Recent Developments in Legal Ethics 2019: ABA Ethics Opinions

Michael H. Hoeflich John H. & John M. Kane Distinguished

Professor of Law

May 22-23, 2019 University of Kansas School of Law

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Recent Developments in Legal Ethics 2019:

ABA Ethics Opinions

Lawyers concerned with keeping their knowledge of legal ethics must keep current by

monitoring a number of sources. First among these, of course, are the ethics opinions of the highest

courts of the states in which they are admitted. Second, and of equal importance, are the amendments

made to the Rules of Professional Responsibility as adopted by these courts. Third, they must keep

abreast of the opinions issued by state ethics advisory committees in each state in which they are

admitted. And fourth, they must keep abreast of the opinions issued by the American Bar Association

Standing Committee on Ethics and Professional Responsibility. According to this committee’s

webpage, the duty of the committee is to issue:

…ethics opinions interpreting both the Model Rules of Professional Conduct and the Model Code of Judicial Conduct.1

The committee modestly states as well that:

ABA Formal Opinions have been cited as persuasive when courts around the nation interpret state-adopted Rules of Professional Conduct.2

In fact, though the opinions of the ABA Standing Committee have no authority other than

persuasive, they are always taken seriously by state courts and disciplinary administrators’ offices,

even if they are not always followed. Further, because the opinions interpret the Model Rules of

Professional Conduct and states often adopt variations of these Rules, ABA opinions are not always

1 https://www.americanbar.org/groups/professional_responsibility/committees_commissions/ethicsandprofessionalresponsibility/. 2 https://www.americanbar.org/groups/professional_responsibility/committees_commissions/ethicsandprofessionalresponsibility/.

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applicable to every jurisdiction. For instance, in August 2016, the ABA House of Delegates voted to

amend Model Rule 8.4 with the following:

(g) engage in conduct that the lawyer knows or reasonably should know is harassment or discrimination on the basis of race, sex, religion, national origin, ethnicity, disability, age, sexual orientation, gender identity, marital status or socioeconomic status in conduct related to the practice of law. This paragraph does not limit the ability of a lawyer to accept, decline or withdraw from a representation in accordance with Rule 1.16. This paragraph does not preclude legitimate advice or advocacy consistent with these Rules.3

Kansas has not yet adopted this amendment to the KRPC. Instead KRPC Rule 8.4(g) reads:

g) engage in any other conduct that adversely reflects on the lawyer's fitness to practice law.

Nevertheless, it is a foolish lawyer called to defend his behavior who does not research ABA

Opinions.

The ABA Standing Committee issues both formal and informal opinions. According to the

Georgetown Law Library’s Legal Ethics Research Guide, the difference between the two is:

Formal opinions are issued on matters that are deemed of general interest to the bar; informal opinions are issued for specific inquiries relating to a particular set of facts.4

Thus, The Standing Committee only issues formal opinions when it believes that the American

Bar needs guidance of an issue of significant importance and not simply relevant to a single or small

group of practitioners. The number of opinions issued each year by the Standing Committee varies. In

2018, the Standing Committee issued five formal opinions relating to the Model Rules of Professional

3 https://www.americanbar.org/groups/construction_industry/publications/under_construction/2019/spring2019/model_rule_8_4/ . All quotations otherwise not footnoted are from the ABA opinions under discussion. 4http://guides.ll.georgetown.edu/c.php?g=270948&p=1808373.

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Conduct, ABA Formal Opinions 18-480 through 18-484. These opinions embraced a wide diversity of

subjects ranging from the proper ways to handle blogs, disasters, cyber attacks, and lawyer errors. In

this lecture, I will briefly summarize and analyze each of the five formal opinions issued by the Standing

Committee in 2018.

