Can an Ohio lawyer refer a client to a finance company if the lawyer agrees to give the company a percentage of the legal fee in exchange for the company lending the client money?

Plain-English summary

The Board addressed an arrangement in which a lawyer, before accepting representation, agrees to give a finance company a percentage of the legal fee in exchange for the company lending money to the client. In effect the finance company pays the lawyer the billed amount minus the agreed percentage, and the client repays the loan with interest.

The Board concluded the arrangement is an improper division of a legal fee with a non-lawyer under DR 3-102(A), whose narrow exceptions do not reach a finance company. It rejected efforts to recharacterize the deal as a permissible business arrangement: it differs from a referral to a collection agency (permitted only for fully earned fees, paid on amounts collected), it is not a purchase of accounts receivable because no services may yet have been performed, and it is not a mere service fee where the company also earns interest on its loans. The Board noted some states viewed such splits as ordinary finance agreements but declined to follow them.

The Board added that paying the lawyer through the finance company increases the likelihood that a non-lawyer will influence the lawyer's independent professional judgment, contrary to DR 5-107(B), for example by shaping whether the lawyer takes a case or how much effort each matter receives. The opinion was careful to say it does not bar all referrals to financing companies, and it identified other steps a lawyer should consider before any referral, including pro bono representation, the client's existing credit, lower-interest loans, and advancing litigation expenses under DR 5-103(B).

Currency note

The Ohio Board flags this opinion as a "CPR Opinion" interpreting the former Ohio Code of Professional Responsibility, which was superseded by the Ohio Rules of Professional Conduct effective February 1, 2007. The Board also notes the opinion is "Not current" because of subsequent rule amendments to DR 5-103(B), effective June 14, 1999.

This opinion issued in 1994. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current Ohio Rules of Professional Conduct before relying on any specific rule mentioned here.

Common questions

Q: Could a lawyer give a finance company a percentage of the legal fee for lending the client money?

A: No. The Board concluded that prospectively agreeing to pay a finance company a percentage of an earned legal fee in exchange for a client loan is an improper division of fees with a non-lawyer under DR 3-102(A).

Q: Is this different from referring an unpaid bill to a collection agency?

A: Yes. The Board explained collection-agency referrals are permissible only for fully earned fees, after amicable collection attempts, with the agency paid on the amount collected rather than the amount billed.

Q: Does the opinion forbid referring a client to a financing company at all?

A: No. The Board said the opinion is not a blanket prohibition; a lawyer may refer a client to a financing company after considering the client's best interest, including pro bono options, existing credit, and lower-interest loans, so long as the terms do not involve the lawyer in a Code violation.

Background and rules framework

The opinion interprets former Ohio Code of Professional Responsibility DR 3-102(A) (sharing legal fees with a non-lawyer) and DR 5-107(B) (non-lawyer interference with independent professional judgment), with reference to DR 5-103(B) (advancing litigation expenses).

Citations and references

Rules of Professional Conduct:

• Former Ohio Code of Professional Responsibility DR 3-102(A), DR 5-107(B), DR 5-103(B)

Other opinions cited:

• Ohio BPC Op. 91-16 (1991) (collection agencies); Op. 91-12 (1991) (credit cards); Op. 87-001 (1987) and Op. 94-5 (1994) (advancing expenses)
• Illinois State Bar Op. 92-9 (1993); State Bar of Texas Op. 481; Oregon State Bar Op. 1993-1; Maine Bd. of Bar Overseers Op. 138 (1994)

See also

• Ohio BPC Op. 1994-008: Splitting a Contingency Fee With a Non-Lawyer Investigator
• Ohio BPC Op. 1989-002: Sharing Fees With a Suspended or Disbarred Lawyer
• Ohio BPC Op. 1991-016: Using a Collection Agency for Delinquent Legal Fees

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op-94-011.pdf

Original opinion text

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

The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
41 SOUTH HIGH STREET-SUITE 3370, COLUMBUS, OH 43215-6105
(614) 644-5800 FAX: (614) 644-5804

                                               OFFICE OF SECRETARY


                                            OPINION 94-11
                                        Issued October 14, 1994

[CPR Opinion-provides advice under the Ohio Code of Professional Responsibility which is superseded by the Ohio
Rules of Professional Conduct, eff. 2/1/2007.]

[Not current-subsequent rule amendments to DR 5-103(B), eff. Jun. 14, 1999.]

SYLLABUS: It is improper under DR 3-102(A) of the Ohio Code of Professional Responsibility
for an attorney to refer a client to a financing company that requires the attorney to prospectively
agree to pay the company a percentage of a legal fee when earned as a quid pro quo for the
company's agreement to loan money with interest to a client. Such conduct may also violate DR 5-
107(B).

OPINION: This opinion addresses whether it is proper for an attorney to refer a client to a
financing company that requires the attorney to prospectively agree to pay the company a
percentage of a legal fee when earned as a quid pro quo for the company's agreement to loan money
to the client. In essence, the finance company pays the attorney the amount billed for legal services
minus the agreed upon percentage. The client repays the "loan" through monthly payments with
interest to the finance company.

Ethical problems arise when a lawyer, prior to accepting or providing legal representation, enters an
agreement to give a percentage of his or her legal fee to a financing company in exchange for the
company's agreement to loan high interest rate money to a client. First, there is an improper
agreement to divide a legal fee with a non-lawyer in violation of DR 3-102 (A). Second, there is a
likelihood of improper influence by a non-lawyer upon a lawyer's independent professional
judgment in violation DR 5-107(B). The rules are set forth below.

