February 2001

Ethics and the Law

Washington Rule of Professional Conduct 1.8(e)(1) Should Be Amended to Permit Repayment of Litigation Costs Advanced by an Attorney to Be Contingent upon Recovery

by Mark Johnson

Washington Rule of Professional Conduct 1.8, denominated Conflict of Interest; Prohibited Transactions; Current Client, provides that a lawyer:

(e) Shall not, while representing a client in connection with contemplated or pending litigation, advance or guarantee financial assistance to his or her client, except that:

(1) A lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses … (emphasis added).¹

As required, our firm's contingent fee contract As required, our firm's contingent fee contract contains a provision advising clients that they must remain ultimately responsible for repayment of costs. See Walthew, Warner, Keefe, Arron, Costello & Thompson v. State Dept. of Revenue, 103 Wn.2d 183, 691 P.2d 559 (1984). In almost every circumstance in which I discuss the terms of our fee agreement with a new client, the client has only one question regarding the contract — a question that pertains to their exposure to costs. I advise my clients that Washington law requires that they remain ultimately responsible for payment of litigation expenses. However, I also tell them that I have never pursued a client for costs, and that I have no intention of pursuing them for costs if the case does not result in a recovery, although under the existing ethical rules I must reserve the right to do so.

The rule is intended to prevent a conflict of interest by barring an attorney from acquiring a proprietary interest in a client's cause of action. See RPC 1.8(a). Instead, the rule creates a conflict between the contingent fee lawyer's obligation to adhere to the Rules of Professional Conduct and the lawyer's consideration of, and empathy for, the client's circumstances, a conflict that is unwarranted given the realities of modern practice, in which few seriously injured contingent fee clients have a realistic prospect of supporting the litigation.

In 1983 the American Bar Association replaced the Model Code with newer modern rules of professional conduct. Taking into account modern litigation practices, Model Rule 1.8 (e)(1) was amended to eliminate the prior version of the rule's requirement that the client remain ultimately liable for litigation expenses; it embraced the reality of the modern practice of law as follows:

(e) 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.

Washington did not adopt the ABA's 1983 version of this rule, but instead returned to prior rule, fearing that the ABA's approach would give an unfair advantage to those lawyers who could afford to advance costs and expenses, and that a lawyer who advances such costs might incur Washington excise tax liability on the advanced amounts.²

Set forth at left is a survey of the rule in the 50 states and the District of Columbia with regard to whether the jurisdiction permits contingent repayment of litigation costs.

Washington, therefore, is one of 14 states, with the District of Columbia making a 15th jurisdiction, which has accepted the current Model Rule 1.8(e)(1), and which prohibits contingent repayment of litigation costs. Oregon tempers its provision by requiring a client to repay expenses only "to the extent of the client's ability to pay." Similarly, Colorado adds language prescribing: "A lawyer may forego reimbursement of some or all of the expenses of litigation if it is or becomes apparent that the client is unable to pay such expenses without suffering substantial financial hardship." Tennessee has also recently proposed changes which will permit the contingent repayment of litigation costs.

While Washington's version of the RPC 1.8(e)(1) requires that the client remain ultimately liable for all litigation costs advanced by a law firm, Washington and a number of other jurisdictions that adhere to the "client responsible" rule still hold the attorney liable for advancements made to finance litigation unless the attorney expressly disclaims responsibility. In Copp v. Breskin, 56 Wash. App. 229, 782 P.2d 1104 (1989), a law firm that retained an expert witness on behalf of its client was found to be liable for the expert's fee after the client refused to pay the bill. The expert witness established that he relied on a local custom where experts look to the attorney or law firm for payment of their fees. In agreeing with the witness's position, the Copp court stated that "[t]he statement that litigation costs were being paid and were to be paid by the client [as enumerated in Washington's RPC 1.8(e)(1)] does not address the situation when the client is unwilling or unable to pay … [and] [p]utting the burden on the attorney [to make an express disclaimer] promotes public trust and confidence in the legal profession." Id. at 234. The court continued: "The service provider reasonably expects that the attorney will be responsible, as surety or guarantor of the client's performance, RPC 1.8(e), and any contrary expectation of the attorney is unreasonable, if not fraudulent." Id. at 233-34. See also Sommer v. French, 684 N.E.2d 739 (Ohio 1996) (attorney bears burden of clarifying his intent regarding payment of service providers in furtherance of litigation); Urban Court Reporting, Inc. v. David, 158 A.D.2d 401 (N.Y. A.D. 1 Dept. 1990) (attorney held personally liable unless he expressly disclaims such responsibility); Monick v. Melnicoff, 144 A.2d 381 (D.C.App. 1958) (holding the same).

Washington's RPC 1.8 (e)(1) should be amended to permit the repayment of litigation costs contingent upon a recovery. The RPCs should reflect the reality of the practice. The reality is that contingent fee lawyers are required by their clients' circumstances to advance costs and to accept the risks of non-repayment of those costs in order to give the less advantaged of our society equal access to the courthouse. Also, the reality is that if the litigation is not successful, the clients will not be able to pay to provide care for a child, parent, spouse or themselves, much less repay litigation costs that can total hundreds of thousands of dollars.

While simultaneously advising clients that they are responsible for litigation costs, and assuring them that we have no intention of pursuing them for the costs, the rule creates an atmosphere of dishonesty, an unnecessary ethical tension between an attorney's obligation to adhere to the RPCs and his consideration of his clients' interests. This is not supportive of the modern realities of the honorable practice of representing the disadvantaged in the context of a merit-based compensation system.

NOTES

1 Washington's Rules of Professional Conduct became effective Sept. 1, 1985.

2 See Barrie Althoff, "Gifts and Loans to or from Clients," Washington State Bar News, December 1998, p. 42 at 46 for a discussion of Washington's adoption of this rule.

AK YES

AL YES

AR YES

CA YES

*The following language is added:

A lawyer may forego reimbursement of some or all of the expenses of litigation if it is or becomes apparent that the client is unable to pay such expenses without suffering substantial financial hardship.

CT YES

DE YES

FL YES

GA YES

HI YES

ID YES

IL YES

IN YES

KS YES

KY YES

LA YES

MA YES

MD YES

ME* YES

*The RPC does not specify, but Ethical Opinion 1.53 approves.

MN YES

MO YES

MS YES

MT YES

ND YES

NH YES

NJ YES

NV YES

OK YES

*Includes the following language: ultimately liable for such expenses to the extent of the client's ability to pay.

PA YES

RI YES

SC YES

*Proposed rule change changes it to YES. Comment period ends 4/30/01.

TX YES

UT YES

VT YES

WS YES

WV YES

WY YES

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