ABA Formal Opinion 18-480

Confidentiality Obligations for Lawyer Blogging and Other Public Commentary

Lawyers, like virtually all others engaged in the pursuit of clients and professional

reputation have learned that the Internet and social media have become a critical part of advertising

their expertise, experience, and services. In Formal Opinion 18-480 the Standing Committee reminds

the Bar that lawyers have a duty of confidentiality under Rule 1.6 and that this duty applies to any

communications they may make, including blogging and other forms of public commentary.

In issuing this advisory opinion, the ABA Standing Committee did not state any startling

interpretations of law. The general rule of lawyer confidentiality is stated in Model Rule 1.6(a):

(a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).

The exceptions to the Rule are contained in 1.6(b): (1) to prevent reasonably certain death or substantial bodily harm;

(2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services; (3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the

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client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services; (4) to secure legal advice about the lawyer's compliance with these Rules; (5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer's representation of the client; (6) to comply with other law or a court order; or (7) to detect and resolve conflicts of interest arising from the lawyer’s change of employment or from changes in the composition or ownership of a firm, but only if the revealed information would not compromise the attorney-client privilege or otherwise prejudice the client.

Significantly, however, the Standing Committee does note that:

This confidentiality rule “applies not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source.” In other words, the scope of protection afforded by Rule 1.6 is far broader than attorney-client privileged information.

Unless one of the exceptions to Rule 1.6(a) is applicable, a lawyer is prohibited from commenting publicly about any information related to a representation. Even client identity is protected under Model Rule 1.6. Rule 1.6(b) provides other exceptions to Rule 1.6(a). However, because it is highly unlikely that a disclosure exception under Rule 1.6(b) would apply to a lawyer’s public commentary, we assume for this opinion that exceptions arising under Rule 1.6(b) are not applicable.

Significantly, information about a client’s representation contained in a court’s order, for example, although contained in a public document or record, is not exempt from the lawyer’s duty of confidentiality under Model Rule 1.6. The duty of confidentiality extends generally to information related to a representation whatever its source and without regard to the fact that others may be aware of or have access to such knowledge.

A violation of Rule 1.6(a) is not avoided by describing public commentary as a “hypothetical” if there is a reasonable likelihood that a third party may ascertain the identity or situation of the client from the facts set forth in the hypothetical. Hence, if a lawyer uses a hypothetical when offering public commentary, the hypothetical should be constructed so that there is no such likelihood.

The salient point is that when a lawyer participates in public commentary that includes client information, if the lawyer has not secured the client’s informed consent or the disclosure is not otherwise impliedly authorized to carry out the representation, then the lawyer violates Rule 1.6(a). Rule 1.6 does not provide an exception for information that is “generally known” or contained in a “public record.” Accordingly, if a lawyer wants to publicly reveal client information, the lawyer must comply with Rule 1.6(a). These paragraphs are quite revealing as to why the Standing Committee may have found it

necessary to issue 18-480. When I teach students about Rule 1.6, one of the things that they find most

difficult to understand is the notion that they are bound to keep confidential not only information that they

acquire from the client in the course of the representation, but, also, information that is publicly available

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about the representation. Thus, as the Standing Committee points out, even information in a public

document such as a court order falls within the scope of 1.6(a) and a lawyer must not publicly discuss such

information without client consent. I think that this is the clue to the origin of 18-480. All one need do is

think about the multitude of lawyers who have inhabited the airwaves in the past two years, many on behalf

of clients and the countless pronouncements they have made, many of which revealed information about

their representation and some, seemingly, without the knowledge or permission of their clients. Formal

Opinion 18-480 is a reminder to these lawyers—and all of us—that we must follow Rule 1.6(a) closely and

that there is no “media exception” under Rule 1.6(b).

ABA Formal Opinion 18-481

A Lawyer’s Duty to Inform a Current or Former Client of the Lawyer’s Material Error

As the old saying goes, “…to err is human,” and lawyers are often far too human in this regard.

The ABA Standing Committee puts it more gently:

Even the best lawyers may err in the course of clients’ representations.

