Can a lawyer take a lien on property to secure fees, and can a lawyer loan a client money to fund a settlement?

Plain-English summary

The committee was asked whether its Informal Opinion No. 1044 (1986) and Informal Opinion No. 1691 (1997) are in conflict and irreconcilable. On close analysis, the committee concluded they are not in conflict and can be reconciled.

In Informal Opinion No. 1044, a law firm received a deed of trust and promissory note to secure legal fees for future representation; the committee had said that if the assignment gave the attorney a security interest rather than a proprietary interest, there would be no conflict with RPC 1.8(j). In Informal Opinion No. 1691, a lawyer asked whether RPC 1.8(e) barred loaning money to a client in Chapter 13 bankruptcy to fund a settlement with a secured creditor, with the creditor's secured position assigned to the lawyer; the committee had said that loan would violate RPC 1.8(e) and 1.8(j).

The committee explained the reconciliation. RPC 1.8(j) bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation, but RPC 1.8(j)(1) excepts a lien granted by law to secure the lawyer's fees or expenses. The deed of trust in Opinion 1044 secured legal fees and so fell squarely within that exception. The loan in Opinion 1691 did not, because a lawyer's "fees or expenses" do not necessarily include loaning a client money to facilitate a settlement. RPC 1.8(e) permits a lawyer to advance or guarantee the expenses of litigation (court costs, investigation, medical examinations, and obtaining and presenting evidence, with the client ultimately liable), and class-action expense repayment may be contingent, but it does not permit advancing money to fund a settlement. Because the loan was prohibited by RPC 1.8(e), it could not fall under the RPC 1.8(j)(1) exception, so the two opinions do not actually conflict.

Currency note

This opinion was issued in 2003, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct, which revised and renumbered the RPC 1.8 conflict provisions, including the financial-assistance and proprietary-interest subsections. 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 Treat this page as historical context, not current guidance.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.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee distinguished two kinds of lawyer-client financial arrangements. Per the opinion, a lien granted by law to secure a lawyer's fees or expenses (such as the deed of trust in Informal Opinion 1044) fits the express exception in RPC 1.8(j)(1) and does not offend the proprietary-interest bar. By contrast, loaning a client money to fund a settlement (as in Informal Opinion 1691) is financial assistance outside the litigation expenses RPC 1.8(e)(1) permits, so it is prohibited and cannot be recharacterized as a permissible fee-securing lien.

Common questions

Q: Can a lawyer take a deed of trust or other lien to secure fees for future work?

A: The committee said a lien granted by law to secure the lawyer's fees or expenses falls squarely within the exception in RPC 1.8(j)(1), so a transaction like the deed of trust in Informal Opinion 1044 does not appear to violate RPC 1.8.

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

A: No. The committee said loaning money to fund a settlement is financial assistance prohibited by RPC 1.8(e), because a lawyer's permissible fees and expenses do not include such a loan.

Q: What financial assistance does RPC 1.8(e) allow?

A: The committee quoted RPC 1.8(e)(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; in class actions, repayment of litigation expenses may be contingent on the outcome.

Q: Did the committee find Informal Opinions 1044 and 1691 in conflict?

A: No. The committee concluded there is no actual conflict or irreconcilable difference, because the permissible fee-securing lien in 1044 and the prohibited settlement loan in 1691 are governed by different parts of RPC 1.8.

Background and rules framework

The opinion interprets RPC 1.8 (corresponding to Model Rule 1.8), which addresses conflicts and prohibited transactions with current clients. RPC 1.8(j) bars acquiring a proprietary interest in the cause of action or subject matter of litigation, with an exception in (j)(1) for a lien granted by law to secure fees or expenses and in (j)(2) for a reasonable contingent fee. RPC 1.8(e) bars advancing or guaranteeing financial assistance to a client in connection with litigation, except the litigation expenses listed in (e)(1) and contingent expense repayment in class actions under (e)(2). Rule numbers reflect Washington's pre-2006 numbering.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8 / Washington RPC 1.8(e) (financial assistance to a client) and RPC 1.8(j) (proprietary interest; lien exception)

