Missouri Ethics Opinion

State of Missouri

Maintaining the Integrity of the Profession Misconduct

Opinion Number: 20030022 – Rule Number: 8.4
QUESTION: Attorney’s firm proposes to borrow money from a non-lawyer for the purpose of funding expenses in mass tort litigation. The loan will be on a non-recourse basis. The firm’s duty to repay would be based on successful prosecution of the cases as a whole, but not on the recovery of any individual case. ANSWER: Generally, it is permissible for the law firm toborrow money from a third party to fund litigation. However, it is not permissible for the repayment of the loan to be based on the outcome of the lawsuit. An attorney cannot engage in conduct that would amount to champerty or maintenance. The elements of champerty are “(1) an agreement by one with no interest in a lawsuit of another (2) to support or maintain the litigation at his own expense (3) in exchange for a part of the litigated matter in the event of a successful conclusion of the cause.” [Schnabel v. Taft Broadcasting Company, Inc.], 525 S.W.2d 819, 825 (Mo. App. W.D. 1975). Maintenance of litigation requires proof that a non-party to a suit maintains or assists either party, with money or otherwise, in prosecuting or defending the suit. Id. at 823. [Macke Laundry Serv. Ltd. v. Jetz Serv.], 931 S.W.2d 166 (Mo. App. W.D. 1996).

Opinion Number: 970066 – Rule Number: 1.5
QUESTION: If Attorney borrows money in order to fund the litigation expenses in a case, may Attorney pass the interest on the loan through to the client ANSWER: Attorney may pass these costs on to Attorney´s client, under certain conditions. Attorney´s client must agree to this arrangement, in general terms, at the outset of the representation. Assuming that these cases will be contingency fee cases, this arrangement should be covered in the written fee agreement. Additionally, Attorney should specifically explain this provision to the client, orally. At the time Attorney takes out any such loan, Attorney´s client should agree to the terms of the loan before the money is borrowed. This additional agreement must also be in writing since it would be an addendum to the original fee agreement.

Opinion Number: 970016 – Rule Number: 1.5;1.4;1.6
QUESTION 1: May Attorney charge interest on Attorney fees? ANSWER 1: Attorney may charge interest as long as it is a part of Attorney’s initial contract with Attorney’s client and it is adequately communicated to Attorney’s client at that time. Additionally, Attorney must comply with all laws regarding charging interest, such as the federal Truth in Lending Law, if it is applicable to Attorney. QUESTION 2: May Attorney report delinquent debts to a credit reporting agency? ANSWER 2: Attorney may disclose such information to the limited extent necessary in the course of attempting to collect the debt but not solely for the purpose of disclosing the information.

Opinion Number: 20050062 – Rule Number: 1.8
QUESTION: Attorney was recently contacted by a finance company that advances funds to plaintiffs. The company only makes loans to people with pending personal injury or workers compensation cases, prior to the appellate stage. The plaintiff is not required to repay the loan if plaintiff is not successful, and the attorney is expected to disburse funds to the company directly from the attorney’s trust account. The company claims that its loans are not champerty because they are not overtly supporting litigation. Can Attorney ethically get involved with this company?
ANSWER: Under Rule 4-1.8(e), an attorney may not provide financial assistance to a client. It is likely that an attorney’s involvement with loans by this company would be considered champertous. Despite the fact that a client might not use the funds directly for litigation, it appears that the funds are intended to support litigation. If the transaction is champertous, it is not permissible for an attorney to be involved. In Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217,221 (OH 2003), the Ohio Supreme Court stated:
Except as otherwise permitted by legislative enactment or the Code of Professional Responsibility, a contract making the repayment of funds advanced to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance. Such an advance constitutes champerty and maintenance because it gives a nonparty an impermissible interest in a suit, impedes the settlement of the underlying case, and promotes speculation in lawsuits.

Client-Lawyer Relationship Fees Opinion Number: 970066 – Rule Number: 1.5
QUESTION: If Attorney borrows money in order to fund the litigation expenses in a case, may Attorney pass the interest on the loan through to the client? ANSWER: Attorney may pass these costs on to Attorney´s client, under certain conditions. Attorney´s client must agree to this arrangement, in general terms, at the outset of the representation. Assuming that these cases will be contingency fee cases, this arrangement should be covered in the written fee agreement. Additionally, Attorney should specifically explain this provision to the client, orally. At the time Attorney takes out any such loan, Attorney´s client should agree to the terms of the loan before the money is borrowed. This additional agreement must also be in writing since it would be an addendum to the original fee a Maintaining the Integrity of the Profession Misconduct Opinion Number: 20030022 – Rule Number: 8.4

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