Can a Texas lawyer check a potential client's payment history in a lawyer-shared database, set fees based on it, and later report the client's payments back to the database?

Plain-English summary

A lawyer wants to use an internet database, fed by lawyers' experiences with their clients' payment histories, to check potential new clients. The lawyer would disclose the database use, get written authorization from each potential client to pull the client's payment history, and obtain agreement that based on the results the lawyer could reject the client or require a special fee arrangement. The authorization would also let the lawyer later report the client's payments to the database.

The Committee analyzes the engagement terms under Rule 1.02(b), which permits a lawyer to limit the scope, objectives, and general methods of a representation if the client consents after consultation. It reads that rule to cover agreements with a potential client at the outset, including an agreement letting the lawyer check the client's prior payment history and terminate or modify payment arrangements based on what the database shows, so long as the client consents after appropriate consultation. The Committee quotes the Terminology section's definition of "Consult" and notes that whether the consultation suffices is a fact question.

On fees, the Committee notes Rule 1.04(b)(8) treats uncertainty of collection as a factor in a fee's reasonableness, and Rule 1.04(c) requires communicating the basis or rate of the fee to a new client (preferably in writing), so a special fee arrangement based on the database must be communicated to the client. On reporting the client's payments to the database, the Committee applies Rule 1.05(b), which generally bars revealing confidential information, and Rule 1.05(c)(2), which permits disclosure when the client consents after consultation. Citing Opinion 464, it recognizes that a client's billing information is normally confidential but that informed, uncoerced advance consent given at the outset is effective, so the lawyer may report payment information if the client gives written consent in the engagement agreement after appropriate consultation. The Committee adds that the lawyer must also comply with other applicable law, including the federal Fair Credit Reporting Act, to the extent it applies.

In practice

Under this opinion, and under the Texas rules as they stood at the time, a lawyer may use a lawyer-shared client payment-history database to screen potential clients, condition or shape the engagement on the results, and later report the client's payments to the database, provided the client gives informed consent after appropriate consultation. The Committee grounds the engagement limitations in Rule 1.02(b), requires that any special fee arrangement be communicated under Rule 1.04(c) (with collection uncertainty a permissible reasonableness factor under Rule 1.04(b)(8)), and grounds the reporting of normally confidential billing information in Rule 1.05(c)(2)'s consent exception, treating the sufficiency of the consultation as a fact question. It also flags that compliance with other law, including the federal Fair Credit Reporting Act, may be required.

Common questions

Q: Can a lawyer check a prospective client's payment history in a database other lawyers contribute to?

A: Per Opinion 622, yes, if the client consents after consultation. Rule 1.02(b) allows the lawyer and client to agree at the outset that the lawyer may check the client's prior payment history and adjust or end the representation based on it.

Q: Can the lawyer charge a special fee based on what the database shows?

A: Yes, but it must be communicated to the client. Rule 1.04(b)(8) lets collection uncertainty factor into a reasonable fee, and Rule 1.04(c) requires communicating the basis or rate of the fee, preferably in writing.

Q: Can the lawyer report the client's own payment history back to the database?

A: Yes, with consent. Although billing information is normally confidential under Rule 1.05(b), Rule 1.05(c)(2) permits disclosure when the client consents after consultation; the Committee says informed, uncoerced advance consent in the engagement agreement is effective (citing Opinion 464).

Q: Are there non-ethics laws to worry about?

A: The Committee notes the lawyer must also comply with other applicable laws, including the federal Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., to the extent they apply.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.02(b) (limiting the scope, objectives, and methods of representation with client consent; ABA Model Rule 1.2(c)), Rule 1.04(b)(8) and 1.04(c) (fee reasonableness factors and communicating the fee; ABA Model Rule 1.5), and Rule 1.05(b) and 1.05(c)(2) (confidentiality and the client-consent exception; ABA Model Rule 1.6), along with the Terminology section's definition of "Consult." It notes the federal Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., may also apply.

Citations and references

Rules of Professional Conduct:

• MR 1.2 (scope of representation); MR 1.5 (fees); MR 1.6 (confidentiality)
• Texas Disciplinary Rules 1.02(b), 1.04(b)(8), 1.04(c), 1.05(b), 1.05(c)(2); Terminology ("Consult")

Statutes:

• Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (noted as potentially applicable)

Other opinions cited:

• Texas Professional Ethics Committee Opinion 464 (August 1989): a client's billing information is normally confidential, but informed, uncoerced advance consent after consultation is effective to permit disclosure

See also

• TX Ethics Op. 635: Limited-Scope Advice on Self-Help Forms for Pro Se Litigants
• TX Ethics Op. 662: Responding to a Former Client's Negative Online Review
• TX Ethics Op. 641: Client Referrals From a Financial Planning Company

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-622/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_622.pdf

Original opinion text

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

QUESTION PRESENTED

Under the Texas Disciplinary Rules of Professional Conduct, may a lawyer obtain information regarding a potential new client’s payment history from a database containing information supplied by other lawyers on the payment history of their clients, structure an engagement agreement to provide legal services to the potential client based upon such information, and thereafter provide to the database information regarding the new client’s payments to the lawyer?

