LEO: Acquiring An Interest in Client's Matter LE Op. 1269
Acquiring An Interest in Client's Matter - Business Transactions
Between Attorney and Client - Personal Interest: Attorney Making
Loans to Client.
October 3, 1989
You have advised that you represent an injured client whose medical bills
have been paid by his insurance carrier, but who has not been able to earn
significant income to meet his living expenses. You further indicate that
the client has no other source of income pending disposition on his claim.
Your client will probably lose an additional six weeks of income during
surgery and recuperation. You indicate that you have arranged for a third
party to loan your client up to $7,000 at 12% interest, under the terms of
which loan the lender will be designated as a beneficiary under your
client's life insurance policy and the client agreed to have any remaining
outstanding debt act as a lien on any recovery made on the personal injury
matter. Finally, you advise that the loan will not be contingent on any
recovery but will remain the personal obligation of the client regardless
of the outcome of the cause of action.
You have inquired as to the propriety of the terms of the loan as
outlined and have further inquired as to the propriety of your loaning a
client money pursuant to the same terms.
With regard to your first question, the Committee believes that prior
LE Op. 1155 is dispositive of the issue.
With regard to your second question, the appropriate and controlling
disciplinary rules are DR:5-103(A) and DR:5-104(A). Under DR:5-103(A
), a lawyer shall not acquire a proprietary interest in the cause of
action or subject matter of litigation he is conducting for a client. A
lawyer may, however, acquire a lien granted by law to secure his fee or
expenses; and may contract with the client for a reasonable contingent fee
in a civil case. Under DR:5-104(A), a lawyer may not enter into a
business transaction with a client if they have differing interests
therein and if the client expects the lawyer to (continue to) exercise his
professional judgment therein for the protection of the client, unless the
client has consented after full disclosure and provided that the
transaction is not unconscionable, unfair or inequitable when made.
The Committee is of the opinion that loans made to clients for assistance
with living expenses during the course of litigation constitute the
lawyer's entering into employment and a business transaction that would
allow his professional judgment to be affected by his own financial
interest; thus such conduct would be improper and violative of both DR:5-
103(A) and DR:5-104(A). The rule against a lawyer acquiring an interest
in a client's litigation is based on concerns about compromised loyalty to
the client in pursuing a result which should be in only the client's best
interests. The lawyer's acquisition of a personal interest in the outcome
of the litigation may result in the lawyer's independent judgment on
behalf of his client becoming clouded by his interest in recouping his own
In addition to the prohibition against a lawyer acquiring a proprietary
interest in the litigation through the making of a loan to a client, the
Committee is of the opinion that such a loan would create an improper
adverse relationship between the lawyer as creditor and the client as
debtor. The client's consent as described in DR:5-104(A), which, in
other circumstances, might cure the conflict, would not suffice to
alleviate the impropriety created by the violation of DR:5-103(A).
Committee Opinion October 3, 1989
See also LE Op. 1343.