Can a lawyer use a client's contingent-fee contract or attorney's lien as collateral for the lawyer's own personal loan?
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This page answers the general question as of 1992. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
Opinion E-92-3 (1992) considered a sole practitioner who has a valid written personal-injury contingency agreement with a client under SCR 20:1.5(c), providing for an attorney's lien consistent with SCR 20:1.8(j)(1) and (2). The question was whether the lawyer may offer, tender, or negotiate that attorney's lien as collateral, assignment, or guarantee for a personal loan the lawyer seeks for himself, and whether the answer differs depending on whether the lender is a sophisticated commercial lending institution or an inexperienced lender. The committee concluded that under no circumstances may a lawyer use a contingent-fee contract with a client as security for a personal loan to the lawyer.
The committee reasoned that although SCR 20:1.8(j)(2) permits a lawyer to contract for a reasonable contingent fee in a civil case, the introductory language of SCR 20:1.8(j) otherwise prohibits a lawyer from acquiring a proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting. As the comment to the rule explains, that prohibition is based on the common-law doctrines of champerty and maintenance. Securing a personal loan with the contingent-fee contract would make the lawyer an interested investor in the client's cause of action, triggering the general prohibition. The committee quoted Wolfram's Modern Legal Ethics on why causes of action are not assignable security for loans.
Finally, the committee observed that a client's right to discharge the lawyer at any time makes a contingent-fee contract an inappropriate form of collateral, because the actual or potential impact of the proposed arrangement could affect the lawyer's representation of the client and the exercise of independent professional judgment, citing SCR 20:1.7(b), 20:1.8(a), and 20:2.1. For all these reasons the committee disapproved the proposed conduct.
Currency note
This opinion was issued in 1992, before Wisconsin's July 1, 2007 adoption of the revised Rules of Professional Conduct (the state's Ethics 2000 update). The proprietary-interest provision the committee cites as SCR 20:1.8(j) corresponds to Model Rule 1.8(i), and the conflict rules (SCR 20:1.7, 20:1.8) have been revised and relettered since. 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 lawyer pledge a client's contingent-fee contract to secure the lawyer's own loan?
A: No. The committee concluded that under no circumstances may a lawyer use a contingent-fee contract with a client as security for a personal loan to the lawyer.
Q: Why is that prohibited?
A: Because it gives the lawyer a proprietary interest in the client's cause of action. The committee concluded that pledging the contract makes the lawyer an interested investor in the claim, which the introductory language of SCR 20:1.8(j) (the proprietary-interest bar, rooted in champerty and maintenance) prohibits.
Q: Did it matter whether the lender was a bank or an inexperienced lender?
A: No. The committee concluded the prohibition applies regardless of the type of lender; the answer did not turn on the lender's sophistication.
Background and rules framework
The opinion interprets SCR 20:1.8(j) / Model Rule 1.8(i) (the bar on acquiring a proprietary interest in the cause of action or subject matter of litigation, with an exception for a reasonable contingent fee), read with SCR 20:1.5(c) / Model Rule 1.5(c) (contingent fees), SCR 20:1.7(b) and 20:1.8(a) / Model Rules 1.7 and 1.8(a) (conflicts and business transactions), and SCR 20:2.1 / Model Rule 2.1 (independent professional judgment). The committee grounded the rule in the common-law doctrines of champerty and maintenance.
Citations and references
Rules of Professional Conduct:
- Wis. SCR 20:1.8(j) / Model Rule 1.8(i) (proprietary interest in litigation; contingent-fee exception)
- Wis. SCR 20:1.5(c) / Model Rule 1.5(c) (contingent fees)
- Wis. SCR 20:1.7(b), 20:1.8(a) / Model Rules 1.7, 1.8(a) (conflicts; business transactions)
- Wis. SCR 20:2.1 / Model Rule 2.1 (independent professional judgment)
Other sources cited:
- Charles W. Wolfram, Modern Legal Ethics 528 (1986)
See also
- OK Bar Ethics Op. 29: Lawyer Buying a Client's Note to Sue On It
- OK Bar Ethics Op. 57: Advancing Litigation Costs for a Client
- AL Bar Ethics Op. 1990-86: Contingent Fee, Attorney's Lien, and Quantum Meruit
Source
- Landing page: https://www.wisbar.org/formembers/ethics/pages/formal-opinions.aspx
- Original PDF: https://www.wisbar.org/formembers/ethics/Ethics%20Opinions/E-92-3.pdf
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