Can a lawyer have a client sign a stipulated judgment or promissory note for estimated fees before the representation begins, to secure payment from the marital home?

Plain-English summary

In a marital dissolution, a client lacked liquid funds but had equity in the marital home. The lawyer proposed initiating a legal action before the representation began and having the fully-informed client, advised to seek independent counsel, agree to a stipulated judgment for the estimated fees, which could attach to the home if the fees went unpaid. The inquirer asked about several variations: recording the judgment before the work, recording it only after the representation ended, doing so where temporary orders forbade encumbering marital property, and substituting a promissory note for the judgment, plus whether additional judgments or notes could be taken if costs exceeded the estimate.

The committee concluded that a lawyer may not obtain a stipulated judgment against a client in advance to secure the fee, because it violates RPC 1.5, 1.7, and 1.8(a). It found such a judgment unreasonable per se under RPC 1.5(a), and a conflict under RPC 1.7(a)(2) because the lawyer's personal interest in enforcing the judgment creates a significant risk of material limitation; the committee viewed that conflict as nonconsentable, reasoning that a lawyer who has taken a judgment for a sum certain before performing any services cannot reasonably believe he will provide competent and diligent service under RPC 1.7(b)(1). Applying the Washington Supreme Court's reading of RPC 1.8(a) in Valley/50th Ave., L.L.C. v. Stewart, 159 Wn.2d 736 (2007), the committee found the proposal an impermissible business transaction that moves the creditor-debtor relationship to before the representation even begins and is not fair and reasonable under RPC 1.8(a)(1), so it is prohibited even if the lawyer satisfies the rule's consent and independent-counsel requirements. The committee added that the timing of recording the judgment does not change the result, that a lawyer may not violate or help a client violate orders against encumbering marital property (RPC 1.2(d), 3.4(c), 8.4(d)), and, on the promissory-note variation, that it lacked sufficient information about the note's terms but questioned whether taking a negotiable note for a sum certain before any work could ever be proper.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee treated a pre-representation stipulated judgment for estimated fees as prohibited on three independent grounds: it is per se unreasonable under RPC 1.5(a), it creates a nonconsentable personal-interest conflict under RPC 1.7, and it is an impermissible client business transaction under RPC 1.8(a) as construed in Stewart. The opinion holds that the bar does not depend on when the judgment is recorded, and that even full written disclosure and a recommendation to consult independent counsel cannot cure it. The committee declined to give a categorical answer on a promissory note for lack of detail about its terms, while signaling doubt that a negotiable note for a sum certain taken before any work could be proper. It also restated that a lawyer cannot violate, or assist a client in violating, a court order against encumbering marital property.

Common questions

Q: Can a lawyer have a client sign a stipulated judgment for estimated fees before starting work?

A: No. The committee concluded this is unreasonable per se under RPC 1.5(a), a nonconsentable conflict under RPC 1.7, and an impermissible business transaction under RPC 1.8(a).

Q: Does it help to wait and record the judgment only after the representation ends?

A: No. The committee said its conclusions are not affected by whether the judgment is entered and recorded before or after the conclusion of the representation.

Q: Can the client just consent in writing after being told to seek independent counsel?

A: No. The committee viewed the conflict as nonconsentable, because a lawyer holding a judgment for a sum certain before performing any services cannot reasonably believe he can provide competent and diligent representation under RPC 1.7(b)(1).

Q: What about a promissory note instead of a judgment?

A: The committee said it lacked sufficient information about the note's terms to rule specifically, but questioned whether obtaining a negotiable note for a sum certain before any work is performed could be proper under any circumstances.

Background and rules framework

The opinion interpreted Washington RPC 1.5(a) (Model Rule 1.5, reasonable fees), RPC 1.7(a)(2) and 1.7(b)(1) (Model Rule 1.7, personal-interest conflicts and the limits of consentability), and RPC 1.8(a) (Model Rule 1.8, business transactions with a client). It applied the Washington Supreme Court's interpretation of RPC 1.8(a) in Valley/50th Ave., L.L.C. v. Stewart, distinguishing a security instrument for fees already owed from anticipated fees, and treated the pre-representation judgment as creating an early creditor-debtor relationship. The committee also cited RPC 1.2(d), 3.4(c), and 8.4(d) on not violating or assisting violation of court orders.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Washington RPC 1.5(a) (reasonable fees)
• Model Rule 1.7 / Washington RPC 1.7(a)(2), 1.7(b)(1) (personal-interest conflicts; consentability)
• Model Rule 1.8 / Washington RPC 1.8(a), 1.8(a)(1) (business transactions with a client)
• Model Rule 1.2 / Washington RPC 1.2(d) (assisting a client's unlawful conduct)
• Model Rule 3.4 / Washington RPC 3.4(c) (knowing disobedience of a tribunal's rules)
• Model Rule 8.4 / Washington RPC 8.4(d) (conduct prejudicial to the administration of justice)

Cases:

• Valley/50th Ave., L.L.C. v. Stewart, 159 Wn.2d 736 (Wash. 2007), security instrument from a client to secure fees implicates RPC 1.8(a)

