State of Wisconsin
E-92-3 A contingent fee contract as collateral
for a personal loan to a lawyer
Assume Attorney A, a sole practitioner, and an individual, Client B, execute a valid personal injury written contingency agreement under SCR 20:1.5(c).
Assume further that the written agreement provides for an attorney’s lien consistent with SCR 20:1.8(j)(1) and (2). Disregarding the value of the contingency case or the contingent fee, may Attorney A ethically offer, tender or negotiate the attorney’s lien in Client B’s case as collateral, assignment or guarantee for a personal loan that Attorney A seeks for himself? Would the answer differ if the proposed lender was a sophisticated commercial lending institution or another party who has no experience as a lender?Opinion
Under no circumstances may a lawyer use a contingent fee contract with a client as security for a personal loan to the lawyer. SCR 20:1.8(j)(2) permits a lawyer to “contract with a client for a reasonable contingent fee in a civil case”; but SCR 20:1.8(j)(intro) otherwise prohibits a lawyer’s acquisition of “a proprietary interest in the cause of action or the subject matter of litigation the lawyer is conducting. . . .” A lawyer’s securing a personal loan with a contingent fee contract would violate this general prohibition as well as the basis for it. As stated in the “comment” to SCR 20:1.8(j), the basis for the rule is in common law champerty and maintenance. Because a lawyer’s acquiring a personal loan in the manner proposed would make the lawyer an interested investor in his or
her client’s cause of action, the general prohibition of SCR 20:1.8(j) therefore is implicated.
Furthermore, “(i)f there were a market for buying and selling causes of action, contingent fees would probably not be necessary. Injured parties could sell their claims in that market and use the funds to hire lawyers. But such a
market is prohibited by laws that ban champertous exchanges and limit the assignability of causes of action. Banks, lacking assignable security, thus cannot justify lending funds for legal fees on the unsecured hope that a statistical E-92-3 WISCONSIN ETHICS OPINIONS 446
© July 1998, State Bar of Wisconsin CLE Books
likelihood of recovering will pay off the loan.” (Emphasis supplied.) Wolfram,
Modern Legal Ethics, p. 528 (1986).
Finally, a client’s right to discharge his or her lawyer renders a contingent fee contract an inappropriate form of collateral. The actual or potential impact of the proposed conduct could well affect the lawyer’s representation of the client and the lawyer’s exercise of independent professional judgment. SCR 20:1.7(b), SCR 20:1.8(a) and SCR 20:2.1.
For all of the reasons stated above, the committee disapproves the proposed conduct.
FORMAL OPINIONS E-92-3
© July 1998, State Bar of Wisconsin CLE Books 447 E-80-13 Interest charge on delinquent accounts
Does a lawyer have the right to insert on his billing an interest charge in the event that the bill remains unpaid for 30 days?
Until 1974, the opinions of the Ethics Committee of the American Bar Association uniformly prohibited the charging of interest by attorneys since “the profession is a branch of the administration of justice and not a mere money-getting trade.” See Canon 12 of A.B.A. Canons of Professional Ethics, A.B.A.
Formal Opinion 151, and Informal Decision C-741. However, in Formal Opinion 338, dated November 16, 1974, without discussion, the following was set forth:
“. . . It is also the committee’s Opinion that a lawyer can charge his client interest providing that the client is advised that the lawyer intends to charge interest and agrees to the payment of interest on accounts that are delinquent for more than a stated period of time.”
Thus, it is the committee’s opinion that interest may be charged to a client providing the client knows of the charge and agrees to it. It would be the committee’s further opinion that the typical language on statements indicating that a “finance charge” or “late charge,” etc. would be imposed, is not sufficient to support the charging of interest to a client absent a clear agreement by the client to be so charged.
Your other questions are legal in nature, but you are specifically cautioned that any lawyer contemplating the charging of interest to clients (or the use of installment payments of fees if more than four installments, and with or without interest) must be certain to be in compliance with the Truth in Lending provisions of the Federal Consumer Credit Protection Act and other pertinent laws.
FORMAL OPINIONS E-80-13
© July 1998, State Bar of Wisconsin CLE Books 147 E-90-4 Interest charges on delinquent accounts
May a lawyer or law firm include in its fee agreements or engagement letters the following: “Our invoices for services are due and payable within 30 days from the invoice date. Failure to pay those charges within that time will result in an interest charge of 1-1/2 percent on the unpaid balance per month thereafter.” All billing statements would include similar language.
Yes. The proposed conduct conforms with SCR 20:1.5(b): “When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.” The proposed conduct is such a communication. Because an interest charge would be a factor “directly involved in [the] computation” of a fee for legal services, such charge should be part of the understanding with a client at the inception of the attorney-client relationship. SCR 20:1.5, Comment, “Basis on Rate of Fee.” See also Committee on Professional Ethics Formal Opinion E-75-1 (1975). Caveat: This opinion does not purport to cover questions relating to the application of state or federal law regulating the charging of interest. See generally “Charging Interest on Delinquent Accounts: The Dilemma and Possible Solutions,” 55 Wis. B. Bull. 10 (Aug. 1982). E-90-4 WISCONSIN ETHICS OPINIONS 424 © July 1998, State Bar of Wisconsin CLE Books