MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2001-10
Financial Assistance to a Client by Gift
Although your inquiry goes on at some length about your particular humanitarian and legal activities over the years, your question is essentially as follows: In the context of contemplated or pending litigation, may an attorney provide free housing and/or gifts of other necessities to persons the attorney is going to or already does represent as clients, assuming arguendo that without such gifts, the clients could be subjected to extreme personal hardship and abuse by other parties. As explained below, the Committee believes that such gifts by the attorney violate Rule 1.8(e) of the Rules of Professional Conduct, which states:
(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:
(1) A lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and
(2) A lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.
In Attorney Grievance Comm’n. v. Kandel, 317 Md. 274 (1989), the Court of Appeals construed former Code of Professional Responsibility DR 5-103(B), which was the predecessor to Rule 1.8(e), the differences being (i) that Rule 1.8(e)(1) eliminated the earlier requirement that “the client remain ultimately liable for such expenses,” and (ii) that there was no counterpart in the Code for Rule 1.8(e)(2). Both DR 5-103(B) and Rule 1.8(e) use the wording “financial assistance,” “client,” and “in connection with pending or contemplated litigation.” The Court of Appeals held that the advancement of funds by the attorney for the client’s medical treatment, transportation to a medical office for treatment, and maintenance or repair costs for the client’s automobile violated DR 5-103(B) because they were in connection with pending litigation but “were not necessary expenses of litigation.” Id. at 2801. The Court of Appeals explained the underlying rationale of the Rule as being
directed at avoiding the acquisition of an interest in litigation through financial assistance to a client. An important public policy interest is to avoid unfair competition among lawyers on the basis of their expenditures to clients. Clients should not be influenced to seek representation based on the ease with which monies can be obtained, in the form of advancements, from certain law firms or attorneys.
Id. at 281. Notwithstanding the conclusion that the attorney in question “was not motivated by self-interest or personal gain in making the advancements to his client,” the Court of Appeals nevertheless sanctioned the attorney with a public reprimand. Id. at 282.
In Attorney Grievance Comm n. v. Eisenstein, 333 Md. 464 (1994), the Court of Appeals applied the same rationale to Rule 1.8(e), citing Kandel, Harris, and Engerman, all of which had construed DR 5-103(B). The Court of Appeals held that, notwithstanding a long-standing personal relationship between the attorney and the client, the attorney violated Rule 1.8(e) by advancing funds to the client for non-litigation related living expenses. Id. at
485-86. Indeed, the Court of Appeals cited Connecticut Informal Op. 90-3 for the proposition that “Rule 1.8(e) contains exceptions for court costs and expenses of litigation, but not for humanitarian acts.” Id. at 486, n. 13 (emphasis added). Eisenstein was recently followed in Attorney Grievance Comm’n. v. Permin2ton, 355 Md. 61, 76-77 (1999)(loans to litigation client for personal use violated Rule 1.8(e), rejecting argument that such loans were not in context of litigation and did not run afoul of policy prohibiting stirring up litigation).2
The advances disapproved in Kandel, Eisenstein and Penninaton were loans, whereas the present inquiry involves gifts. This raises the issue of whether it is ethical for an attorney to provide “financial assistance” in the form of a gift of money or tangible property “to a client in connection with pending or contemplated litigation” (but not falling within the exceptions in Rule 1.8(e)(1) or (2)), whereas loans for such purposes have been held by the Court of Appeals to be unethical. In Ethics Docket No. 2000-42 this Committee opined that a gift f a small sum of money to a client in financial difficulty as a result of an automobile accident was not barred by Rule 1.8(e) because the prior Maryland cases all dealt with advances, and the practices of gift giving did not appear to be barred by the Rules of Professional Conduct.
