The Supreme Court
of
Professional Ethics
Committee
Opinion Number 558
May 2005
QUESTION PRESENTED
May a lawyer borrow money for case
expenses from an independent lending company and agree to pay the lender a
percentage of the lawyer's contingency fee?
STATEMENT OF FACTS
A lawyer proposes, with the client's
informed consent, to borrow money from a lending company for case expenses
(court costs, litigation and expert witness expenses, and reasonably necessary
medical and living expenses). The lending company is owned by non-lawyers. In
addition to interest on the loan, the lawyer proposes to pay the lender a
percentage of the lawyer's contingency fee in
the case. The contingency fee agreement between the lawyer and client complies
with all applicable rules governing such agreements. The fee percentage paid
the lawyer is not influenced by the financing arrangements secured by the
lawyer. The lawyer will pay all amounts due to the lending company and the
client's recovery will not be affected by the percentage of the contingency fee
paid by the lawyer to the lender.
DISCUSSION
The proposed arrangement constitutes
an agreement to share legal fees with a non-lawyer. Rule 5.04(a) of the Texas Disciplinary
Rules of Professional Conduct specifically
provides that, with limited exceptions, a lawyer may not agree to share legal
fees with a non-lawyer:
"A
lawyer or law firm shall not share or promise to share legal fees with a
non-lawyer ...."
Comment 1 to Rule 5.04 notes that the principal reasons for the limitations on fee
sharing are to prevent solicitation by lay persons of clients for lawyers and
to avoid encouraging or assisting non-lawyers in the practice of law. The
exceptions to the general prohibition on fee sharing that are recognized in
subparagraphs (1), (2) and (3) of Rule 5.04(a) (following the statement of the general rule quoted above) are
not applicable to the facts considered in
this Opinion. Accordingly, the proposed arrangement for the lawyer to pay the
lender a portion of a contingency fee would violate Rule 5.04(a).
The conclusion reached in this
Opinion is consistent with other Opinions of the Committee that have considered
the scope of Rule 5.04(a). In Opinion 493 (February 1994), the Committee determined that a
lawyer could not divide legal fees with non-lawyer professionals with whom the
lawyer shared office space and expenses. In Opinion 510 (December 1994), the
Committee determined that Rule 5.04(a) did not generally prohibit a lawyer from participating in a
contingency fee agreement with a client who also signed a contingency fee
contract with a non-lawyer investigator. In Opinion 552 (August 2004), the
Committee determined that Rule 5.04(a) prohibits payment of a percentage of a legal fee to a third-party
auditor.
CONCLUSION
It is a violation of Rule 5.04(a) of the Texas Disciplinary
Rules of Professional Conduct for a lawyer to agree
to pay a percentage of the lawyer's contingency fee to a finance company or
other lender in connection with obtaining a loan.