The question, of course, is what to do when one has made a mistake. Must one tell the client? Should one

tell the client? The answers to these questions vary.

Formal Opinion 18-481 divides errors committed in representation differently for current and

former clients. This is a familiar divide, found in, for instance, Rules 1.7 and 1.9 on conflicts. The opinion

also separates material errors from non-material errors. To begin with the latter distinction, a lawyer has an

obligation to inform a current or former client only of “material” errors. An error is material, according to

the Standing Committee:

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…if a disinterested lawyer would conclude that it is (a) reasonably likely to harm or prejudice a client; or (b) of such a nature that it would reasonably cause a client to consider terminating the representation even in the absence of harm or prejudice.

This is a fairly clear standard to follow, although it requires a lawyer who has made an error to fully and

fairly evaluate the seriousness of the error and its impact on the client. Less experienced lawyers may well

want to seek counsel on this issue.

The difference in treatment of material errors between current and former clients is also relatively

straightforward. A lawyer must inform a current client of a material error pursuant to the lawyer’s duty to

keep a client fully informed pursuant to Model Rule 1.4. The version of this Rule in the KRPC reads:

(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information. (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

The Standing Committee glosses this with the following:

…the “guiding principle” undergirding Model Rule 1.4 is that “the lawyer should fulfill reasonable client expectations for information consistent with the duty to act in the client’s best interests, and the client’s overall requirements as to the character of representation.” A lawyer may not withhold information from a client to serve the lawyer’s own interests or convenience.

The Standing Committee also goes on to explore whether the notion of material error is limited to

those errors that might give rise to a “colorable” malpractice claim. The Committee answers this question

in the negative and states:

In attempting to define the boundaries of this obligation under Model Rule 1.4, it is unreasonable to conclude that a lawyer must inform a current client of an error only if that error may support a colorable legal malpractice claim, because a lawyer’s error may impair a client’s representation even if the client will never be able to prove all of the elements of malpractice. At the same time, a lawyer should not necessarily be able to avoid disclosure of an error absent apparent harm to the client because the lawyer’s error may be of such a nature that it would cause a reasonable client to lose confidence in the lawyer’s ability to perform the representation competently, diligently, or loyally despite

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the absence of clear harm. Finally, client protection and the purposes of legal representation dictate that the standard for imposing an obligation to disclose must be objective.

The rule is different for a former client. According to the Standing Committee a lawyer has no

duty to communicate with a former client pursuant to Rule 1.4 and, therefore, since the duty to disclose an

error to a client rests on Rule 1.4, no such duty exists as to a former client. The Standing Committee notes

that a lawyer may wish to inform a former client for reasons other than an ethical obligation under Rule 1.4,

but that is a question for the lawyer to decide. Indeed, the Standing Committee provides a stark example of

a lawyer NOT informing a former client of a material error he committed:

If a material error relates to a former client’s representation and the lawyer does not discover the error until after the representation has been terminated, the lawyer has no obligation under the Model Rules to inform the former client of the error. To illustrate, assume that a lawyer prepared a contract for a client in 2015. The matter is concluded, the representation has ended, and the person for whom the contract was prepared is not a client of the lawyer or law firm in any other matter. In 2018, while using that agreement as a template to prepare an agreement for a different client, the lawyer discovers a material error in the agreement. On those facts, the Model Rules do not require the lawyer to inform the former client of the error. Good business and risk management reasons may exist for lawyers to inform former clients of their material errors when they can do so in time to avoid or mitigate any potential harm or prejudice to the former client. Indeed, many lawyers would likely choose to do so for those or other individual reasons. Those are, however, personal decisions for lawyers rather than obligations imposed under the Model Rules.