Other opinions cited:

• WSBA Informal Opinion No. 1044 (1986) (deed of trust securing fees; lien within RPC 1.8(j)(1))
• WSBA Informal Opinion No. 1691 (1997) (loan to fund a settlement prohibited by RPC 1.8(e) and 1.8(j))

See also

• WSBA Ethics Op. 1044: Deed of Trust to Secure Fees
• WSBA Ethics Op. 1087: Guaranteeing a Client's Medical Bills
• WSBA Ethics Op. 1105: Guaranteeing a Client's Loan

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1262

Original opinion text

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

Advisory Opinion: 2016
Year Issued: 2003
RPC(s): RPC 1.8(e). 1.8(j),
Subject: business transactions with clients

The committee has been asked to determine whether Informal Opinion Nos. 1044 (1986) and 1691 (1997) are in conflict and irreconcilable. Upon close analysis, these informal ethics opinions are not in conflict and can be reconciled.

In Informal Opinion No. 1044 (1986), a law firm received a deed of trust and promissory note to secure legal fees for future representation. The deed of trust was in foreclosure, and the grantor had declared bankruptcy. The Committee opined that if the assignment of the promissory note and deed of trust gave the attorney a security interest in the property, rather than a proprietary interest, there would be no conflict with RPC 1.8(j).

In Informal Opinion No. 1691, the inquiring attorney asked if RPC 1.8(e) would preclude him or her from loaning money to his/her client who was in Chapter 13 bankruptcy. The purpose of the loan was to fund a settlement between the client and a secured creditor. In the process, the creditor’s secured position would be assigned to the inquiring attorney with the modification of the note reducing the principal amounts to reflect the amount lent to the client. This would result in the lawyer becoming a secured creditor in the client’s Chapter 13 plan. The Committee opined that it would be a violation of RPC 1.8(e) and 1.8(j) for the attorney to loan the money to the clients to fund the settlement.

RPC 1.8 addresses conflicts of interests and prohibited transactions regarding current clients. RPC 1.8(j) states that a lawyer who is representing a client in a matter:

Shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for client, except that the lawyer may: (1) Acquire a lien granted by law to secure the lawyer’s fees or expenses; and (2) Contract with the client for a reasonable contingent fee in a civil case.

RPC 1.8(j)(1) explicitly carves out an exception to the general rule that a lawyer representing a client in a matter shall not acquire proprietary interest in a cause of action or subject matter of the litigation.

In Informal Opinion No. 1044 (1986), the law firm received a deed of trust and promissory note to secure legal fees for future representation. This constitutes a lien granted by law to secure the lawyer’s fees or expenses, and falls squarely under the exception carved out in RPC 1.8(j)(1). Therefore, the transaction does not appear to violate RPC 1.8.

The confusion between Informal Opinion Nos. 1044 (1986) and 1691 (1997) arises from the fact that the permissible lien granted by law to secure the lawyer’s fees or expenses does not apply to the factual situation in Informal Opinion No. 1691 (1997) because lawyers’ fees or expenses do not necessarily include loaning a client money to facilitate a settlement.

The key issue concerns what constitutes the permissible fees and expenses that a lawyer may advance to his or her client. RPC 1.8(e) states that a lawyer who is representing a client in a matter:

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; and (2) In matters maintained as class actions only, repayment of expenses of litigation may be contingent on the outcome of the matter.

Under the plain language of RPC 1.8(e)(1), the advance or guarantee of the expenses of litigation includes court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence. The express permissible fees and expenses do not include the advancing of costs to fund a settlement agreement. Thus, in Informal Opinion No. 1691 (1997), the loaning of money to a client to fund a settlement agreement was determined by this Committee to be prohibited by RPC 1.8(e). Therefore, such a loan cannot not fall under the exception carved out by RPC 1.8(j)(1). Accordingly, there is no actual conflict or irreconcilable difference between Informal Opinion No. 1044 and Informal Opinion No. 1691.

[Editor’s note: See Informal Opinion 1044 and 1691.]