Can a lawyer lend a client money to fund a settlement, or arrange for a friend to make that loan?

Plain-English summary

The lawyer asked whether RPC 1.8(e) would preclude loaning money to clients in Chapter 13 bankruptcy to fund a settlement with a secured creditor, where the creditor's secured position would be assigned to the lawyer (with the note modified to reflect the amount lent), making the lawyer a secured creditor in the clients' Chapter 13 plan. In the alternative, the lawyer proposed arranging for a friend to make the loan.

After considering RPC 1.8(e) and 1.8(j) and the other issues raised, the committee concluded that proceeding as proposed would violate RPC 1.8(e) and 1.8(j). The committee recognized that the lawyer had the clients' interests in mind, but said the Rules as drafted do not provide for advancing funds to a client other than expenses of litigation, and settlement proceeds cannot be characterized as litigation expenses. The committee stated this provision cannot be waived, even with disclosure under other sections of RPC 1.7 and 1.8.

The committee added that arranging for a friend to make the loan and obtain a secured position would not conflict with RPC 1.8(e), but would raise issues requiring full disclosure and written consent under RPC 1.7(b), and depending on the circumstances could implicate RPC 8.4(a) and 1.7(a). The committee did not express an opinion on the wisdom or liability of the attorney or client in the arrangement.

Currency note

This opinion was issued in 1997, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here. Washington's RPC 1.7, 1.8, and 8.4 correspond to ABA Model Rules 1.7 (conflicts), 1.8 (specific conflict rules, including financial assistance to clients), and 8.4 (misconduct).

Common questions

Q: Can a lawyer lend a client money to fund a settlement?

A: No. The committee concluded that doing so violates RPC 1.8(e) and 1.8(j), because the Rules permit advancing only litigation expenses, and settlement proceeds are not litigation expenses.

Q: Can the client consent to waive this?

A: No. The committee said this provision cannot be waived, even with disclosure under other sections of RPC 1.7 and 1.8.

Q: Can the lawyer instead arrange for a friend to make the loan?

A: The committee said that arrangement would not conflict with RPC 1.8(e), but would require full disclosure and written consent under RPC 1.7(b), and depending on the circumstances could implicate RPC 8.4(a) and 1.7(a).

Background and rules framework

The opinion applied RPC 1.8(e) and 1.8(j) (financial assistance to clients and a lawyer's proprietary interest, corresponding to ABA Model Rule 1.8) to bar a lawyer-funded settlement loan as a non-waivable violation. For the alternative third-party loan, the committee shifted to RPC 1.7(b) (conflicts requiring disclosure and consent, corresponding to ABA Model Rule 1.7) and flagged RPC 8.4(a) and 1.7(a) (corresponding to ABA Model Rules 8.4 and 1.7) as potentially implicated.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.7 (conflicts of interest); Washington RPC 1.7, 1.7(a), 1.7(b)
• ABA Model Rule 1.8 (financial assistance to clients; proprietary interest); Washington RPC 1.8(e), 1.8(j)
• ABA Model Rule 8.4 (misconduct); Washington RPC 8.4(a)

See also

• WA Ethics Op. 1692: Advancing Litigation Expenses in Pro Bono Work
• WA Ethics Op. 1667: Suing a Client's Treating Doctor

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=765

Original opinion text

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

Advisory Opinion: 1691
Year Issued: 1997
RPC(s): RPC 1.7; 1.8(e); 1.8(j); 8.4(a)
Subject: Loan to client to fund settlement; arranging for loan from third party

Under the facts that you have set forth in your letter, we understand that you are asking if RPC 1.8(e) would preclude you from loaning money to your clients who are in Chapter 13 bankruptcy. This money would fund a settlement between your clients and a secured creditor. In the process, that creditor's secured position would be assigned to you with a modification of the note reducing the principal amount to reflect the amount you lent to your clients. You would become a secured creditor in your clients' Chapter 13 plan. In the alternative, you have proposed that you could arrange for a friend to loan the money.

After consideration of these facts and RPC 1.8(e) and 1.8(j), and other issues that arise from this fact pattern, the Committee has concluded that it would be a violation of RPC 1.8(e) and 1.8(j) for you to proceed as proposed. We recognize that you have your clients' interest in mind in proposing this action, but the Rules of Professional Conduct, as currently drafted, do not provide for advancing funds to your client other than expenses of litigation, and settlement proceeds cannot be characterized as such. This RPC provision cannot be waived, even with the disclosure of the provisions in other sections of RPC 1.7 and 1.8.

Arranging for a friend of yours to make the loan and obtain a secured position would not be a conflict with RPC 1.8(e), but would raise issues which would require full disclosure and written consent under RPC 1.7(b). Depending on the circumstances, this may implicate RPC 8.4(a) and 1.7(a). The Committee does not express an opinion regarding the wisdom or liability of the attorney or the client in this arrangement.