CAVEAT: This Opinion is limited strictly to the facts as presented for analysis under Mississippi’s Rules of Professional Conduct. The facts and questions outlined below and the opinion rendered is limited to ethical issues only.
The Ethics Committee of the Mississippi Bar has been asked to respond to the following question and hypothetical:
Is it ethical for an attorney to refer financing for legal services, excluding bankruptcy and contingency matters, through a third party broker that offers such financing through multiple potential lenders?
Our firm has been in discussions with a third-party legal financing business, that works with lenders to offer legal financing options to potential clients that may not otherwise be able to afford up-front retainers, similar to financing the purchase of goods. As part of the process we would direct the prospective client to the initial financing application.
The following Rules of Professional Conduct are applicable to this opinion. The relevant portions of those Rules provide:
Rule 1.8 Conflict of Interest: Prohibited Transactions
. . .
(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:
Rule 1.6 Confidentiality of Information
(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).
Rule 1.4 Communication
Rule 1.5 Fees
Rule 1.15 Safekeeping Property
Rule 1.16 Declining or Terminating Representation
Rule 2.1 Advisor
In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.
Nothing in Rule 1.8 prohibits a lawyer from referring a client to a fee financing company that advances the client funds to obtain legal services; provided the referring attorney has no interest in the lending institution, receives no fee for the referral, takes no direction from the lender regarding the matter financed, and discloses no information regarding the client’s representation to the fee financing company. A client may not be able to afford a lawyer’s upfront retainer at the outset of a representation but the lawyer is unwilling to accept incremental payments. This Committee previously opined that it was ethical for a lawyer to accept payment of his fees by credit card in Formal Opinion No. 135 (September 11, 1997). The Committee sees little difference between the acceptance of payment by credit card and the arrangement presented here, though some additional safeguards should be taken.
In the scenario described by the requester if the client is interested in financing the attorney’s fee, the client completes an application with the third party lender. The lender then determines whether to approve the credit application and on what terms, establishing a lender/borrower relationship separate from the attorney client relationship. Further, under this scenario no information about the client’s legal matter or its likelihood of success is provided by the lawyer to the finance company to implicate Mississippi Rule of Professional Conduct 1.6.
In such a scenario the lawyer must also still comply with his obligations under 1.4(b), 1.5(a) and (b), 1.15(a) and (c), 1.16(d) and 2.1. Pursuant to Mississippi Rules of Professional Conduct 1.4(b) and 2.1 the lawyer must explain the financing arrangement to the client to the extent reasonably necessary for the client to make an informed decision. This could include explaining the lawyer’s relationship with the finance company, the costs and benefits of the transaction to the client, the terms of the client’s arrangement with the finance company such as the interest rate and that the amount borrowed will have to repaid regardless of the outcome of the legal matter, that other financing options exist, and any other factors relevant to the client’s decision.
Additionally, any fee charged by the lawyer to the client, whether financed or not, must be reasonable pursuant to Rule 1.5. If the fee is increased due to financing it must not only still be reasonable, but the client must also be informed. If the fee financed is a retainer, advance fee or flat fee the funds received must be placed in a trust account as unearned fees until the lawyer has performed the agreed services to earn the fee pursuant to Rule 1.15(a) and (c) of the Mississippi Rules of Professional Conduct. If the client or lawyer terminates the representation prior to the lawyer fully earning the fee, any unearned portion must be returned to the client pursuant to Rule 1.16(d).
The Committee is of the opinion that a lawyer is not prohibited from directing clients to a third party broker to secure financing of the lawyer’s fee provided the lawyer complies with his obligations under Rules 1.4, 1.5, 1.15, 1.16 and 2.1 of the Mississippi Rules of Professional Conduct.