ABA Formal Opinion 18-482

Ethical Obligations Related to Disasters5

The past two decades have seen the United States experience an increasing number of both natural

and man-made disasters. The Western U.S. has been plagued by massive wildfires. The Eastern U.S. has

suffered one “super storm” after another. The memory of 9/11 and the havoc it wrought is still fresh in

every American’s memory. Cyber intrusions into personal and business computer systems occur each day

5 The discussion in this section is taken—at times verbatim-- from my article appearing in the May 2019 issue of the Kansas Bar Journal.

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across the nation. In short, no rational American can pretend that some form of disaster will not strike at

home or at business. As lawyers, we are fiduciaries of our clients and under the Rules of Professional

Conduct we must protect their property, maintain the confidentiality of their information, communicate

with them and conduct all of our business on their behalf in a competent manner. There is no exception

from these obligations in times of disaster.

ABA Formal Opinion 18-482 discusses several provisions of the Rules of Professional Conduct

that are potentially implicated when disaster strikes a lawyer’s practice. Foremost among these are Rule 1.4

on communication, Rule 1.15 on the safekeeping of client property and Rule 1.6 on keeping client

confidences. Underpinning these rules is Rule 1.1 on lawyer competence.

To begin with Rule 1.1 a lawyer is required to be competent not only in traditional legal skills but

also in technical skills, including the skills necessary to protect clients’ digital files, digital property, and

other electronic media. This means in practice that a lawyer must be aware both of the capabilities and

limitations of the various systems and devices which she uses for such purposes as communications with

clients, storage of client files, protection of clients’ tangible property, and other related matters. For

instance, if a lawyer maintains files only in hard copies and on a server both in the lawyer’s office, such a

practice puts the clients’ files at risk if the lawyer’s office is damaged or destroyed by a natural or

manmade disaster. This is precisely what has happened to lawyers who experienced the damaging effects

of hurricanes on the East Coast of the U.S. in recent years. Secondly, I would suggest that Rule 1.1 in

conjunction with Rule 1.15 would require a lawyer to maintain adequate insurance to protect potential

client losses in the case of a disaster. This, of course, will require lawyers to make competent assessments

of the risk of loss of client property and files in advance of any disaster that may occur. Third, lawyers, as

part of their competent representation of their clients, should develop an advance disaster plan to deal with

possible losses and damage. Such plans should be known not only to other lawyers in the firm, but also to

staff who may need to implement the plan in the case that the lawyer is incapacitated or killed in the

disaster. Such a plan should extend specifically to situations in which the disaster that injures the lawyer

occurs away from the lawyer’s office or home, such as when the lawyer is on vacation.

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Rule 1.4 requires that a lawyer communicate with clients. In the event of a serious disaster,

communications lines may well be weakened or even eliminated for a period of time. In the event of a

disaster, a lawyer will need to communicate with clients with whom he has current matters that require

frequent communication. He may also need to communicate with clients and former clients whose files or

property are damaged or destroyed by the disaster. Existing clients may also want to reach their lawyer in

the event of a disaster to seek the lawyer’s assistance. In all of these cases and others, the lawyer is

responsible under Rule 1.4 to provide some means of communication to his client. This may mean setting

up alternative means to communicate via cellphone or the Internet. Whatever means of communication are

chosen for disaster communications, these should be robust and likely to survive a disaster and clients

should know what these alternative methods are. The Opinion suggests, for instance, that lawyers may want

to include information about disaster communications in the engagement letter or fee agreement.

Files and other retained materials which may be maintained in digital format can be copied and

saved outside the lawyer’s office. The simplest means to do so will be to save digital documents on a server

not in the lawyer’s office, preferable one in a location not subject to the same disaster risks as the office.

Today, many lawyers save copies of digital files in “cloud servers.” In ABA Op. 477R, the ABA

Committee on Ethics and Professional Responsibility opined that the use of cloud storage may be ethically

permissible so long as strict requirements are to ensure safety and confidentiality are maintained. ABA

Opinion 482 specifies, in addition, that:

…the lawyer should (i) choose a reputable company, and (ii) take reasonable steps to ensure that the confidentiality of client information is preserved, and that the information is readily accessible to the lawyer.