    DR 3-102(A) A lawyer or law firm shall not share legal fees with a non-lawyer,
    except that:

            (1) An agreement by a lawyer with his [her] firm, partner, or
            associate may provide for the payment of money, over a reasonable
            period of time after his [her] death, to his [her] estate or to one or
            more specified persons.

            (2) A lawyer who undertakes to complete unfinished legal business
            of a deceased lawyer may pay to the estate of the deceased lawyer
            that proportion of the total compensation which fairly represents the
            services rendered by the deceased lawyer.

Op. 94-11 2

           (3) A lawyer or law firm may include non-lawyer employees in a
           retirement plan, even though the plan is based in whole or in part on a
           profit-sharing arrangement.

   DR 5-107(B) A lawyer shall not permit a person who recommends, employs, or
   pays him [her] to render legal services for another to direct or regulate his [her]
   professional judgment in rendering such legal services.

Disciplinary Rule 3-102 (A) broadly prohibits dividing legal fees with non-attorneys, and the
exceptions within the rule do not apply to a division with a financing company. Some states may
justify such division, but this Board cannot. See e.g., Illinois State Bar Ass'n, Op. 92-9 (1993)
(viewing the division as a business agreement between the attorney and the finance company that
"'makes it possible for the business to bear a portion of the cost of the loan thereby making the
borrower more attractive to the lender"; State Bar of Texas, Op. 481 (undated) (viewing the
division as a finance arrangement rather than a fee-splitting arrangement, provided that the finance
corporation does not solicit clients and does not perform legal services); Oregon State Bar, Op.
1993-1 (1993) (view is unclear as to why it is not considered a prohibited division of fees.)

It is this Board's view that a lawyer's prospective agreement to pay a finance company a percentage
of a legal fee not yet earned in exchange for the company's agreement to loan a client money is not
a business arrangement outside of the Code's restraint. First, it is different from a referral to a
collection agency. Referrals to collection agencies are permissible only when the fees sought to be
collected have been fully earned, the lawyer has made personable and amicable attempts to collect
the fee, and the compensation to the collection agency is made on the basis of the amount collected,
not the amount billed as legal service. See Ohio SupCt, Bd of Comm’rs on Grievances and
Discipline, Op. 91-16 (1991). See also, Maine Bd of Bar Overseers, Op. 138 (1994), (permitting an
attorney to enter an agreement with a financing company to remit a percent of amount collected).
Second, it does not help to characterize the agreement as a purchase of accounts receivable. At the
time of the agreement, no legal services have been performed and in some cases no attorney client
relationship has been established. Finally, it cannot be justified as an administrative or service fee
necessary to doing business when the finance company is receiving interest on its loans.

In addition, such agreements increase the likelihood that a lawyer's professional judgment will be
influenced by a non-lawyer since the lawyer is being paid by the finance company. For example, a
lawyer's decision as to whether to enter an attorney client relationship may become based solely
upon the financing company's view of the client, rather than
Op. 94-11 3

upon a lawyer's traditional and professional decisions regarding a client's needs, case merits, and
personal commitment to making legal services available. A further hazard is that the lawyer's
performance of legal services may easily be affected by the lawyer's knowledge that the finance
company will take a certain percent of legal fees earned in a particular case. This may have the
subtle effect of making some cases seem more worthy of the lawyer's effort than others. It may
also have the effect of legal fees being raised beyond what is customarily charged.

Thus, in answer to the question raised, this Board advises that it is improper under DR 3-102 (A) of
the Ohio Code of Professional Responsibility for an attorney to refer a client to a financing
company that requires the attorney to agree to pay the company a percentage of a prospective legal
fee when earned as a quid pro quo for the company's agreement to loan money with interest to a
client. Such conduct may also violate DR 5-107 (B).

Nevertheless, this opinion is not to be construed as a blanket prohibition on a lawyer's referral of a
client to a financing company. However, before referral to a financing company, a lawyer must
carefully consider whether the referral is in the client's best interest. A lawyer should consider
whether he or she could provide pro bono representation or whether the client might be eligible to
receive pro bono representation elsewhere. A lawyer should assist the client in determining
whether payment of the legal services or costs and expenses of litigation could be accomplished
through the use of the client's already established credit cards, particularly if the interest rates are
lower. See Opinion 91-12 (1991). A lawyer should encourage a client to consider other possible
sources of loans that might carry lower interest rates, such as bank loans or personal loans from
family or friends. An attorney should consider whether or not to advance or guarantee the expenses
of litigation as permitted under DR 5-103 (B). See Op. 87-001 (1987) (“[i]t is ethically proper for
an attorney to advance expenses of litigation on behalf of a client, provided the client remains
ultimately liable for such expenses"); Op. 94-5 (1994) (advising on the issue of settling a lawsuit
against a client for expenses of litigation). Finally, the attorney must be satisfied that the terms and
conditions of the financing company do not involve the attorney in a violation of the Ohio Code of
Professional Responsibility.

Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions regarding
the application of the Supreme Court Rules for the Government of the Bar of Ohio, the
Supreme Court Rules for the Government of the Judiciary, the Code of Professional
Responsibility, the Code of Judicial Conduct, and the Attorney's Oath of Office.