89-03: Conflict of Interest

4/1989

It is not ethically improper for a lawyer volunteering his/her services on a pro bono basis to give money to an indigent client for living expenses so long as the transfer of money or tangible items results from a purely charitable motivation and there is no expectation by the attorney of any repayment by the client at any time.

FACTS

A client of a law firm is indigent. She was referred to the firm by the Volunteer Lawyer's Program. The client is a single mother with five children. She has been attempting to raise her children on her own but, due to a disabling illness, she has been unable to work. The client cannot afford to buy food for her children, nor is she able to pay her utility bills. A lawyer in the law firm wishes to give money to the client to help her buy food and pay her bills. This money: (a) is not related in any way to the lawyer's representation of the client in litigation; (b) is given regardless of the outcome of the pending action in which the lawyer represents the client; and (c) is given with no expectation of repayment.

QUESTION

May the individual lawyer give the client the money in the above situation?

ETHICAL RULE INVOLVED

ER 1.8. Conflict of Interest: Prohibited Transactions

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(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, provided the client remains ultimately liable for such costs and expenses; and

(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

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OPINION

A gift of money by a lawyer to his client is not directly addressed by the Ethical Rules. In addition, there are no Arizona cases dealing with this question. The obvious concern regarding lawyers giving money to clients is that such conduct may encourage other clients to seek the attorney's services, in anticipation of receiving money.

ER 1.8(e) addresses only money which is provided "in connection with pending or contemplated litigation." The Rule does not speak to a gift of money made out of a motive of detached and disinterested generosity. It would be an unfortunate and unreasonable limitation upon members of the Bar to prohibit them from making gifts which are truly charitable in nature.

The courts of this state have articulated two reasons for prohibiting an attorney from lending money to his or her client.

First, when a lawyer advances living expenses to a client, he has in effect obtained an interest in the underlying litigation. The rule seeks to discourage a lawyer from placing his interest in recovering the loaned money ahead of the client's interest in the litigation.

In Matter of Stewart, 121 Ariz. 243, 589 P. 2d 886 (1979), the Court, interpreting DR 5-103(B) (the forerunner of ER 1.8(e)), held that loans to a client for living expenses were prohibited where the money was to be repaid out of temporary welfare stipends. The Court reasoned that, when a lawyer advances living costs to a disabled client, it is similar to making an advance on account of a prospective verdict.

"In effect, the attorney has purchased an interest in the subject matter of the litigation that he is conducting." 121 Ariz. at 245. (See also Arizona Ethics Opinion No. 76-26).

However, the concerns of the Court in Matter of Stewart are not applicable to situations in which a lawyer truly gives money to a client. The reasoning of Matter of Stewart seems particularly inapplicable where, as in the present case, there is no anticipation of repayment and the gift is totally unrelated to contemplated or pending litigation. Therefore, it would not appear, under the rationale of ER 1.8(e) and DR 5-103(B), that a gift of money by an attorney to a client is prohibited.

The second rationale against financial advances to clients concerns the practice of loaning money to clients. It is clear that the practice of lending money to the client, if publicized, might constitute an improper inducement for prospective clients to employ the lawyer. A client with a particularly acute financial need might select a lawyer who is willing to lend him money, without regard to that lawyer's skill or ability. Arizona Ethics Opinion No. 76-26.

This second rationale was discussed by the Court in Matter of Carroll, 124 Ariz. 80, 86, 602 P.2d 461 (1979), wherein an attorney was disciplined for making cash payments to clients in violation of DR 5-103(A), (B). The Court's language is instructive:

“It is obvious that as between a lawyer who offers such an agreement and a lawyer who does not, the client will choose the lawyer who offers the lesser financial obligation, regardless of the skill of the lawyers involved, and regardless of the other factors to be considered in the employment of legal counsel.” 124 Ariz. at 86.

If a lawyer were to publicize the giving of money to needy clients, it is possible that he would attract other needy clients, and hence additional business. However, where the money is given as a gift to a pro bono client, there is no benefit whatsoever - of a pecuniary nature - to the lawyer. Moreover, in the typical pro bono case, the lawyer is not specifically selected by the client. Rather, the client is referred through programs such as Volunteer Lawyers, as in this case. Also absent from the pro bono situation is any incentive by the client to choose the lawyer who offers the lesser financial obligation, since the pro bono client will not incur a financial obligation to any lawyer. Therefore, without a benefit received by the lawyer and with no incentive for a pro bono client to choose a particular lawyer, there can be no improper motive or incentive behind the gift. The inquiring attorney has indicated that he will never receive payment, directly or indirectly, from this client.

The committee therefor holds that an attorney is ethically permitted to make a gift of money or tangible items to a pro bono client under the facts of this inquiry. Obviously, the transfer of money or tangible items to the pro bono client must truly result from a charitable motivation by the attorney. If the transfer has any business, propriety or pecuniary overtures it is improper. Finally, there must be no expectation by the attorney of any repayment by the client at any future time.

Formal opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceeding. This opinion is based on the Ethical Rules in effect on the date the opinion was published. If the rules change, a different conclusion may be appropriate.