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Ethics Opinions from the Bar Association of San Francisco

INFORMAL OPINION 1974-4

An attorney may pay litigation costs for clients it is representing on a charitable basis.

QUESTION:

May a firm, without violating the ABA Canons of Professional Ethics and the California State Bar Rules of Professional Conduct, pay the litigation costs for clients it is representing on a charitable basis?

DISCUSSION:

I. General Duty of Members of the Bar to Represent Charitable Causes:

Section 6068(h) of the Business and Professions Code provides that it is the duty of an attorney "Never to reject, for any consideration personal to himself, the cause of the defenseless or oppressed."

II. The ABA and State Bar Generally Impose Limitations on Attorneys Representing Cases where They Have a Financial Interest in the Litigation:

Canon 5 of the new American Bar Association Code of Professional Responsibility provides that: "A lawyer should exercise independent professional judgement on behalf of a client." Ethical Consideration 5-1 elaborates: "The professional judgment of a lawyer should be exercised . . . free of compromising influences and loyalties . . ." including his own personal interests. Ethical Consideration 5-8 states that while a "financial interest in the outcome of litigation . . . results if monetary advances are made by the lawyer to his client . . . it is not improper to make loans to a client" in instances in which the ultimate liability of costs and expenses of litigation rests with the client.

Similarly, Canon 42 of the original American Bar Association Canons of Ethics provided:

"A lawyer cannot properly agree with a client that the lawyer shall bear or pay the expenses of litigation; he may in good faith advance expenses as a matter of convenience, but subject to reimbursement."

Paralleling the ABA Code of Professional Responsibility are the Rules of Professional Conduct of the California State Bar. Rule 3a generally referred to as the "ambulance chasing" rule, provides that no member of the State Bar shall directly or indirectly pay "medical, hospital or nursing bills or other personal expenses incurred by or for a client, prospective or existing." Business and Professions Code §6129 provides that any "attorney who either directly or indirectly buys or is interested in buying any evidence of debt or thing in action, with intent to bring suit thereon, is guilty of a misdemeanor."

III. Historical Basis for ABA Canon 5 and State Bar Rules of Professional Conduct Lies in Common Law Doctrines of Maintenance and Champerty:

Preservation of independent judgement is the apparent rationale behind prohibitions of attorneys financing litigation. This approach to the problem of attorneys' bias has its historical basis in the common law doctrines of maintenance and champerty. Maintenance consisted of "an officious intermeddling in a suit which in no way belongs to the intermeddler by maintaining or assisting either party to the action, with money or otherwise . . ." 14 Am.Jur 2d 843. Champerty was a species of maintenance, " .namely, maintenance accompanied by an agreement that the intermeddling parties should receive part of the costs litigated." Cal. Jur 2d 283. While neither of these common law doctrines has ever been adopted outright in California (Cohen Estate, 66 Cal. App. 2d 450, 152 P.2a 485; Muller v. Muller, 206 Cal. App. 2d 731, 23 Cal. Rptr. 900), the influence of these doctrines is apparent in the ABA Canons and Rules of Professional Conduct of the State Bar.

IV. ABA and State Bar Prohibitions of Financial Interest are Clearly Inapplicable to the Assumption of Litigation Costs in Cases handled on a Charitable Basis:

Where an attorney does not anticipate any form of reimbursement from a client with a legitimate claim and his services are rendered on a purely charitable basis, the ABA and State Bar prohibitions of financial interests appear to be inapplicable to the assumption of litigation costs.

Clearly there are no overtones of champerty or maintenance in the assumption of such litigation costs. Assuming that the litigation in question is legitimate, there is no element of personal compensation present to encourage or foment litigation. In fact, absent reimbursement arrangements, an attorney's assumption of litigation costs would appear to discourage acceptance of cases in a charitable basis case. Also, the costs of litigation are insignificant when compared to the value of the attorney's time which is expended in the same litigation.

It is debatable whether contribution of litigation costs is, in fact, a violation of Rule 3a at all. This rule specifically prohibits assumption of "medical, hospital or nursing bills or other personal expenses." absent some type of reimbursement arrangement. Query whether the phrase "other personal expenses" was intended to include litigation costs. This seems an unlikely interpretation, in light of the nature of those expenses specifically prohibited.

V. Precedents for a Decision that Assumption of Litigation Costs is Within the Bounds of Professional Ethics:

Authority for this proposition is found in the Restatement of Contracts, §541 which states "a bargain for maintenance, even though the bargain includes an agreement to pay the expenses of litigation, is not illegal if entered into from charitable motives or without intention to make a profit."

Furthermore, the American Bar Association Standing Committee on Professional Ethics, in Informal Opinion No. 889, rules that an attorney may assume the expense of printing an amicus curiae brief for a nonprofit corporation:

".if there is no law prohibiting the lawyer from contributing his services and the costs of printing the amicus curiae brief, and if the attorney has no financial interest in the organization or in the litigation, the suggested action would not seem to be improper."

Note also that courts have ruled that a person may contribute funds for a trover action, Gilm an v. Jones , 5 So. 785 (1889), or pay the expenses of a suit by a municipality to test the validity of a liquor license, Brush v. Carbondale 82 N.E. 252 (1907) without violating champerty laws. The underlying rationale of these cases has been that as a member of the public, one has an interest in the outcome of the action which justifies contribution.

It seems then, by analogy, that it would not be a violation of professional ethics for an attorney to assume litigation costs for clients represented on a charitable basis, with one important qualification. It must be clearly established that in undertaking a charity case, the attorney involved does not seek to thereby establish an attorney-client relationship with the expectation that such relationship will continue on a noncharitable basis in the future. In the latter situation, a prohibited champertous "financial interest" is present, and there would be a clear violation of professional ethics.

VI. CONCLUSION
Attorneys May Pay Litigation Costs for Clients it is Representing on a Charitable Basis:

Based upon the above discussion, it is apparent that an attorney may pay the litigation costs of a client represented on a charitable basis. The underlying California State Bar prohibitions of financial interest are inapplicable, which becomes evident when the underlying rationale of these prohibitions is examined. Furthermore, there is clear precedent for the decision that assumption of litigation costs is indeed ethical in the Restatement of Contracts; an opinion (No. 889) of the American Bar Association Standing Committee on Professional Ethics regarding assumption of costs of printing amicus curiae briefs, and in case law. As noted, however, the assumption of litigation costs is strictly limited to charitable cases and the determination that a case is in fact of such a nature should be carefully scrutinized for hidden financial interests.

 

All opinions of the Committee are subject to the following disclaimer:
Opinions rendered by the Ethics Committee are an uncompensated service of The Bar Association of San Francisco. Opinions are advisory only, and no liability whatsoever is assumed by the Committee or The Bar Association of San Francisco in rendering such opinions, and the opinions are relied upon at the risk of the user thereof. Opinions of the Committee are not binding in any manner upon the State Bar of California, the Board of Governors, any disciplinary committee, The Bar Association of San Francisco, or the individual members of the Ethics Committee.

In using these opinions you should be aware that subsequent judicial opinions and revised rules of professional conduct may have dealt with the areas covered by these ethics opinions.

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