Formal Opinion 482 goes on to discuss the obligations a lawyer may have as to continued

representation of clients in a disaster situation, especially when either the lawyer or client has been

displaced from his home or office, and also discusses the obligation of lawyers to fully comply with Rules

7.1 and following.

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ABA Formal Opinion 18-483

Lawyers’ Obligations after an Electronic Data Breach or Cyberattack6

Formal Opinion 18-483 deals with lawyers’ obligations when a lawyer’s computer system has

suffered a data breach or been subject to a cyber-attack. The opinion states that a lawyer has an obligation

under Rule 1.1 on competence:

…to understand technologies that are being used to deliver legal services to their clients. Once those technologies are understood, a competent lawyer must use and maintain those technologies in a manner that will reasonably safeguard property and information that has been entrusted to the lawyer. A lawyer’s competency in this regard may be satisfied either through the lawyer’s own study and investigation or by employing or retaining qualified lawyer and nonlawyer assistants.

Pursuant to this obligation of competency, lawyers must monitor their electronic systems for

breaches; stop breaches as quickly as possible once it is discovered that a breach has occurred, and restore

all electronic systems as quickly as possible. Key to this is the obligation to have a “response plan” for

dealing with a data breach:

The primary goal of any incident response plan is to have a process in place that will allow the firm to promptly respond in a coordinated manner to any type of security incident or cyber intrusion. The incident response process should promptly: identify and evaluate any potential network anomaly or intrusion; assess its nature and scope; determine if any data or information may have been accessed or compromised; quarantine the threat or malware; prevent the exfiltration of information from the firm; eradicate the malware, and restore the integrity of the firm’s network.

Incident response plans should identify the team members and their backups; provide the means to reach team members at any time an intrusion is reported, and define the roles of each team member. The plan should outline the steps to be taken at each stage of the process, designate the team member(s) responsible for each of those steps, as well as the team member charged with overall responsibility for the response.

6 Portions of this discussion in this section is taken—at times verbatim-- from my article appearing in the May 2019 issue of the Kansas Bar Journal.

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Of course, once a breach of a lawyer’s electronic files has occurred it immediately raises the

question of whether the lawyer has violated Rule 1.6 on protecting the confidentiality of clients’

information. The Opinion states that in 2012 Rule 1.6 was amended to deal with data breaches:

Amended Comment [18] explains:

Paragraph (c) requires a lawyer to act competently to safeguard information relating to the representation of a client against unauthorized access by third parties and against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer’s supervision. See Rules 1.1, 5.1 and 5.3. The unauthorized access to, or the inadvertent or unauthorized disclosure of, information relating to the representation of a client does not constitute a violation of paragraph (c) if the lawyer has made reasonable efforts to prevent the access or disclosure.

The opinion goes on to state:

…an attorney’s competence in preserving a client’s confidentiality is not a strict liability standard and does not require the lawyer to be invulnerable or impenetrable. Rather, the obligation is one of reasonable efforts.

Thus, if a lawyer prepares properly and takes reasonable efforts to prevent and deal with electronic data

breaches, this should suffice.7

When a data breach involves the files of a current client, the lawyer has the obligation to inform

the client.8 In the case of former clients the Opinion does not require the lawyer who suffered the attack to

notify his former client, but states:

Therefore, as a matter of best practices, lawyers are encouraged to reach agreement with clients before conclusion, or at the termination, of the relationship about how to handle the client’s electronic information that is in the lawyer’s possession.

7 The opinion reiterates the standards by which to judge “reasonable efforts”:

• the sensitivity of the information, • the likelihood of disclosure if additional safeguards are not employed, • the cost of employing additional safeguards, • the difficulty of implementing the safeguards, and • the extent to which the safeguards adversely affect the lawyer’s ability to represent clients (e.g., by

making a device or important piece of software excessively difficult to use). 8 ABA Op. 483 at 10; see, also, ABA Formal Ethics Opinion 95-398, cited at 11.