See also

• WA Ethics Op. 1037: attorney's lien for fees against funds received in a new matter
• WA Ethics Op. 2176: keeping uncashed trust-account funds

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1623

Original opinion text

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

Advisory Opinion: 2178
Year Issued: 2008
RPC(s): RPC 1.5, 1.7, 1.8(a), 1.5(a), 1.7(a)(2), 1.7(b)(1), 1.2(d), 3.4(c), 8.4(d)
Subject: Client signing judgment for estimated attorney`s fees in dissolution case

FACTS

In a marital dissolution proceeding, a client indicates at the outset of the representation that he or she does not have sufficient liquid funds to pay the attorney’s fees. The client indicates that there is sufficient equity in the marital home to pay the anticipated fees and costs. The lawyer proposes that a legal action be instituted prior to beginning the representation, and that the client agree to entry of a stipulated judgment for the estimated amount of the fees for the representation. The client is fully informed, in writing, of the effect of signing the judgment and is advised to seek independent counsel. The client is informed that the judgment may be entered and may attach to the marital home if the fees are not paid in a timely manner.

The inquirer requests an opinion regarding the ethical propriety of this scenario under the following circumstances: (1) the judgment is recorded prior to beginning representation; (2) the judgment is not recorded until the conclusion of the representation or until counsel has withdrawn from the case; (3) there are temporary orders in place forbidding the encumbrance of any marital property; (4) the client is asked to sign a promissory note in the amount of the anticipated fees rather than a judgment. Also, assuming the ethical propriety of scenarios (1) – (4), may the lawyer request additional judgments and/or promissory notes if the actual legal expenses exceed the amount of the initial judgment and/or promissory note?

DISCUSSION

Scenarios (1) – (3)

Putting aside legal property considerations, including the right of one spouse to encumber marital property in the marriage dissolution context, a lawyer may not ethically obtain a stipulated judgment in a legal action against a client in advance of undertaking a representation in order to secure the lawyer’s fee. This approach to securing a lawyer’s fee violates RPC 1.5, 1.7, and 1.8(a). This conclusion is buttressed to the extent such a judgment constitutes an encumbrance of marital property in violation of a pending court order.

The Inquirer’s proposed approach contemplates from the outset initiating litigation and entering a judgment against a client for fees to be earned in the future representation. As an initial matter, the Committee has significant concerns with lawyers using litigation to obtain leverage against persons who are not separately represented and to whom they intend to represent in a fiduciary capacity. It is the Committee’s view that obtaining a stipulated judgment in advance to secure collection of the fee is unreasonable per se under RPC 1.5(a). It is also a conflict of interest under RPC 1.7(a)(2) because there is a significant risk that the lawyer’s representation will be materially limited by the lawyer’s personal interest in enforcing the judgment. While representation with such a conflict is theoretically possible with the client’s informed consent (confirmed in writing), the Committee believes that where the judgment is obtained for a sum certain in advance of performing any services for the client, a lawyer cannot “reasonably believe that the lawyer will be able to provide competent and diligent service” to the client as required by RPC 1.7(b)(1), and the conflict is therefore not consentable.

In addition, under the Washington Supreme Court’s interpretation of RPC 1.8(a), this proposed judgment also appears to constitute an impermissible business transaction with a client. In Valley/50th Ave., L.L.C. v. Stewart, 159 Wn.2d 736 (2007), the court concluded that a deed of trust obtained from a client to secure fees already owing implicates RPC 1.8(a). Id. at 744. While the court was careful to point out that anticipated fees would not implicate this rule, it also relied heavily on the fact that the relationship created by the security instrument was one of creditor/debtor, and not merely that of a lawyer/client. Id. The Inquirer’s proposal to obtain a judgment essentially moves the creditor/debtor relationship between lawyer and client to the time before the representation even begins, and implicates RPC 1.8(a) for the reasons set forth in Stewart. It is the Committee’s view that the terms of the Inquirer’s proposal to obtain a pre-representation judgment is not “fair and reasonable to the client” under RPC 1.8(a)(1). Thus, the proposed transaction is prohibited even if the lawyer complies with the other requirements of the rule (i.e., that the client is advised of the desirability of obtaining independent legal counsel and that the client gives informed, written consent).

The Committee notes that its conclusions are not affected by whether the proposed judgment is entered and recorded in the real property records before or after the conclusion of the representation. Also, it goes without saying that the lawyer is not ethically permitted to violate court orders prohibiting the encumbrance of marital property, nor may they assist a client or prospective client in doing so. See RPC 1.2(d), 3.4(c), 8.4(d).

Scenario 4 The Inquirer also asks whether obtaining a promissory note rather than a judgment before the commencement of work is ethically proper. The Committee does not have sufficient information about the terms of the promissory note, including any security, to respond to this inquiry specifically. But the Committee questions whether it would be proper under any circumstances to obtain a negotiable promissory note for a sum certain from a prospective client prior to work being performed or fees being earned.