Rule 1.8(e) bars advancing money to a client in litigation. Does that also stop me from lending a client money for something unrelated to the case, through a loan agreement?

Plain-English summary

The inquiring attorney asked whether Rule 1.8(e) prohibits a lawyer from providing financial assistance to a client for purposes unrelated to the subject of the representation, and whether a loan agreement may be entered into between client and lawyer. The attorney suggested that the loan agreement, or information about it, be forwarded to the Panel to ensure lawyers do not commit abuses under the guise of assisting clients in need.

The Panel read Rule 1.8(e) as applying only to costs associated with litigation. It quoted Professor Hazard's treatise for the view that lending a client funds to close a deal the lawyer negotiated is not impermissible, provided the loan terms are fair and the written disclosure and consent procedures of Rule 1.8(a) are followed.

The Panel then set out Rule 1.8(a)'s stringent requirements for business transactions between lawyer and client: the transaction and terms must be fair, reasonable, and fully disclosed in writing; the client must have a reasonable opportunity to seek independent counsel; and the client must consent in writing. It concluded that Rule 1.8 does not outright prohibit a lawyer from loaning a client funds for purposes unrelated to the representation, but any such loan must conform with Rule 1.8(a). The Panel declined the attorney's suggestion that it review loan agreements.

Currency note

This opinion was issued in 1993 (Opinion 93-100, issued December 8, 1993), after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.8 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process, which amended Rule 1.8, including the business-transaction and financial-assistance provisions. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Does Rule 1.8(e) bar lending a client money for something unrelated to the lawsuit?

A: No. The Panel read Rule 1.8(e) to apply only to financial assistance connected to litigation, so it does not reach a loan for unrelated purposes.

Q: What rule governs a lawyer lending a client money for non-litigation purposes?

A: Rule 1.8(a). The Panel concluded such a loan is not outright prohibited but must satisfy Rule 1.8(a)'s requirements for business transactions with a client.

Q: What does Rule 1.8(a) require?

A: Fair and reasonable terms fully disclosed in writing, a reasonable opportunity for the client to seek independent counsel, and the client's written consent.

Q: Would the Panel review the loan agreement in advance?

A: No. The Panel expressly declined to undertake a review of the loan agreements as the inquiring attorney suggested.

Background and rules framework

The opinion interprets Rhode Island Rule of Professional Conduct 1.8 (conflict of interest: prohibited transactions), the analog of Model Rule 1.8. Rule 1.8(e) barred providing financial assistance to a client in connection with pending or contemplated litigation, with exceptions for advancing court costs and for paying costs for indigent clients. Rule 1.8(a) governed business transactions between lawyer and client, requiring fair terms, written disclosure, an opportunity for independent counsel, and written consent. The Panel read the two provisions together, confining 1.8(e) to litigation and routing unrelated loans through 1.8(a).

Citations and references

Rules of Professional Conduct:

• MR 1.8 / RI RPC 1.8(a), (e) (business transactions with a client; financial assistance in litigation)

Other authority cited:

• Geoffrey C. Hazard, The Law of Lawyering, section 1.8:200 et seq. (1992)

See also

• RI EAP Opinion 91-26: Rule 1.8(e) bars lending a personal-injury client money for a mortgage
• RI EAP Opinion 92-02: contingent fee for overdue support and no co-signing of client loans under Rules 1.5 and 1.8

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2093-100.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

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FINAL

ETHICS ADVISORY PANEL
OPINION #93-100 REQUEST #445
Issued December 8, 1993

The inquiring attorney asks whether Rule 1.8(e) of the Rules of Professional Conduct prohibits a lawyer from providing financial assistance to a client for purposes that are not related to the subject of representation. The inquiring attorney queries whether a loan agreement may be entered into between client and lawyer. The inquiring attorney suggests that the loan agreement and/or information regarding the agreement be forwarded to the Panel to ensure that abuses are not committed by lawyers under the guise of assisting clients who are in need of financial aid.

Rule 1.8(e) provides as follows:

Conflict of Interest: Prohibited Transactions.

(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; and

(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

Professor Hazard notes that:

Rule 1.8(e) by its terms applies only to costs associated with "litigation." It should not be impermissible, therefore, for a lawyer to lend a client funds to close a deal that the lawyer negotiated. However, the terms of such a loan must be fair, and the written disclosure and consent procedures of Rule 1.8(a) must be followed. Hazard, The Law of Lawyering, section 1.8:200 et seq (1992).

Rule 1.8 provides in part as follows:

Rule 1.8 Conflict of Interest: Prohibited Transactions.

(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;

(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

(3) the client consents in writing thereto.

The requirements governing business transactions between client and lawyer are stringent. The client must be given the opportunity to seek the advice of independent counsel and must be counseled as in other conflict situations. The client must consent to the terms in writing.

The Panel concludes that Rule 1.8 does not outright prohibit a lawyer from loaning a client funds for purposes unrelated to the representation. However, any such loan must conform with the requirements of Rule 1.8(a).

The Panel will not undertake a review of the loan agreements as the inquiring attorney suggests.