Can a personal injury lawyer own a stake in a lending company that loans money to the lawyer's clients, and pass the lender's interest charges on to the client as a case expense?

Plain-English summary

The Committee was asked two questions about a personal injury lawyer and a lending institution: whether the lawyer may own an interest in a lender that loans money to the lawyer's clients, and whether the lawyer may borrow from such a lender to cover case expenses (court costs, litigation or administrative expenses, and reasonably necessary medical and living expenses) and then charge or pass the lender's out-of-pocket interest or finance charges on to the client as part of case expense.

Rather than analyze open-ended facts, the Committee answered against a detailed set of assumed conditions: the client is on a contingent fee complying with Rule 1.04(d); the attorney does not own or control the lender so that it lends only to the attorney's clients, and no Rule 1.06 conflict exists; the relationship is not used to secure or continue the attorney's employment and does not violate Rules 7.02 or 7.03; no advertising violates Rule 7.01; any transaction with the client satisfies Rule 1.08 (particularly subsections (a), (d), (e), and (h)); the attorney does not violate Rule 8.04; and the lender's interest charges are fair, reasonable, customary, and lawful. The Committee also noted it was not addressing whether an attorney may charge a client interest on money the attorney personally loaned or advanced.

On those assumptions, and subject to the opinion's caveat that all the referenced Rules and their Comments must be read together to understand the conclusions, the Committee concluded that the attorney may properly own an interest in such a lending institution, and may properly borrow for case expenses and charge or pass on to the client the actual out-of-pocket interest or finance charges of the lender.

Currency note

This opinion was issued in 1990, under the Texas Disciplinary Rules of Professional Conduct that took effect January 1, 1990. Texas did not adopt the ABA's Ethics 2000 revisions; its rules have been amended only piecemeal since, including the comprehensive 2021 revisions adopted by Texas Supreme Court order. 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 Treat this page as historical context, not current guidance.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 personal injury lawyer own a stake in a company that lends money to the lawyer's own clients?

A: The Committee concluded yes, but only on the stated assumptions, including that the lawyer does not own or control the lender so that it lends only to the lawyer's clients and that no Rule 1.06 conflict exists.

Q: Can the lawyer pass the lender's interest charges on a case-expense loan through to the client?

A: The Committee concluded yes, on the assumed facts. The attorney may borrow for case expenses and charge or pass on to the client the actual out-of-pocket interest or finance charges of the lending institution.

Q: Did the opinion address a lawyer charging interest on the lawyer's own loans to a client?

A: No. The Committee expressly noted that neither question asked about an attorney charging a client interest on money the attorney personally loaned or advanced, so that matter was not addressed.

Background and rules framework

The opinion conditions its answers on a list of Texas Disciplinary Rules: Rule 1.04 (fees, including the contingent-fee requirements of subsection (d)), Rule 1.06 (conflicts of interest; analogous to ABA Model Rule 1.7), Rule 1.08 and particularly subsections (a), (d), (e), and (h) (prohibited and business transactions with clients, including financial assistance; analogous to ABA Model Rule 1.8), Rules 7.01 through 7.03 (advertising and solicitation), and Rule 8.04 (misconduct). The opinion's own caveat states that a reading of each referenced Rule and its Comments is necessary to understand the conclusions.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (business transactions with, and financial assistance to, clients)
• MR 1.7 (conflicts of interest)
• Texas Disciplinary Rule 1.04 (fees)
• Texas Disciplinary Rule 1.06 (conflicts of interest)
• Texas Disciplinary Rule 1.08(a), (d), (e), (h)
• Texas Disciplinary Rules 7.01, 7.02, 7.03 (advertising and solicitation)
• Texas Disciplinary Rule 8.04 (misconduct)

See also

• TX Ethics Op. 483: Charging Interest, Client Loans, Referrals to an Own Loan Company, and Medical Facilities
• TX Ethics Op. 481: Client Financing of Legal Fees Through a Finance Corporation
• ABA Formal Op. 02-427: Security Interest to Secure a Fee

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-465/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_465.pdf

Original opinion text

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

QUESTION PRESENTED

May an attorney ethically own an interest in a lending institution which loans money to personal injury clients of the attorney?
May an attorney borrow money from a lending institution for case expenses (court costs, expenses of litigation or administrative proceedings, or reasonably necessary medical and living expenses) for a personal injury client, and ethically charge, or pass on, to the client, as a part of case expense, the out-of-pocket interest or finance charges of the lending institution?

STATEMENT OF FACTS

In both inquiries, we assume as fact:
(a) The attorney is engaged by the client on a contingent fee basis which fully complies with the mandates of Rule 1.04, and particularly Subsection (d) thereof, of the Texas Rules of Professional Conduct, and the Comments under such Rule;

(b) The attorney (and/or his firm) does not own or control the lending institution to the extent that the lending institution only makes loans to clients of the attorney, and no conflict of interest as prohibited by Rule 1.06 of the Texas Rules of Professional Conduct, or the Comments under such Rule, exists;

(c) The relationship between the attorney and the lending institution is not used to secure or continue the employment of the attorney by the client, or in any manner which violates the provisions of Rules 7.02 or 7.03 of the Texas Rules of Professional Conduct, or the Comments under such Rules;

(d) No communication or advertising of the attorney's services exist in violation of Rule 7.01 of the Texas Rules of Professional Conduct, or the Comments under such Rule;

(e) Any subject transaction with the client in which the attorney is involved, whether: [1] indirectly under Question I; or, [2] directly under Question II, is not done or accomplished in any manner which violates the Conflict of Interest concepts of, or constitutes a prohibited Transaction under, Rule 1.08 of the Texas Rules of Professional Conduct, and particularly Subsections (a), (d), (e), and (h) thereof, and the Comments under such Rule; and, further, that the requirements of such Rule are followed;

(f) The attorney does not conduct himself in any manner which violates Rule 8.04 of the Texas Rules of Professional Conduct, and particularly Subsections (a) (3) and (8) thereof, and the Comments under such Rule; and,

(g) The interest charges of the lending institution are fair, reasonable, customary and at a lawful rate.
It is noted that neither Question presented asks about the propriety of an attorney himself or herself charging the client interest on monies personally loaned to, or advanced for, the client by the attorney; consequently, that matter is not addressed by this opinion.

CAVEAT
A reading of each and all of the above specifically referenced Rules of Professional Conduct, and the Comments thereunder, is necessary to a proper understanding of the following conclusions.

CONCLUSION

Under the specific facts assumed above, an attorney may properly own an interest in a lending institution which loans money to personal injury clients of the attorney;
Under the specific facts assumed above, an attorney may properly borrow money from a lending institution for case expenses for a personal injury client, and charge, or pass on, to the client the actual out-of-pocket interest or finance charges of the lending institution.

Tex. Comm. On Professional Ethics, Op. 465 (1990)