Legal Ethics Opinion 1489

Business Transaction With Client: Client Loaning Money to

You have presented a hypothetical situation in which an
attorney's client (who had no connection with her father's
litigation) has been billed by another attorney for services
rendered to/on her father's behalf prior to her father's death
earlier this year, indigent and intestate and leaving four
surviving children.

You state that during the attorney's most recent meeting with his
client, he was given certain letters from the billing attorney
regarding the decedent's litigation (dismissed subsequent to
decedent's death for lack of legal standing to proceed) and the
attorney's bill.  While discussing her father's indigence, the
client mentioned to the attorney that the billing attorney, in
order to pay his rent, had borrowed money from her father on
several occasions.  The client advised that all sums borrowed had
either been repaid according to the terms of the loan or, without
any known prior notice to the decedent, had merely been credited
against his bill to the attorney. The client (who is not aware of
the existence of any formal retainer agreement) believes that the
billing attorney was not working on a contingent fee basis or on
a "contingency plus" basis but rather was charging her father a
flat fee of $45 per hour.

You have asked the committee to opine whether, under the facts of
the inquiry, it is improper for an attorney to borrow funds from
his client, during the pendency of contested litigation.

The appropriate and controlling Disciplinary Rule related to your
inquiry is DR 5-104(A), which states that a lawyer shall not
enter into a business transaction with a client if they have
differing interests therein and if the client expects the lawyer
to exercise his professional judgment therein for the protection
of the client, unless the client has consented after full and
adequate disclosure under the circumstances and provided that the
transaction was not unconscionable, unfair or inequitable when

The commly considered the propriety of a loan made to a client
for assistance with living expenses during the course of
litigation.  Legal Ethics Opinion #1269 was, however, predicated
in part on the improper adverse relationship between the lawyer
as creditor and the client as debtor, as prohibited by DR
5-l04(A) and in part on DR 5-l03(A) which prohibits a lawyer from
acquiring a proprietary interest in the cause of action or
subject matter of litigation he is conducting for a client.  

The committee is of the opinion that since the attorney does not
acquire a proprietary interest in the pending litigation, DR
5-l03(A) is inapposite to the facts you have presented.  The
committee further opines that it is not per se improper for an
attorney to obtain a loan from his client during the pendency of
contested litigation, provided that there is compliance with the
mandates of DR 5-l04(A) before entering into such a transaction. 
Specifically, there must be full and adequate disclosure as to
all possible consequences of such a transaction and the
transaction must not be unconscionable, unfair or inequitable
when made.  See, e.g., Giovanazzi v. State Bar, 6l9 P.2d l005
(Cal. l980)(lawyer suspended for three years for having borrowed
large sum of money from client and agreeing to pay high rate of
interest; lawyer failed to inform client as to consequences of
lender charging usurious rates of interest); In re Johnson, Wash.
Sup. Ct. Bar No. 8824, 3/19/92 (lawyer who twice borrowed
substantial sums of money without providing clients with full
written disclosure of his precarious financial condition is
suspended for 60 days, placed on probation for two years, and
required to make restitution).

As to what constitutes "full and adequate disclosure," the
committee directs your attention to prior Legal Ethics Opinions
#187, #1097, #1198, and #1254, which conclude that disclosure is
adequate if it is such that the attorney's client is able to make
an informed decision as to whether or not to give consent.  The
committee has consistently opined that all doubts regarding the
sufficiency of the disclosure must be resolved in favor of the
client. Assuming that there was not full and adequate disclosure,
the committee also opines that it was improper for the billing
attorney to borrow money from his client during the pending
litigation, since the attorney would not have complied with the
requirements of DR 5-104(A).

Finally, assuming there was similarly no disclosure lied to the
client's bill, the committee is concerned by the indications that
the billing attorney merely credited the loan against the
client's bill without any notice to, or agreement of, the client. 
See LEO #734. In so crediting without notice or agreement, the
billing attorney may also have violated DRs 9-102(B)(1) and (3)
which, in pertinent part, require a lawyer to promptly notify a
client of the receipt of his funds, maintain complete records of
all funds of the client coming into the possession of the lawyer,
and render appropriate accounts to the client regarding those
funds and records. 

Committee Opinion
November 16, 1992