Upon further consideration of Rule 1.8(e) and the public policy pronounced in the Maryland cases, this Committee believes that a gift of money or property providing financial assistance to a client in connection with pending or contemplated litigation, and not otherwise permitted under Rule 1.8(e)(1) or (2), should be treated no differently than an advance as a loan. Kandel, articulates two distinct public policies furthered by Rule 1.8(e). The first is “directed at avoiding the acquisition of an interest in litigation through financial assistance to a client.” 317 Md. at 280. As set forth in the Restatement of the Law Governing Lawyers, Comment c to §36 (Forbidden Client-Lawyer Financial Arrangement),
“Lawyer loans to clients are regulated because a loan gives the lawyer the conflicting role of a creditor and could induce the lawyer to conduct the litigation so as to protect the lawyer’s interests rather than the client’s. . .
With respect to the foregoing concern, there is a significant difference between a loan and a gift. Since, in the gift situation, the lawyer is not a creditor of the client and will not conduct the litigation any differently than if the attorney had given nothing to the client, a gift should not be deemed unethical.
The second public policy articulated in Kandel is
“An important public policy interest is to avoid unfair competition among lawyers on the basis of their expenditures to clients. Clients should not be influenced to seek representation based on the ease with which monies can be obtained, in the form of advancements, from certain law firms or attorneys.
Although Kandel (and the other Maryland cases cited above) involved only “advances,” i.e. loans and not gifts, the Committee now believes that the second public policy violated by the advancement of loans is also violated by making an outright gift in order to “provide financial assistance to a client in connection with pending or contemplated litigation” as proscribed by Rule 1.8(e). The language in Rule 1.8(e) concerning “provide financial assistance” makes no distinction between advances/loans or gifts, and, if anything, a gift provides more financial assistance to a client than does an advance which is to be repaid. In addition, the public policy against “stirring up litigation” furthered by Rule 1.8(e), as discussed in Pennington, is violated as much or more by a gift as compared to an advance.
The Reporter’s Note to Comment c to §36 of the Restatement of the Law Governing Lawyers states that “Lawyer gifts to clients are allowed in some circumstances by ABA Model Rule l.8(e)(2) and are not prohibited by the ABA Model Code, DR 5-103(B).” The “gift” referenced in Rule 1.8(e)(2) is the right of an attorney representing an indigent client to unconditionally pay court costs and expenses of litigation on behalf of the indigent client. The fact that this provision involving a “gift” is new, and was not found in the former Code of Professional Responsibility, is significant. Since the Rule now provides a specific situation in which a gift is permitted, it is reasonable to infer that any other gifts providing “financial assistance to a client in connection with pending or contemplated litigation” are not permitted.3
Based on the language of Rule 1.8(e) and the Maryland cases cited above, this Committee concludes that it is a violation of Rule 1.8(e) for an attorney to provide housing or other financial assistance to a client or potential client in connection with contemplated or pending litigation. There is no distinction in this regard between unconditional gifts or advances to be repaid by the client. The only exceptions are those set forth expressly in Rule 1.8(e)(1) and (2) as described above.4
Finally, as harsh as this Rule may seem when applied to attorneys whose conduct is motivated by humanitarian concerns rather than professional notoriety, financial success, or the like, neither Rule 1.8(e) nor the Maryland cases should be viewed as deterring attorneys from engaging in humanitarian efforts for the benefit of others. This Committee would hope that the price to be paid by an attorney in such situations, namely that the attorney forego legal representation in contemplated or pending litigation involving the beneficiaries of the attorney’s humanitarian efforts, will be outweighed by the attorney’s desire to engage in the humanitarian efforts.
1 Kandel cites with approval three prior Maryland cases which similarly found violations of DR 5-103(B) for lawyers’ advances of monies “unrelated to the expenses of litigation.” 317 Md. at 281. See Attorney Grievance Comm’n. v. Harris, 310 Md. 197, 214 (1987)(home purchase deposit and settlement costs, car, and video machine advanced before suit filed but at a time attorney and client were going to pursue legal rights); Attorney Grievance Comm’n. v. Engerman, 289 Md. 330, 339-40 (198 1)(advances for food and other necessities because lawyer felt sorry for client); and Bar Ass’n. v. Cockrell, 274 Md. 279, 282 (1975)($600 in loans beyond expenses of litigation).
