Ethics Counsel on www.OKbar.org

Payments of Fees by a Third Party

By Gina Hendryx, OBA Ethics Counsel

Lawyers face conflicts of interest in all facets of legal representation. Litigation or transaction, civil or criminal, no practitioner is immune from these ethical mine fields. Commonly employed but fraught with potential for conflict, the payment of legal fees by a third party is largely accepted as a proper means of securing legal representation for the client who might otherwise not have the financial means to hire an attorney.

Whether it is contractual as in the insurance defense representation or charitable as in legal services assistance, there is nothing inherently wrong with the client receiving assistance in paying the legal bill. The Oklahoma Rules of Professional Conduct recognizes third-party fee payment and address the potential pitfalls that may arise:

“RULE 1.8: CONFLICTS OF INTEREST: CURRENT CLIENTS: SPECIFIC RULES

(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client gives informed consent;

(2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by Rule 1.6.”

INFORMED CONSENT

In any representation where the fee will be paid by a third party, the lawyer must obtain the client’s consent to the payment arrangement. The details cannot be kept secret from the client.1 The Oklahoma Rules of Professional Conduct define informed consent in its terminology section:

“RULE 1.0: TERMINOLOGY

(e) “Informed Consent” denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

There is no checklist or “form” document provided in the rules for guidance in obtaining informed consent. A consensus of authorities agrees that:

1) The lawyer must disclose the arrangement with the client. Do not delegate this responsibility to a paralegal or to the person paying the bill. See In Re Geeding, 12 P. 3d 396 (Kan. 2000) (lawyer who never met personally with client to explain third-party fee arrangement and obtain informed consent violated Rule 1.8.)

2) The lawyer must disclose the identity of the payer. The client must know the circumstances and conditions of the payment. 2

3) The lawyer must explain any “material risks” and any “reasonably available alternatives.” See People v. Rivers, 933 P. 2d 6 (Colo. 1997) (lawyer violated Rule 1.8(f) by failing to disclose potential conflicts posed by third-party payments).

4) After explanation and review of the risks, have the client confirm the same in writing. This may be contained in the attorney-client contract or by separate writing. Informed consent, confirmed in writing should be obtained at the outset of the representation and not after legal work has begun. 3

INDEPENDENCE OF PROFESSIONAL JUDGMENT

Oklahoma Rule of Professional Conduct 1.8(f)(2) and 5.4(c) both mandate that the third-party payer have no control over the client’s representation:

“RULE 5.4 PROFESSIONAL INDEPENDENCE OF A LAWYER

(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.”

These two rules read (and often cited in disciplinary cases) in tandem make it abundantly clear that the payer should have no control over the scope of the representation. Third-party payers often have different interests from the client. The payer may not direct the manner, means or desired outcome of the representation. For example, in In Re Rumsey, 71 P.3d 1150 (Kan. 2003), the attorney was found to have violated Rules 1.8 and 5.4 by permitting the client’s mother, who was paying the legal fees, to veto appeal of a custody order. Before the practitioner agrees to the third party payment of fees, the matter should be fully discussed and explained to the person or agency paying the legal fees. Just as informed consent is fully explained to the client, the payer should receive a full explanation of what will and will not be expected. It is recommended that the explanation be reduced to writing and the payer confirms same in writing.

The insurance defense representation may permit the lawyer’s conduct to be directed by someone other than the client. The insurance company paying the lawyer’s bill often directs the scope of the representation. The contract of insurance usually dictates that the client will cooperate with the insurer and will permit the insurer to make various decisions regarding the representation. However, outside of the insurance defense scenario, the lawyer should not seek to have the client consent or agree to the payer having any control over the scope of the representation.

PROTECT CLIENT CONFIDENCES

It is human nature to want to know what you are getting for your money. This is true in the legal arena especially when an interested person is paying the legal fees for another. Usually the payer has a vested interest in the representation following a certain tract. Nonetheless, Rule 1.8(f)(3) requires the lawyer maintain the confidentiality of client information. The client may consent to the release of information to the payer. This consent should be separate from the consent to payment by a third party. The client’s informed consent to the third-party payment arrangement does not equate to informed consent to reveal confidential information.4 Even if the client has agreed that the lawyer may keep the payer informed, the lawyer should avoid revealing sensitive information or confidences that could harm the client’s interests.

When someone other than the client is writing the check, the lawyer’s duties to the client must include consideration of consent, confidentiality and control as it pertains to the involvement of the third-party payer. Such a payment arrangement should be refused if it prevents the lawyer from providing competent representation.

Have an ethics question? It’s a member benefit, and all inquiries are confidential. Contact Ms. Hendryx at ginah@okbar.org or (405) 416-7083; (800) 522-8065.

1. State ex rel. Oklahoma Bar Ass’n v. Watson, 897 P.2d 246 (Okla. 1994).
2. Restatement (Third) of the Law Governing Lawyers §122 (1).
3. ABA Formal Ethics Opinion 02-248 (2002).
4. Restatement (Third) of the Law Governing Lawyers §134 cmt. e (2000).
5. ABA Formal Ethics Op. 01-421 (2001).

Originally published in the Oklahoma Bar Journal -- Feb.14, 2009 -- Vol. 80; No. 4.