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 92-14
A lending institution wishes to send its delinquent accounts to a law firm for collection. Pursuant to a proposed retainer agreement, the law firm is to advance all costs of collection. The law firm is to be paid a percentage fee. Costs advanced are to come out of the percentage fee with the provision that, at end of year, should costs exceed total fees paid to the law firm, then the lending institution will reimburse the law firm for the difference. As stated, this will not be on a case-by-case basis, but rather based on total cases handled by the law firm for the lending institution during the calendar year.
Question:
Would this arrangement be ethically permissible?
Summary:
If the retainer is re-worded to state that costs are to be advanced by the law firm with the reimbursement to be made by the lending institution upon submission of a bill and that the fee paid to the law firm is reimbursed, then there should be no ethical violation. A lawyer may advance costs of litigation for a client and these may even be contingent on the outcome. There is no restriction on a lawyer working for a minimal or no fee arrangement.
Opinion:
Rule 1.8(e)(1) states:
"A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:
(1) A lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; ..." The present proposed wording of the retainer agreement seems to indicate that the law firm will pay all costs out of fees earned, rather than receiving reimbursement. Under this practice, the law firm would not be merely advancing costs but would be acquiring a financial interest in the case. To avoid this problem, the retainer should be reworded to provide that costs will be advanced by the law firm and reimbursed by the lending institution and that the fee will be based on percentage less costs incurred. There is no prohibition for a lawyer working for a minimal fee or for no fee. Also, the lawyer should be careful to comply with Rule 1.2(A) and Rule 1.4.