NEW YORK STATE BAR ASSOCIATIONCommittee on
Opinion #464- 04/21/1977 (31-77)
Topic: Contingent fee; expenses of litigation
Digest: Improper for lawyer to agree with client that reimbursement
of funds advanced by lawyer to defray cost of litigation will be
contingent on its outcome
Code: EC 2-20, 5-7, 5-8; DR 2-106, 5-101(A), 5-103(B)
May a lawyer properly advance funds to defray certain costs of
litigation on the understanding that reimbursement will be contingent on
the outcome of suit?
The provisions of the Code of Professional Responsibility most
germane to this inquiry are found at EC 5-8 and DR 5-103(B). EC 5-8
states in relevant part:
"[T]he advancing or guaranteeing of payment of the costs and expenses
of litigation by a lawyer may be the only way a client can enforce his
cause of action, but the ultimate liability for such costs and expenses
must be that of the client."
Consistent with EC 5-8, DR 5-103(B) provides:
"While representing a client in connection with contemplated or
pending litigation, a lawyer shall not advance or guarantee financial
assistance to his client, except that a lawyer may advance or guarantee
the expenses of litigation, including court costs, expenses of
investigation, expenses of medical examination, and costs of obtaining
and presenting evidence, provided the client remains ultimately liable
for such expenses."
Underlying these provisions of the Code is a general proscription
against lawyers acquiring financial interests in the outcome of their
clients' causes of action, subject only to their ability to enter into
ethically appropriate contingent fee arrangements in certain types of
cases. See, EC 2-20, EC 5-7, DR 2-106 and DR 5-101(A); also see, N. Y.
State 390 (1975), N. Y. State 288 (1975) and N. Y. State 37a (1968);
cf., Judiciary Law §474.
As EC 5-7 explains:
"The possibility of an adverse effect upon the exercise of free
judgment by a lawyer on behalf of his client during litigation generally
makes it undesirable for the lawyer to acquire a proprietary interest in
the cause of his client or otherwise to become financially interested in
the outcome of the litigation. *** Although a contingent fee arrangement
gives a lawyer a financial interest in the outcome of litigation, a
reasonable contingent fee is permissible in civil cases because it may
be the only means by which a layman can obtain the services of a lawyer
of his choice. "
While the Code thus expressly permits both contingent fee
arrangements and the advancing of litigation expenses by counsel, it
also continues the long recognized distinction between the propriety of
a lawyer's fee being made contingent on the outcome of litigation and
the impropriety of making litigation expenses contingent thereon. See
N.Y. City 658 (1944), N.Y. City 282 (1933) and N.Y. City 175 (1931);
also see, Ore. Op. No. 154 (1967) and L.A. Co. Op. No. 76 (1934)
respectively indexed at 7185 and 6142, 0. Maru, 1970 Supplement to the
Digest of Bar Association Ethics Opinions (1972); cf., N.C. Op. No. 303
(1960) and Mo. Op. No. 16 (undated) respectively indexed at 3327 and
1406, 0. Maru, Digest of Bar Association Ethics Opinions (1970).This
distinction is grounded upon the concept that if lawyers were permitted
to finance their clients' causes, it would generate unmeritorious suits
and ultimately obfuscate the elemental difference between the roles of
lawyer and client.
For the reasons stated, the question posed must be answered in the