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The Opinion also notes that lawyers need to be aware of state and federal laws which govern electronic

data breaches. In fact, forty-eight states, including Kansas, have disclosure laws relating to electronic data

breaches.9

The issues are somewhat different in the case of former clients and are covered by Rule 1.9(c):

A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter . . . reveal information relating to the representation except as these Rules would permit or require with respect to a client.

But the Opinion notes that lawyers are generally required to return client property at the end of a

representation pursuant to Rule 1.16(d) and that clients “can make an informed waiver of the protections”

pursuant to Rule 1.9(c). The opinion would seem to suggest that lawyers would be wise to enter into such

waiver agreements with clients at the end of the representation. If they do not, the opinion goes on to state

that:

Absent an agreement with the former client lawyers are encouraged to adopt and follow a paper and electronic document retention schedule, which meets all applicable laws and rules, to reduce the amount of information relating to the representation of former clients that the lawyers retain. In addition, lawyers should recognize that in the event of a data breach involving former client information, data privacy laws, common law duties of care, or contractual arrangements with the former client relating to records retention, may mandate notice to former clients of a data breach. A prudent lawyer will consider such issues in evaluating the response to the data breach in relation to former clients.

Finally, the opinion reminds lawyers that they must keep clients informed about the breach and

post-breach developments:

The nature and extent of the lawyer’s communication will depend on the type of breach that occurs and the nature of the data compromised by the breach. Unlike the “safe harbor” provisions of Comment [18] to Model Rule 1.6, if a post-breach obligation to notify is triggered, a lawyer must make the disclosure irrespective of what type of

9 See the National Conference of State Legislatures, “Security Breach Notice Laws,” online at http://www.ncsl.org/research/telecommunications-and-information-technology/security-breach-notification-laws.aspx.

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security efforts were implemented prior to the breach. For example, no notification is required if the lawyer’s office file server was subject to a ransomware attack but no information relating to the representation of a client was inaccessible for any material amount of time, or was not accessed by or disclosed to unauthorized persons. Conversely, disclosure will be required if material client information was actually or reasonably suspected to have been accessed, disclosed or lost in a breach.

And:

The Committee concludes that lawyers have a continuing duty to keep clients reasonably apprised of material developments in post-breach investigations affecting the clients’ information. Again, specific advice on the nature and extent of follow up communications cannot be provided in this opinion due to the infinite number of variable scenarios.

ABA Formal Opinion 18-484

A Lawyer’s Obligations When Clients Use Companies or Brokers

to Finance the Lawyer’s Fee

In recent years, the practice of using third party finance to enable clients to pay lawyers’

fees has grown in popularity. At the same time it has sounded warning bells for courts and

disciplinary administrators. In Formal Opinion 18-484, the ABA has made an attempt to deal with

some of these ethical questions surrounding this growingly popular practice. In particular, the

Opinion addresses two issues:

(a) whether the lawyer may refer the client to a finance company that will likely loan the client money to pay the lawyer’s fees, or (b) whether the lawyer may refer the client to a broker who will assist the client in obtaining fee financing.

The opinion lays out six scenarios:

First, a lawyer may know of a finance company in which the lawyer has no ownership or other financial interest. An interested client applies for a loan for the lawyer’s full fee with the finance company, which determines whether to make a loan, the amount of any loan, the interest rate on the loan, and the amount of any financing fee (which reportedly ranges between 5–15%). If the finance company approves the loan, it deposits the full loan amount in the lawyer’s bank account, less the financing fee. The lawyer receives nothing from the finance company for the client’s participation other than

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the fee payment; the loan to the client is non-recourse as to the lawyer. The lawyer’s fee agreement with the client explains the arrangement. Absent other circumstances permitting or requiring the lawyer to terminate the attorney-client relationship, the lawyer will continue to represent the client even if the client defaults on the loan.

