Texas Ethics Opinion

State of Texas

THE TEXAS CENTER FOR LEGAL ETHICS AND PROFESSIONALISM, OPINION 465

1. It is ethical for an attorney to take a loan from a third party funding company cover litigation expenses, or to fund his law practice.

2. It is ethical for that attorney, if successful in the litigation, to pass on any interest and charges on any such loan to the client as an appropriate litigation expense, as to the portion of the loan which funded that client’s case.

Special State of Texas Caveats:

In coming to the above conclusions the following warnings and assumptions were employed by the Center:

A. The borrowing attorney is engaged by the client on a contingent fee basis which fully complies with the mandates of Rule 1.04, and particularly Subsection (d) thereof, of the Texas Rules of Professional Conduct, and all official Comments published pursuant to Rule 1.04;

B. The borrowing attorney (and/or the law firm) does not own or control the lending company to the extent that the lending company makes loans only to clients of that attorney or law firm, and further, that no conflict(s) of interest such as those prohibited under Rule 1.06 of the Texas Rules of Professional Conduct, or the official Comments published pursuant to Rule 1.06, exists;

C. The relationship between the borrowing attorney and the lending company is not used to secure or continue the employment of the attorney by the client, or in any other manner which violates the provisions of Rules 7.02 and 7.03 of the Texas Rules of Professional Conduct, or the official Comments published pursuant to Rules 7.02 and 7.03;

D. The loan does not occasion any communication or advertising regarding the borrowing attorney’s services which would violate the standards enunciated in Rule 7.01 of the Texas Rules of Professional Conduct, and the official Comments published pursuant to Rule 7.01;

E. Any subject transaction with the client in which the borrowing attorney is engaged, involving either the attorney’s taking of the loan or the attorney’s “pass along” of the appropriate portion of the loan interest, is not accomplished in any manner which

i. violates the Conflict of Interest concepts of Rule 1.08 of the Texas Rules of Professional Conduct, and particularly Subsections (a), (d), (e), and (h) thereof, and the Comments under such Rule, or
ii. constitutes a prohibited transaction pursuant to Rule 1.08 and its Comments.
iii. violates any of the requirements of Rule 1.08 and its Comments.

F. The attorney must not conduct himself in any manner which violates Rule 8.04 of the Texas Rules of Professional Conduct, and particularly Subsections (a) (3) and (8) thereof, and the official Comments published pursuant to Rule 8.04;

G. The interest charges of the lending company are fair, reasonable, customary and at a lawful rate.

The cited Texas Ethics Opinion may be found on the web at : www.txethics.org/

Please reference your local state ethics rules.