Can a lawyer let a finance company front the client's fee in exchange for keeping a discounted portion of that fee?

Plain-English summary

A lawyer takes cases for a fixed fee due in full at the start. He proposes that a finance company pay him the fee up front, minus a discount the company keeps, while the client repays the company in monthly installments covering the full fee plus interest. For example, the company signs a $5,000-plus-interest installment contract with the client and pays the lawyer a discounted $4,000. The lawyer asked whether the up-front payment must go in trust, whether he must keep working if the client falls behind, and whether he must refund a fee if the case ends early.

The committee applies Rule 5.4(a), which (subject to three narrow exceptions for death-benefit, deceased-lawyer, and nonlawyer-employee retirement plans, none applicable here) prohibits a lawyer from sharing legal fees with a nonlawyer. The committee identifies the basic problem: the arrangement gives the finance company a portion of the lawyer's legal fee. Consistent with LEO 1047 (no fee-sharing with medical experts), LEO 1438 (no fee-sharing with an advertising firm), and LEO 1676 (no fee-sharing with an electronic-tracking firm), the committee concludes the lawyer may arrange for the client to pay interest to the finance company but may not agree to give the company a portion of his fee.

Because the proposed arrangement is impermissible, the committee does not address the three implementation questions. It notes that fee and trust-account issues are addressed in LEO 1606, which explains, for example, that an advanced legal fee must stay in the lawyer's trust account until the corresponding services are performed.

Currency note

This opinion was issued in 2002. Virginia's Rule 5.4 and trust-account rules may have changed since. Verify against current rules before relying on any specific requirement mentioned here.

In practice

The opinion holds that, under Rule 5.4(a) as it stood at the time, a finance-company arrangement that lets the company retain a discounted portion of the legal fee is impermissible fee-sharing with a nonlawyer; a lawyer may route client-paid interest to such a company but not a share of the fee. Having found the arrangement improper, the committee leaves the trust-account, continued-work, and refund questions unanswered, pointing to LEO 1606 on advanced-fee handling.

Common questions

Q: Can a finance company keep a discount on the legal fee in exchange for paying the lawyer up front?

A: No. The committee holds the discount is a share of the legal fee, which Rule 5.4(a) bars a lawyer from giving a nonlawyer.

Q: Can the lawyer use a finance company at all?

A: The committee says the lawyer may arrange for the client to pay interest to the finance company; what he may not do is give the company a portion of his fee.

Q: Does the opinion answer whether the advanced fee goes in trust or must be refunded?

A: No. Because the arrangement is impermissible, the committee declines to reach those questions, noting only that LEO 1606 explains an advanced fee stays in trust until the services are performed.

Background and rules framework

The opinion interprets Rule 5.4 (Model Rule 5.4; professional independence of a lawyer), specifically 5.4(a)'s bar on sharing legal fees with a nonlawyer and its three enumerated exceptions. It applies prior Virginia opinions (LEO 1047, 1438, 1676) finding similar fee-splits improper and references LEO 1606 on advanced-fee and trust-account handling.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Virginia Rule 5.4(a) (sharing legal fees with a nonlawyer)

Other opinions cited:

• Virginia LEO 1047 (no fee-sharing with medical experts), LEO 1438 (advertising firm), LEO 1676 (electronic-tracking firm).
• Virginia LEO 1606: advanced legal fees must remain in trust until the services are performed.

See also

• VA LEO 1783: Returning Excess Fees to a Lender
• VA LEO 1843: Patent Lawyer With a Non-Lawyer Agent
• VA LEO 1838: In-House Counsel and a Sister Company

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1764.pdf

Original opinion text

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

Committee Opinion
May 6, 2002
LEGAL ETHICS OPINION 1764

ATTORNEY FEE SHARING WITH FINANCE
COMPANY.

You have presented a hypothetical in which an attorney accepts a case for a fixed fee. The
retainer agreement states that the fee is due in full at the start of the case. The attorney plans to
make arrangements with a finance company to pay the attorney at the start of the case the full
amount of the fee, minus a discount to be kept by the finance company. The client would be
obligated by contract to make monthly payments to the finance company until completing the
contractual obligation, which includes the full amount of the attorney’s fee plus interest. For
example, at the start of each case the finance company will sign an installment contract with the
client for $5000 plus interest and will then pay the attorney a discounted lump sum of $4000.
Your request asks three questions about this scenario: 1) must the law firm place the initial
payment by the finance company into the firm trust account; 2) if the client falls behind on
payments to the finance company, is the attorney obligated to continue working on the client’s
case; and 3) if the case is terminated before completion of all of the work on the case, is the
lawyer obligated to refund any of the fee.
The appropriate and controlling disciplinary rule relative to your inquiry is:
RULE 5.4

Professional Independence Of A Lawyer

(a) A lawyer or law firm shall not share legal fees with a nonlawyer, except
that:
(1) an agreement by a lawyer with the lawyer's firm, partner, or
associate may provide for the payment of money, over a reasonable period
of time after the lawyer's death, to the lawyer's estate or to one or more
specified persons;
(2) a lawyer who undertakes to complete unfinished legal business
of a deceased, disabled, or disappeared lawyer may pay to the estate or
other representative of that lawyer that portion of the total compensation
that fairly represents the services rendered by the deceased, disabled or
disappeared lawyer; and
(3) a lawyer or law firm may include nonlawyer employees in a
compensation or retirement plan, even though the plan is based in whole or
in part on a profit-sharing arrangement.
In reviewing the arrangement in this hypothetical, the committee notes a basic ethical problem
in the proposed agreement. This arrangement calls for the finance company to receive a portion of
the attorney’s legal fee. Except in three narrow exceptions not applicable in this instance, Rule
5.4(a) prohibits a lawyer from sharing his fee with a non-lawyer. This committee has found

Committee Opinion
May 6, 2002
arrangements similar to that proposed in this hypothetical to be violative of that concept. See,
LEO1047 (attorney’s fee may not be shared with a group of medical experts), 1438 (attorney’s fee
may not be shared with an advertising firm), & 1676 (attorney’s fee may not be shared with an
electronic tracking firm). The committee opines that, in line with those opinions, while the
attorney may arrange for the client to pay interest to the finance company, the attorney may not
agree to provide the finance company with a portion of his fee.
As the specific finance agreement contemplated in this hypothetical is impermissible under the
Rules of Professional Conduct, the questions raised regarding implementation of this agreement
need not be addressed. However, the committee notes that most issues involving legal fees and
attorney trust accounts are squarely addressed in LEO 1606, which explains, for example, that an
advanced legal fee paid to an attorney must remain in the attorney’s trust account until the
attorney has performed the corresponding services.
Committee Opinion
May 6, 2002