Second, the lawyer agrees to pay an initial fee to the finance company in exchange for the right to submit loan applications from clients. The lawyer has no financial or other interest in the finance company, and the finance company makes all decisions about whether to loan funds to the client, in what amount, and on what terms. The client is solely responsible for repaying any loan; the loan is non-recourse as to the lawyer. The finance company pays the loan proceeds directly to the lawyer, minus a 10% finance fee.

Third, the lawyer knows of a finance company in which the lawyer has no ownership or other interest. The lawyer negotiates a fee with a client consistent with the lawyer’s customary practice. “In appropriate circumstances,” the lawyer may inform a client of the possibility of financing the fee through the finance company. If the client is interested in financing the fee, the lawyer provides the client with additional information about the financing plan. The client then completes the company’s printed credit application in the lawyer’s office and the lawyer sends the application to the company. If the company approves the credit application, it will establish a credit facility for the payment of the lawyer’s fees up to the credit limit established by the company. The lawyer periodically submits vouchers to the finance company for services rendered to the client. The client must approve the vouchers. If the client approves a voucher, the finance company pays the lawyer the amount of the voucher minus a 10% service charge (up to the client’s unused credit limit). The client must repay the amount of each voucher plus interest at a rate comparable to the interest rates banks charge for credit cards. The finance company also requires the client to deposit funds in a reserve account to reduce the finance company’s risk of default.

Fourth, the lawyer knows of a finance company in which the lawyer has no ownership or other interest. The lawyer gives clients a link to the finance company’s website or posts the link on the lawyer’s website, either of which directs clients to the finance company’s loan application forms. If a client completes the application, the finance company decides whether to lend the client money and on what terms. The finance company disburses the loan funds directly to the client, but the finance company provides the lawyer with a “portal” through which he or she can learn whether the client applied for a loan, and when and in what amount loan funds were disbursed to the client. To participate in these programs, the lawyer pays a fee to the finance company of several hundred dollars either as a one-time registration fee or as a monthly subscription fee. Again, any loan to a client is non-recourse with respect to the lawyer.

Fifth, a finance company offers a “same as cash” funding program for a lawyer’s fees or retainer in which the company provides the physical equipment necessary to carry out the mechanics of the arrangement on-site in the lawyer’s office. To initiate the process at the lawyer’s office, the client swipes an item of personal financial identification through an identifying device provided to the lawyer by the finance company. The finance company also provides the lawyer with an imaging machine that scans the client’s personal check to facilitate the finance company’s collection of periodic loan repayments directly from the client’s checking account. The finance company then may qualify the client for a loan at a wide range of interest rates depending on the finance company’s determination of the risk of non-payment and the length of the repayment period. If the client qualifies, the lawyer provides the client with the loan documents and the finance company pays the lawyer directly. The finance company has no recourse against the lawyer if the client defaults.

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Sixth, but similarly, a lawyer may associate with a financial brokerage company that helps clients obtain legal fee financing. The broker is not a lender; it locates banks willing to finance the client’s legal fees. The broker charges the lawyer an initial setup fee and a monthly fee to create and maintain a webpage that facilitates the brokerage function. The lawyer also pays a “merchant fee” on the amount of the financed legal fee. More particularly, the broker provides interested clients with loan applications to submit to banks. Approved clients receive offers from competing banks, and are free to pick the offer that works best for them, or to decline all offers. If the client accepts an offer, the lending bank pays the loan amount to the client. The client then pays the lawyer’s fee in accordance with their fee agreement. Once again the loan is non-recourse insofar as the lawyer is concerned.

