a cause of action or providing financial assistance to a
client. Thus, it is the Board’s view that the Code of Professional Responsibility does not
prohibit an attorney from referring a client awarded a money judgment in a civil suit to a
company that purchases a minority interest in the judgment and puts immediate cash in
the hands of the client during appeal of the judgment.

The lawyer must not make such referral unless the lawyer determines it to be in the best
interest of the client. In determining whether a referral would be in the client’s best
interest the lawyer must engage in frank discussion with the client regarding the client’s
need for financial assistance. The attorney must clearly explain to the client the terms of
the agreement being entered. The client needs to know the facts regarding how much
financial assistance is being provided and how much interest in the judgment the
company is obtaining. The client should be informed that the company provides financial
assistance only in cases that it believes likely to be upheld upon appeal. Thus, if the
financial assistance is not absolutely necessary it may be unwise to enter an agreement to
sell an interest in the proceeds of a money judgment. Some clients may prefer to seek
independent advice. The client should be informed of this option. In addition, the
attorney must inform the client that the company will not be permitted to interfere with
the attorney-client relationship or to influence the litigation. Requiring that appellate
counsel chosen by the company be hired to assist the trial counsel is an interference with
the attorney-client relationship. Protection of the attorney-client relationship is
paramount to a company’s desire to control its risk.

Part 2: Money from company to plaintiff’s attorney.

Having concluded that a lawyer may ethically refer a client, the Board considers
separately the issue of whether an attorney may ethically receive financial assistance
from a financing company in exchange for the company receiving an interest in the
lawyer’s anticipated proceeds from a client’s money judgment. Most likely, a lawyer’s
interest would be a contingent fee interest in the judgment on appeal or a cost recovery
right in the judgment, however, it could be an unpaid hourly fee interest.
Opinion 99-6 4

For the reasons below, the Board finds it improper for a lawyer to enter an agreement to
receive financial assistance from a financing company in exchange for the company
receiving an interest in the lawyer’s anticipated proceeds from a client’s money
judgment. When both the attorney and the client enter agreements to receive financial
assistance from a company the attorney becomes intertwined in a business transaction
involving a client.

Even though the client and the attorney may each have separate agreements with the
company, the agreements are sufficiently related for this Board to consider it as a
business transaction with a client. The Code restricts an attorney’s business transactions
with clients when there are “differing” interests therein unless there is client consent after
full disclosure.

   DR 5-104 (A) A lawyer shall not enter into a business transaction with a
   client if they have differing interests therein and if the client expects the
   lawyer to exercise his professional judgment therein for the protection of
   the client, unless the client has consented after full disclosure.

To make full disclosure, the lawyer would need to inform the client that the lawyer is
receiving financial assistance from the company to pay fees or expenses and that the
lawyer will keep the money regardless of how well or how poorly he or she defends the
appeal. While most attorneys would pursue the appeal with vigor, it is conceivable that
some attorneys would not be as motivated to do so. A client should not be asked to
consent to this type of differing interest even after full disclosure.

Further, participation in such proposed agreement between the company and the attorney
could improperly influence the attorney’s professional judgment regarding settlement
opportunities and the pursuit of the appeal. This is not permitted under the DR 2-107 (B)
of the Ohio Code of Professional Responsibility. The Code absolutely prohibits
influence by others than the client.

   DR 5-107 (B) A lawyer shall not permit a person who recommends,
   employs, or pays him to render legal services for another to direct or
   regulate his professional judgment in rendering such legal services.

An additional consideration is that the Code restricts fee payments from persons other
than clients unless there is client consent after full disclosure.

   DR 5-107 AVOIDING INFLUENCE BY OTHERS THAN THE CLIENT

   (A) Except with the consent of his client after full disclosure, a lawyer
   shall not:

       (1) Accept compensation for his legal services from one other
           than his client.

Opinion 99-6 5

       (2) Accept from one other than his client any thing of value
           related to his representation of or his employment by his
           client

This rule allows the payment of fees from one other than the client when there is full
disclosure and consent of the client. The rule is not interpreted by this Board to
encompass the payment of legal fees and expenses to a lawyer in exchange for a part of
the proceeds from a client’s judgment. There is a distinction between a third person, such
as a parent, child, or close friend, paying legal fees or expenses for a loved one and a
company providing money to an attorney to cover the attorney fees or costs in exchange
for an interest in the client’s judgment. The parent, child, or close friend may be
expecting reimbursement from the client, but the parent, child, or close friend is not
purchasing an interest in the litigation.

An agreement for legal fees and expense reimbursement between a lawyer and a client
should not become a matter between the lawyer, client, and a non-party to the lawsuit
who seeks to obtain an interest in the judgment. The client and the attorney should be the
ones to decide the litigation and fee matters free from outside influence. If a client
receives financial assistance from the company and wishes to use the money to pay legal
fees, that is the client’s choice to do so. If a client is not satisfied with the attorney’s
performance on appeal and disputes the fee, the client may wish to seek the protection of
fee dispute resolution in accordance with the governing bar rules [Gov. Bar R. V § 3(C),
§4(G), and §11(E)(2)(a)]. If a lawyer wishes to relieve the client from paying the
expenses of litigation, the lawyer now has discretion under newly amended DR 5-103(B)
to allow the repayment to be contingent on the outcome of the matter. These and other
related decisions need to be made free from the influence and presence of a business
company. When an attorney receives financial assistance from a financing company in
exchange for the company receiving an interest in the lawyer’s anticipated proceeds from
a client’s money judgment, the company is improperly interfering with the litigation and
fee matters.

Conclusion

The Board advises that an attorney may ethically refer a client who has been awarded a
money judgment in a civil suit to a company that purchases a minority interest in the
judgment and puts immediate cash in the hands of the client during an appeal of the
judgment. The attorney must determine that the referral is in the best interest of the
client. The company must not interfere with the attorney-client relationship and must not
attempt to influence the litigation. A requirement that appellate counsel approved by the
company be hired to assist the trial counsel in the appeal is an improper interference with
the attorney-client relationship between the trial counsel and the client. It is ethically
improper for an attorney to receive financial assistance from a company in exchange for
the company receiving an interest in the attorney’s anticipated proceeds from a client’s
money judgment.
Opinion 99-6 6

Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions
regarding the application of the Supreme Court Rules for the Government of the
Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the
Code of Professional Responsibility, the Code of Judicial Conduct, and the
Attorney’s Oath of Office.