Opinion #153. Contingent Fee Agreement Providing Client Will Not Be Responsible for Any Disbursements

Issued by the Professional Ethics Commission

Date Issued: September 9, 1996

Question

In entering into a contingent fee agreement with a client, a lawyer wishes to provide that, regardless of outcome, the client will not be responsible for any of the disbursements. The lawyer asks whether this arrangement would violate the Maine Bar Rules.

Opinion

In the view of the Professional Ethics Commission, the arrangement would not violate the Bar Rules.

The rule applicable to this situation is Bar Rule 3.7(d) which provides:

Financial assistance. While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to the client, except that a lawyer may advance or guarantee the expenses of litigation, including court costs, expense of investigation, expenses of medical examination, and expenses of obtaining and presenting evidence.

The thrust of this provision is plain: in representing a client, a lawyer may not provide financial assistance such as living expenses to the client, but the lawyer may both advance and guarantee litigation expenses. Thus, under the plain language of the rule, a lawyer entering into a contingent fee agreement, or any other agreement with a client, may agree to bear the cost of his or her disbursements, so long as they constitute “the expenses of litigation.”

This conclusion is supported by the history of the adoption of Rule 3.7(d). As the reporter’s notes make clear, the rule was based on Disciplinary Rule 5‑l03(b) of the American Bar Association Model Code of Professional Responsibility, which is identical to Rule 3.7(d) except that the disciplinary rule contained a proviso at the end specifying that the advance or guarantee of litigation expenses may only occur if “the client remains ultimately liable for such expenses.” This proviso was omitted from Bar Rule 3.7(d) by its drafters, the Select Commission on Professional Responsibility. The reporter’s notes indicate the reason why the proviso was eliminated:

The Commission believes the provison was unrealistic and unenforced and that it might often prove inimical to clients’ interests. The rule was inconsistent with the modern assessment of the need to broaden access to courts.

It is thus clear that the drafters of Rule 3.7(d) intended that lawyers be able to advance litigation expenses to clients without restriction.[1]

The provisions of Bar Rule 8, relating to contingent fee agreements, are not to the contrary. Rule 8(e)(6) provides that the required written contingent fee agreement include “a statement regarding the attorney’s anticipated expenses and disbursements, if any, for which the client is to be liable” (emphasis added). Thus, the rule does not prohibit a lawyer from agreeing to absorb the client’s litigation expenses.[2]


Footnotes

[1]This approach was later followed by the American Bar Association in the adoption of its Model Rules of Professional Conduct, which replaced the Model Code. Model Rule 1.8(e) provides:

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 upon 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.

[2] The requirement of Rule 8(e) that the agreement indicate if the client is to be liable for litigation expenses might be thought to be inconsistent with the final sentence of Rule 8(a) which provides that, in order to count as a “contingent fee agreement,” an agreement “shall not include an arrangement with a client, express or implied, that the client in any event is to pay the attorney the reasonable value of the attorney’s services and reasonable expenses and disbursements.” The Commission thinks, however, that the reference to “reasonable expenses and disbursements” in Rule 8(a) is meant to apply only in circumstances where there is an agreement in which the client agrees to pay the lawyer’s fees. When the client does not undertake to pay such fees (and expenses and disbursements), the agreement becomes “contingent” within the meaning of Rule 8, and the requirement of Rule 8(e)(6) that it state whether the client is to be liable for litigation expenses applies.


Enduring Ethics Opinion

Enduring Ethics Opinion #153 [February 2014]