2 This Committee has similarly opined that advances by an attorney to a client in litigation for personal expenses violates Rule 1.8(e). See Ethics Docket Nos. 92-50; 90-43 (client initially paid litigation expenses, then suffered financial problems; violation for attorney to lend client same amount as client had paid since at that point in time money would be for client’s living expenses, even though there would have been no violation if attorney had been the one initially to advance the litigation expenses).
3 Rule 1.8(e) does not prohibit gifts or loans by an attorney to a client where litigation is not contemplated or pending. See Ethics Docket Nos. 88-72 (real estate transaction); 93-25 (fuel bill paid by gift after litigation terminated, no indication of any future legal representation, and no indication that gift promised or intimated prior to end of litigation).
4 The gifts referenced in the present inquiry differ from those in Ethics Docket 2000-42, where the Committee adopted a de minimus exception to Rule 1.8(e). A de minimus gift does not amount to “financial assistance” under Rule 1.8(e).
ETHICS DOCKET NO. 2001-10
FINAL CONCURRING OPINION
Financial Assistance to a Client by Gift
I concur with the conclusion of this well researched and well written opinion, but would offer some additional comments. Several other members of the Committee agree with the views expressed herein. The opinion appears to be Dickensian in tone, namely it seems to be searching for any interpretation of Rule 1.8 that will prevent an attorney from doing what appears to be a good deed.
First, the opinion makes the assertion that gifts and loans are identical for purposes of the Rule and that the only “gift” allowed under Rule 1.8(e)(2) is one that would cover the costs of litigation. This exception to the prohibition on financial assistance in connection with litigation does not, in my view, constitute a true gift. Rather, such a prohibition is a sanctioned method by which an attorney can help himself or herself indirectly by furthering litigation on behalf of a client without funds. Also costs advanced may be recoverable.
Until the Court of Appeals holds that gifts are equivalent to loans, this Committee should resist making such negative public policy. Should we not, as a profession, be promoting good deeds by attorneys for clients in all areas of the practice of law? We should remember that a commission appointed by the Chief Judge of the Court of Appeals has recommended an amendment to Rule 6.1 that would “suggest” an aspirational goal of 50 hours of free legal services by each attorney in the State of Maryland per year. (Alternately, the commission would recommend yearly payment by each attorney of $350 to a pro bono fund.)
What is the purpose of banning all gifts by litigation attorneys to clients who need financial help? Is it to discourage wealthy firms from attracting more clients because of gift giving largess? Is it to prevent unnecessary litigation by an attorney who can afford to make gifts to worthy clients? If these are the ills sought to be avoided, then banning all gifts in the litigation context is an empty gesture because the inequities between the large and small firms will continue to exist in any event. Such unfair competition between rich and poor can no more be eliminated in the practice of law than it can among baseball franchises.
One must also recognize the unequal treatment such a litigation-based rule would impose on the trial attorney. Is he or she to never reduce a fee in order to settle a case? Such a gesture is certainly a “gift” to the client. What about real estate or “transaction” oriented attorneys, are they permitted to give unlimited “perks” or favors to clients to attract business because they are not specifically banned from doing so by Rule 1.8?
I believe Rule 1.8 was designed to prevent the advancing or loaning of money to clients involved in litigation to discourage unnecessary or frivolous litigation that would ultimately benefit the trial attorney. However, I do not believe the Rule was written to prevent acts of kindness by an attorney with “no strings attached” that happen to occur “in connection” with litigation that would ultimately help only the client. Perhaps a comprehensive rewrite of the Rule should be considered by the Standing Rules Committee. Please let us not try to punish every good deed done by attorneys, the public believes we do few enough of them as it is.