Can a lawyer who sued in his own name as his client's assignee keep the money collected to pay off fees the client owes him in other matters?

Plain-English summary

A lawyer asked whether he would violate Canon 10 (Acquiring Interest in Litigation) by suing for a client in his own name as assignee and then retaining the money collected to satisfy fees the client owed him on the assigned claim and other matters. The client had turned over a claim for collection but did not want to sue in his own name because of amicable relations with the obligor's family, so the lawyer sued as assignee, obtained a default judgment, and issued a wage execution; the client later suggested the lawyer keep any money collected to offset substantial fees owed in this and other matters.

The Committee explained that Canon 10 provides a lawyer should not purchase any interest in the subject matter of the litigation he is conducting, but does not preclude a lawyer in every case from having a stake in the litigation. Quoting Drinker, it drew the distinction between buying an interest in litigation as a speculation, which Canon 10 condemns, and agreeing in a case undertaken primarily in a professional capacity to accept compensation contingent on the outcome, and it set out Hoffman's Resolution XXIV on never purchasing a client's cause.

The Committee concluded that instituting suit in the lawyer's name as accommodation assignee does not per se violate Canon 10. But if the assignment is coupled with an agreement that the lawyer accepts it as payment, in whole or part, of a fee previously earned, then in substance and effect he would be buying his client's cause of action, which Canon 10 clearly condemns. It found that retaining the money to pay fees owed in other matters would be such a violation, and that this was true even though the retention was the client's suggestion made after the assignment. It added that while the mere accommodation-assignee suit is not unethical, the Committee believed it unwise, because it projects the lawyer into the category of an interested party and may give rise to unforeseen conflicts and criticism.

Currency note

This opinion was issued in December 1964, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), and well before the 1984 Rules of Professional Conduct and all later revisions. It applied Canon 10 of the former Canons of Professional Ethics. A lawyer's acquisition of a proprietary interest in litigation is now treated under RPC 1.8. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Is it a violation for a lawyer to sue in his own name as his client's assignee?

A: Not by itself. The Committee held that instituting suit as an accommodation assignee of the client does not per se violate Canon 10, though it considered the practice unwise.

Q: Can the lawyer keep the money collected to pay fees the client owes in other matters?

A: No. The Committee held that taking the assigned claim or the proceeds as payment of fees earned in other matters would, in substance and effect, be buying the client's cause of action, which Canon 10 condemns.

Q: Does it change the answer that the client was the one who suggested it?

A: No. The Committee said the distinction does not make right what would have been wrong if agreed before or at the time of the assignment; the client's later suggestion did not cure the violation.

Background and rules framework

The opinion applied Canon 10 of the former Canons of Professional Ethics, which barred a lawyer from purchasing an interest in the subject matter of litigation he is conducting, while allowing a contingent fee in a case undertaken professionally. In current New Jersey terms, the acquisition of a proprietary interest in litigation is governed by RPC 1.8. The Committee relied on Drinker's Legal Ethics and Hoffman's Resolution XXIV.

Citations and references

Rules of Professional Conduct (as in effect at the time):

• Canon of Professional Ethics 10 (acquiring interest in litigation)

Cases:

• DeCosmo v. Foreman, 69 N.J. Super. 548 (App. Div. 1961), cited on accommodation assignment

See also

• NJ ACPE Op. 603: Advancing Litigation Costs Through Bank Loans
• NJ ACPE Op. 66: Representing Someone Who Acquires and Sues on Claims

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp63-1.html

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

87 N.J.L.J. 778
December 3, 1964

OPINION 63
Interest in Litigation

A lawyer asks if he would be violating the Canons of Professional Ethics, Canon 10 (Acquiring Interest in Litigation), if he instituted a suit for a client in his own name as assignee and then retained the monies so collected on account of fees owed to him in the assigned claim and other matters. The facts are as follows:

My client turned over to me for collection his claim against a certain obligor resulting from a sale by him to the obligor of certain articles of household furniture. This client has amicable relationships with members of the obligor's family and did not desire to sue in his own name. I started suit in my name as assignee. Defendant was in default, judgment was entered and a wage execution issued. The defendant has been permitted by me to make payments direct to my office as he claims that a wage execution will cause him to lose his job. Defendant has never made regular payments as he has agreed to do and I have been compelled to write him and his employers of this fact. He has now informed me that an attorney he has consulted has advised him that I have been unethical in the handling of this suit. Furthermore, my client has suggested that I retain any moneys collected in this matter on account of a substantial amount of fees owed to me by him in this and other matters I have handled for him. I have so far not adhered to his suggestion.

Canon 10 provides that "The lawyer should not purchase any interest in the subject matter of the litigation which he is conducting." It does not preclude a lawyer in every case from having a stake in the litigation. "The distinction is between buying an interest in the litigation as a speculation, which Canon 10 condemns, and agreeing, in a case which the lawyer undertakes primarily in his professional capacity, to accept his compensation contingent on the outcome." Drinker, Legal Ethics 99 (1953). In this connection Drinker referred to Resolution XXIV of Hoffman's Fifty Resolutions In Regard To Professional Deportment which reads, in part, as follows:

I will never be tempted by any pecuniary advantage however great, nor be persuaded by any appeal to my feelings however strong, to purchase, in whole or in part my client's cause. Should his wants be pressing, it will be an act of humanity to relieve them myself, if I am able, and if I am not, then to induce others to do so. But in no case will I permit either my benevolence or avarice, his wants or his ignorance, to seduce me into any participation of his pending claim or defense. Cases may arise in which it would be mutually advantageous thus to bargain, but the experiment is too dangerous, and my rule too sacred to admit of any exception, persuaded as I am that the relation of client and counsel, to be preserved in absolute purity, must admit of no such privilege, however guarded it may be by circumstances; and should the special case alluded to arise, better would it be that my client should suffer, and I lose a great and honest advantage, than that any discretion should exist in a matter so extremely liable to abuse, and so dangerous in precedent. (Drinker at p. 343)

The action of the lawyer, here under discussion, in instituting suit in his name as assignee of his client, does not per se in this Committee's opinion, violate Canon 10. But if the assignment of the cause of action is coupled with an agreement whereby the lawyer accepts it as payment in whole or in part of a fee previously earned then he, in substance and effect, would be buying his client's cause of action which is clearly condemned by Canon 10. The facts here presented seem to indicate that the retention of the money on account of fees owed in other matters was a suggestion made by the client after the assignment had been made. But does such a distinction make right what would have been wrong if made before or at the time of the assignment? We think not and therefore conclude, after consideration of all the facts presented in this inquiry, that it would be a violation of Canon 10 for the lawyer to accept the assignment of his client's claim or the money collected thereon as payment in whole or in part of fees earned in other matters. Although, as expressed above, the mere institution of a suit by a lawyer as an accommodation assignee of his client is not unethical, we believe it is unwise. See DeCosmo v. Foreman 69 N.J. Super. 548 (App. Div. 1961). It projects the lawyer into the category of an interested party to the litigation he is conducting which may give rise to unforeseen conflicts and to criticism of his professional conduct. In the words of Hoffman's Resolution XXIV, "the experiment is too dangerous."