Can a lawyer loan money to the opposing party so that party can pay the lawyer's client, and can the lawyer charge a contingent fee to collect child support?

Plain-English summary

The inquiry came from a lawyer representing a woman seeking past-due child support from her ex-husband under a one-third contingent fee arrangement. Because the ex-husband lacked the funds to pay, the lawyer proposed to loan him the money so he could pay the lawyer's client the past-due support.

The opinion concluded the proposed arrangement was clearly improper. Under DR 5-103(A), a lawyer may not acquire a proprietary interest in the subject matter of litigation the lawyer is conducting; because the subject matter was the past-due child support, providing the means to pay it gave the lawyer such an interest. Under DR 5-103(B), a lawyer may not advance or guarantee financial assistance to a client except in specified instances; the opinion reasoned that loaning the ex-husband the money was, in a roundabout way, providing financial assistance to the lawyer's own client, an impermissible circumvention of the rule. The opinion added that a lawyer loaning money to an adverse party creates an appearance of impropriety inconsistent with the higher standards of integrity expected of lawyers under the Code's preamble.

On the fee, the opinion stated that while contingent fees in domestic matters are not absolutely prohibited in Tennessee (citing EC 2-20 and Formal Ethics Opinion 82-F-26), it was against public policy to charge a contingent fee in a child-support case, because child support is meant to provide the child adequate food, clothing, and shelter, and a lawyer should not take a fee out of money earmarked for the child's welfare. This fee holding was modified the same year by Formal Ethics Opinion 94-F-134(a), which conformed it to the Court of Appeals' decision in Hall v. Davis.

Currency note

Modified. The Board of Professional Responsibility modified Formal Ethics Opinion 94-F-134 by issuing Formal Ethics Opinion 94-F-134(a) on December 9, 1994, to conform the contingent-fee holding to the Tennessee Court of Appeals' decision in Hall v. Davis. Under that decision there is no per se prohibition on a contingent fee to collect child-support arrearages; such a fee is improper only where the recovery is for the child's present needs.

This opinion was issued in 1994, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility (including DR 5-103(A), DR 5-103(B), and DR 2-106) on which it relied, and before the ABA's 2002 Ethics 2000 revisions. The modern analogs are RPC 1.8(e) (financial assistance to a client), RPC 1.8(i) (proprietary interest in litigation), and RPC 1.5(d) (contingent fees in domestic relations matters). Treat this page as historical context, not current guidance, and verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: Could a lawyer loan money to the opposing party so that party could pay the lawyer's client?

A: Per the opinion, no. It concluded that doing so gave the lawyer a proprietary interest in the subject matter of the litigation (DR 5-103(A)) and was a roundabout advance of financial assistance to the lawyer's own client (DR 5-103(B)), besides creating an appearance of impropriety.

Q: Did the opinion bar contingent fees in all domestic matters?

A: No. It stated that contingent fees in domestic matters are not absolutely prohibited in Tennessee (citing EC 2-20 and Opinion 82-F-26), but concluded that a contingent fee in a child-support case was against public policy.

Q: Is this opinion still stated as the Board issued it?

A: No. The Board modified the fee holding in 94-F-134(a) on December 9, 1994 to follow Hall v. Davis, which allows a contingent fee to collect child-support arrearages except where the recovery is for the child's present needs.

Background and rules framework

The opinion interpreted former DR 5-103(A) (acquiring a proprietary interest in litigation), DR 5-103(B) (advancing financial assistance to a client), and the fee provisions of the Code (DR 2-106; EC 2-20). The modern analogs are Model Rule 1.8(i) / Tennessee RPC 1.8(i) (no proprietary interest in the cause of action), Model Rule 1.8(e) / Tennessee RPC 1.8(e) (financial assistance to a client), and Model Rule 1.5(d) / Tennessee RPC 1.5(d) (limits on contingent fees in domestic relations matters).

Citations and references

Rules of Professional Conduct (former Code):

• DR 5-103(A) (proprietary interest in the subject matter of litigation). Modern analog: Model Rule 1.8(i) / Tennessee RPC 1.8(i)
• DR 5-103(B) (advancing financial assistance to a client). Modern analog: Model Rule 1.8(e) / Tennessee RPC 1.8(e)
• DR 2-106; EC 2-20 (fees; contingent fees in domestic matters). Modern analog: Model Rule 1.5(d) / Tennessee RPC 1.5(d)

Cases:

• Hall v. Davis (Carter v. Carter), 19 TAM 41-7 (Tenn. App., M.S., 1994) (no per se bar on a contingent fee to collect child-support arrearages), as applied in 94-F-134(a)

Other opinions cited:

• Tennessee Formal Ethics Opinion 82-F-26 (contingent fees in domestic matters)
• Tennessee Formal Ethics Opinion 94-F-134(a) (modifying the contingent-fee holding of this opinion)

See also

• Tennessee Op. 82-F-26: Contingent Fees in Domestic Relations Cases Are Rarely Justified
• Tennessee Op. 94-F-134(a): Modified, Contingent Fee for Child-Support Arrearages
• AL Ethics Op. 1996-01: No Contingent Fees in Divorce
• AL Ethics Op. 1998-01: Contingent Fees to Collect Child-Support Arrearages
• ABA Formal Op. 04-432: Posting Bail for a Client

Source

• Landing page: https://www.tbpr.org/ethic_opinions/94-f-134

Original opinion text

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

94-F-134 - Attorney loaning funds to adverse party

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 94-F-134

Inquiry is made as to the propriety of an attorney loaning funds to the adverse party and whether a contingent fee may be charged in a child support matter.

The attorney represents a woman in an action to recover past due child support from her ex-husband. The ex-husband does not have the funds available to pay the child support. Therefore, the attorney offered to loan the ex-husband the funds so he can pay the attorney's client the past due child support. The attorney has a one-third contingent fee arrangement with his client.

The arrangement proposed by the attorney is clearly improper. DR 5-103(A) prohibits an attorney from acquiring a propriety interest in the subject matter of litigation he is conducting. In this case, the subject matter of the litigation is past due child support. By providing the means to pay the child support, the attorney is obtaining a proprietary interest in the subject matter of the litigation.

DR 5-103(B) prohibits an attorney from advancing or guaranteeing financial assistance to his client except in certain specified instances. The purpose of the loan would be to enable the exhusband to pay the past due child support. In a roundabout way, the attorney is providing financial assistance to his own client. Such a circumvention of the disciplinary rules is prohibited.

Furthermore, an attorney loaning money to an adverse party creates an appearance of impropriety. As the preamble to the Code of Professional Responsibility points out, lawyers, as guardians of, the law, play a vital role in the preservation of society. By virtue of this position, a lawyer is held to higher standards of competency and integrity than a non-lawyer. Therefore, an attorney should avoid any actions that may cast suspicion on his integrity or motives. The loan arrangement proposed by the attorney would undermine society's respect and confidence in the attorney and the legal profession as a whole.

Also at issue is whether the attorney may charge a contingent fee to collect the past due child support. While contingent fees in domestic matters are not absolutely prohibited in Tennessee (See EC 2-20 and Formal Ethics Opinion 82-F-26), it is against public policy to charge a contingent fee in a child support case. Child support is to benefit the child. It is designed to insure that the child receives adequate food, clothing and shelter. An attorney should not take his fee out of monies earmarked for the child's welfare.

This 14th day of September, 1994.

ETHICS COMMITTEE:

Herman Morris, Jr.

James M. Glasgow, Jr.

Walker T. Tipton

APPROVED AND ADOPTED BY THE BOARD