Several things about these scenarios are critical. First, in none of these scenarios does the lawyer

have any ownership or “other financial interest” in the financing company or brokerage company. If the

lawyer did have such an interest, this would immediately raise, among others, the question as to whether

the lawyer had complied with Rule 1.8(a) regulating situations in which a lawyer enters into a business

transaction or takes a financial interest in a client. The requirements of Rule 1.8(a) are stringent and

lawyers should be careful that they are willing and able to comply with them. Opinion 18-484 does not

provide lawyers who engage in these types of financing arrangements involving lawyer ownership interests

a full guide to doing such arrangements.

If a lawyer wishes to enter into the types of arrangements described in Opinion 18-484, then the

opinion makes it clear that she may do so, recognizing that to do so will involve a number of Rules,

including Rule 1.2(c), Rule 1.4(b), Rule 1.5(a), Rule 1.6, Rule 1.7(a)(2), and Rule 1.9(a). The Opinion also

comments on the applicability of Rule 5.4(a) to such financing arrangements.

Rule 1.2(c) permits lawyers to limit the scope of representation of a client within certain

circumstances. It may apply to the financing scenarios set forth in 18-484 if a lawyer decides that she wants

to advise the client contemplating financing her fee as to the loan terms. In such a case, the lawyer,

according to 18-484, must limit the scope of representation under Rule 1.2(c). The Opinion cites, on this

point, N.Y. Ethics Op. 1108, “(endorsing the lawyer’s limitation of the representation under Rule 1.2(c)

where a potential client might believe that the lawyer is exercising professional judgment in recommending

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financing, recommending a particular financier, or has evaluated the loan terms).” Lawyers might be well

served not to give such advice but, rather, leave that to other professionals.

Rules 1.4(b) and Rule 1.5 both may apply to these scenarios. A lawyer’s fee must always satisfy

the reasonableness requirements of Rule 1.5, even if financed in one of the ways illustrated in the Opinion.

The Opinion notes that in some cases lawyers may want to increase their fees to take into account the

administrative costs they may incur in some of these financing arrangements. If they do so, the Opinion

makes clear, they must still satisfy Rule 1.5 and inform their clients of the fee increase pursuant to Rule

1.4(b). Further, if the lawyer receives an advanced fee payment from the lender on behalf of the client, the

lawyer must also follow all ethical rules pertaining to advanced fee payments including maintaining such

funds in a client trust account until earned and, if all of the amount is not used at the time the representation

ends, refund the remaining balance to the client.

Opinion 18-484 also draws lawyers’ attention to the potential for conflicts under Rules 1.7 and

Rules 1.9 in these financing arrangements. Basically, a lawyer whose client uses such financing may have a

Rule 1.7(a)(2) conflict because:

Arguably the greatest risk is that the lawyer will recommend the finance company or broker to the client even though fee financing is not in the client’s interests because the client’s arrangement of financing best assures payment or timely payment of the lawyer’s fee. A conflict of interest might also exist if the finance company or broker is also a client of the lawyer.

The Opinion points out, however, that a lawyer, in such circumstances, can seek a waiver of the potential

conflict from the client subject to Rule 1.7(b)(2).

The lawyer also must be aware of a potential former client conflict under Rule 1.9 if the lawyer

formerly represented the broker or finance company. In such a case, the lawyer should seek the client’s

informed consent to the representation confirmed in writing pursuant to Rule 1.9(a).

17

Finally, the Opinion discusses those financing scenarios where a lawyer will be charged a fee by

the financing company or broker. The Opinion states that a lawyer may ethically pay such a fee because it

does not constitute fee sharing under Rule 5.4(a) and analogizes this type of fee to the service fees lawyers

pay to credit card companies when they permit clients to charge fee payments to their credit cards.

Conclusion

The opinions issued by the ABA Standing Committee on Ethics and Professional Responsibility

during 2018 cover a number of important issues and activities that may affect practicing lawyers. The

purpose of this lecture has been to alert the listeners to these new opinions and every lawyer should follow

up by reading and mastering the full texts of the opinions and implementing necessary changes to their

practices in accordance with them.