STATEMENT OF FACTS

A lawyer would like to use an internet database service providing information on lawyers’ experiences with their clients’ payment histories to obtain payment history information on persons that are potential new clients of the lawyer. The lawyer proposes to disclose both verbally and in writing to potential new clients the lawyer’s use of the database and to obtain written authorization from each potential client for the lawyer to obtain payment history information on the potential client from the database. The client’s authorization would provide that, based on the information obtained from the database concerning the potential new client, the lawyer could reject the potential client or require a special fee arrangement or other terms concerning the client’s employment of the lawyer. The potential client’s authorization would also provide that the lawyer could later furnish to the database information about the client’s payments to the lawyer.

DISCUSSION

Rule 1.02(b) of the Texas Disciplinary Rules of Professional Conduct provides that “[a] lawyer may limit the scope, objectives and general methods of the representation if the client consents after consultation.” Limitations agreed on with a client on the scope, objectives and general methods of representation have long been recognized. For example, a lawyer and client may agree that representation in a litigation matter will not include representation in any appeal of the case. Rule 1.02(b) applies to communications and agreements between a lawyer and a potential client relating to the potential client’s employment of the lawyer. Thus Rule 1.02(b) permits a lawyer and potential client who subsequently becomes an actual client to agree at the outset on limitations with respect to the representation, including agreements that permit the lawyer to check on the client’s prior history with respect to payment for legal services and that allow the lawyer to terminate the representation or modify the agreed payment arrangements in light of information obtained from the database on the new client’s prior payment history with other lawyers. Any limitations on a lawyer’s representation of a client, including the limitations proposed by the lawyer based on use of the payment history database, are permitted by Rule 1.02(b) only if the client consents to the limitations after appropriate consultation with the lawyer.

The Terminology section of the Texas Disciplinary Rules of Professional Conduct provides that “Consult” or “Consultation” denotes “communication of information and advice reasonably sufficient to permit the client to appreciate the significance of the matter in question.” In each case, whether a lawyer provides consultation required for a client’s particular agreement or consent will be a question of fact based upon all the relevant circumstances.

Under Rule 1.04(b)(8), a factor that may be considered in determining the reasonableness of a fee is uncertainty of collection of the fee before the legal services have been rendered. Rule 1.04(c) requires that the basis or rate of the fee be communicated to a new client, preferably in writing, before or within a reasonable time after the representation begins. Therefore, if the lawyer requires a special fee arrangement based upon a new client’s payment history with other lawyers as obtained from the database, the lawyer must communicate that fact to the client.

With regard to the lawyer’s provision of information to the database on the client’s payments for the lawyer’s services, Rule 1.05(b) generally requires that, subject to specified exceptions, a lawyer is prohibited from knowingly revealing confidential information concerning a client. An exception relevant in the circumstances here considered is provided in Rule 1.05(c)(2), which permits a lawyer to reveal confidential information “[w]hen the client consents after consultation.” Prior opinions of this Committee have recognized that information concerning a client’s legal bills is normally confidential but that, if a client gives effective consent following consultation, it is permissible for a lawyer to disclose such information to third parties. A client’s advance consent for disclosure of information, given after appropriate consultation with the lawyer at the outset of the representation, is effective if the advance consent is informed and is not coerced. See Professional Ethics Committee Opinion 464 (August 1989). Thus, in the circumstances considered, it will be permissible for the lawyer to provide information on the client’s payment history to the database if, at the time the client hires the lawyer, the client gives written consent for such action in the engagement agreement after consultation with the lawyer that is appropriate in the circumstances. It will be a question of fact whether the lawyer’s consultation with the new client on this disclosure matter is “reasonably sufficient to permit the client to appreciate the significance of the matter in question,” as specified in the definition of “Consult” and “Consultation” in the Terminology section of the Texas Disciplinary Rules.

It should be noted that a lawyer who enters into agreements with potential clients to access a database on payment history, use information from the database, and provide payment information to the database must, in addition to complying with applicable provisions of the Texas Disciplinary Rules, comply with other applicable laws, including the federal Fair Credit Reporting Act., 15 U.S.C. § 1681 et seq., to the extent such laws apply.

CONCLUSION

Under the Texas Disciplinary Rules of Professional Conduct, it is permissible for a lawyer to obtain information regarding a potential new client’s payment history from a database containing information supplied by other lawyers on the payment history of their clients, structure an engagement agreement to provide legal services to the potential client based upon such information, and thereafter provide to the database information regarding the new client’s payments to the lawyer, provided that the client has agreed to these actions after consultation with the lawyer sufficient to permit the client to make an informed decision on these matters.

Tex. Comm. On Professional Ethics, Op. 622 (2013)