If a lawyer learns in discovery that opposing counsel advanced money to a client against a settlement, must the lawyer report it, and does a protective order excuse the duty?

Plain-English summary

A lawyer represented an attorney suing his former law partners over fees and costs due under their dissolution agreement. Before discovery, the court entered a protective order keeping discovery material confidential and out of the public record without the parties' consent. During discovery, a former client of the defendant testified at deposition that the defendant had advanced the former client money against the client's anticipated settlement. The inquiring lawyer asked whether those payments were ethical, whether he had to report them to the State Bar, and what effect the protective order had on any reporting duty.

The committee read DR 5-103(B), which barred a lawyer from advancing or guaranteeing financial assistance to a client in contemplated or pending litigation, except advances for litigation expenses for which the client remains ultimately liable. Because the money was sent to the client (not to third parties like court reporters for litigation expenses), the conduct appeared to violate DR 5-103(B), even though the advance was repaid from the settlement. The committee then turned to whether the lawyer had to report it.

Under DR 1-103, the lawyer had to report a known violation if the information was not privileged and it raised a substantial question as to the lawyer's fitness to practice. The committee concluded the information was not privileged under DR 4-101 because it surfaced in discovery depositions and did not concern the inquiring lawyer's own client. Reading the "substantial" qualifier (informed by EC 1-4) to excuse only violations committed in the heat of the moment or so technical as to be a simple mistake, it concluded a DR 5-103(B) violation in this context was not within that exception, so the lawyer had a duty to report. On the protective order, the committee said whether the order prohibited reporting was a question of law outside its purview, and opined that the lawyer had a duty to seek a court order permitting disclosure to the State Bar so he could meet his ethical responsibility without violating any law or court order.

Currency note

This opinion was issued in 1988, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. As the committee note observes, current Rule 1.6(c)(3) and the consultation duty govern reporting when the information is a client confidence, and Rule 1.8(e) allows repayment of costs and expenses to be contingent on the outcome. 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: Was it improper for a lawyer to advance money to a client against a settlement?

A: Under this 1988 opinion, yes. The committee concluded that advancing funds to the client (rather than paying litigation expenses owed to third parties) violated DR 5-103(B), even though the advance was repaid from the settlement.

Q: Did the lawyer who learned of it during discovery have to report it?

A: The committee concluded he did. The information was not privileged because it came out in depositions and did not concern his own client, and a DR 5-103(B) violation in this context raised a substantial question of fitness, so DR 1-103 required reporting.

Q: Did the protective order excuse the duty to report?

A: The committee said whether the order legally barred reporting was a question of law outside its purview, and that the lawyer had a duty to seek a court order permitting disclosure to the State Bar.

Background and rules framework

The opinion interpreted former Virginia DR 5-103(B) (advancing financial assistance to a client), DR 1-103 (reporting another lawyer's misconduct), DR 4-101 (confidentiality), and EC 1-4. The current analogs are Rule 1.8(e) (financial assistance to clients) and Rule 8.3 (reporting professional misconduct), as the committee note records, with reporting of client confidences governed by Rule 1.6(c)(3).

Citations and references

Rules of Professional Conduct:

• Former Virginia DR 5-103(B) (advancing financial assistance to a client)
• Former Virginia DR 1-103 (duty to report misconduct) and EC 1-4
• Former Virginia DR 4-101 (confidentiality)
• ABA Model Rule 1.8 (financial assistance) and Model Rule 8.3 (reporting misconduct)

Other opinions cited:

• Virginia LE Op. 217: when reportable information is not privileged.

See also

• VA LEO 1237: Collecting Advanced Costs From a Client
• VA LEO 1182: Paying a Provider From a Client's Recovery
• VA LEO 1308: When the Duty to Report Is Ripe
• VA LEO 1468: Reporting vs. Client Confidentiality

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1133.pdf

Original opinion text

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

Committee Opinion
September 2, 1988
Committee Op Note Update
November 18, 2021
LEGAL ETHICS OPINION 1133

ACQUIRING AN INTEREST IN
LITIGATION-CONFIDENTIALITY
-DUTY TO REPORT: KNOWLEDGE
THAT ATTORNEY ADVANCED
MONIES TO A CLIENT.

You have stated that you represented an attorney who was the plaintiff in an action
against his former law partners. The action involved a disagreement over fees and costs
due under the terms of an agreement executed between the parties when they dissolved
their former law corporation. Prior to commencement of discovery, the court signed a
protective order requiring that information produced during discovery is to be kept in
confidence and regarded as privileged, prohibiting its becoming part of the public record
without the consent of the parties and their counsel. During discovery it was established
through the deposition of a former client of the defendant that the defendant advanced the
former client money against the client's anticipated settlement.
You wish to know whether these payments are ethical; if not, whether you are under an
ethical obligation to make these transactions known to the State Bar; and what effect, if
any, the protective order has on any ethical responsibilities you have.
Disciplinary Rule 5-103(B) states that "while representing a client in connection with
contemplated or pending litigation, a lawyer shall not advance or guarantee financial
assistance to his client." This prohibition stands unless the advance/guarantee is for the
expenses of litigation, and the client remains ultimately liable for such expenses.
According to your letter, the advanced funds were repaid from the settlement, so one may
assume the client remained ultimately liable for repayment of the money. However, your
letter states that the money was sent to the client, so one may assume it was not to cover
litigation expenses. The litigation expenses contemplated by the Rule run to third parties
(e.g., court reporters) not to the client. Therefore, the action you are concerned with
appears to have violated DR:5-103(B).
You have information indicating that another lawyer has committed a violation of the
Disciplinary Rules. Therefore, you must report it if (1) the information is not privileged
(LE Op. 217), and (2) it raises a “substantial question as to the lawyer's fitness to practice
law in other respects." ( DR:1-103.) Because the information came to light in discovery
depositions and it did not concern your client, the information is not privileged under
DR:4-101.
The next question, therefore, is whether the lawyer's violation raises a "substantial
question as to the lawyer's fitness to practice law in other respects." EC:1-4 exhorts that:
The integrity of the profession can be maintained only if conduct of lawyers in
violation of the Disciplinary Rules is brought to the attention of the proper

Committee Opinion
September 2, 1988
Committee Op Note Update
November 18, 2021
officials. A lawyer should reveal voluntarily to those officials all unprivileged
knowledge of conduct of lawyers which he believes clearly to be in violation of
the Disciplinary Rules.
With this as the underlying rationale for Rule 1-103, it is the Committee's opinion that
the "substantial" language is to provide exception for a violation which was clearly
perpetrated in the heat of the moment (e.g., an outburst against a judge) or so technical as
to mean nothing other than that a simple mistake was made. A violation of DR:5-103(B),
in the context which you set forth, does not appear to come within the exception excusing
the duty to report. Therefore, it is your ethical duty to report it.
The final question you raise is the effect of the Protective Order on this duty to report.
Presently, it would appear that the Protective Order might prohibit your reporting the
violation. Ultimately, however, this is a question of law which is not within the purview
of the Committee. It is the Committee's opinion that, in this situation, you have a duty to
seek an order from the court permitting you to disclose this violation to the State Bar.
This will enable you to fulfill your ethical responsibilities without violating any law or
court order.
Committee Opinion
September 2, 1988
Legal Ethics Committee Notes. – If information about the ethics violation is a client
confidence, a lawyer may report the other lawyer’s misconduct only if the client consents
under Rule 1.6(c)(3); the lawyer considering whether to report must consult with the
client under that Rule. Rule 1.8(e) allows repayment of costs and expenses to be
contingent on the outcome of the matter.
Committee Op Note Update
November 18, 2021