Commonwealth of Massachusetts
ETHICS OPINION 83-7
1. It is ethical for an attorney to borrow funds from a third party lending company to cover litigation expenses, or to fund his law practice
Excerpts from Massachusetts Ethics Opinion 83-7:
Facts: The committee has received two inquiries. In the first, an attorney who represents the plaintiff in a personal injury case inquires if he may borrow funds from a chartered lending company to help defray the costs and expenses of the litigation, supporting his application for the loan by describing the lawsuit to the prospective lender. The debt would be unsecured and the due date of the loan would not in any way depend upon the outcome of the litigation.
Discussion: The first inquiry relates to the propriety of a lawyer´s borrowing to defray the expenses of litigation. The committee assumes that these expenses are being carried by the lawyer in conformity with Disciplinary Rule 5-103(B), which is discussed infra. Borrowing to defray such expenses is not per se a violation of the Disciplinary Rules. However, DR 5-107(A)(2) provides that “[e]xcept with the consent of his client after full disclosure, a lawyer shall not.. [a]ccept from one other than his client anything of value related to his representation of or his employment by his client.” Such consent is therefore required where, as here, the loan application is to be supported largely by a description of the particular case. See also DR 5-101(A), which provides that “[e]xcept with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be, or reasonably may be, affected by the attorney´s own financial..interests.” Thus, if the borrowing would be so large that it would or might reasonably affect the lawyer´s judgment, full disclosure of this problem should precede consent. Finally, note that any description of the lawsuit made to the prospective lender must comply with Canon 4 (“A Lawyer Should Preserve the Confidences and Secrets of a Client”) and the disciplinary rules thereunder.
Massachusetts Ethics Opinion 83-7 may be found on the web at: http://www.massbar.org/publications..
2. Whether or not the cost of the fees and interest on the loan may ethically be passed on to the client was not addressed in this opinion. To date we have researched several other ethics opinions and have not yet found one that addresses this issue.
Please reference your local state ethics rules.