UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 91-15
Attorneys A and B assisted lender in establishing a loan business. Attorney A and B have no financial interest in the loan business and no equity interest in the loan company. Attorneys A and B have clients they represent in personal injury and other tort actions. These clients occasionally wish to borrow money. The inquirer wishes to receive an Advisory Opinion as to whether it is ethically permissible to refer clients who wish to borrow money to the lender. Attorneys A and B further wish to receive an Advisory Opinion as to whether it is ethically permissible to pay to the lender the amount loaned plus interest from any settlement if the client so directs.
Questions:
Does the above situation violate Rule 7.2(c), which prohibits paying someone to recommend a lawyer's services? Does the above situation violate Rule 1.8(e), which prohibits the lawyer from lending money to his client (except for costs of litigation)?
Summary:
Since the attorneys have no financial interest in the loan company and merely represented the lender in establishing its business, the acts of the loan company cannot be attributed to the attorneys. Assuming the client consents and does not withdraw his consent at the time the personal injury case is settled, the attorneys may honor the assignments to the loan company and may refer clients to the lender.
Opinion:
The first consideration is whether the acts of the lender may be attributed to the attorneys. There is no ethical rule which suggests that such an agency relationship would be created. Rule 1.9 would prohibit the lawyers involvement in a transaction wherein the lawyers' role is "materially adverse" to one of the parties, if the lawyers' earlier representation involved the "same or substantially related matter." Since filing incorporation papers and the like are not substantially related to a later loan, Rule 1.9 would not apply in any event. Further, as long as the client consents to the assignment, all that exists is a contract, not a "materially adverse" relationship. Under the facts presented, the loan company's acts cannot be attributed to the attorneys.
If the acts of the loan company cannot be attributed to the lawyers, then the lawyers have not provided financial assistance to the client under Rule 1.9(e). All the lawyers have done is help the client to obtain such assistance, which may be a lawyer's job.
Similarly, the lawyers have not paid anyone to recommend their services, so Rule 7.2(c) has not been violated.
The payment of interest would further be permitted so long as the client agreed to it and consented to the assignment.