Q. Disabled after her accident, my client can't pay her mortgage, her medical bills, or even her utility bill. Desperate to survive, she wants to settle her case for a fraction of its value. May I advance her living expenses until after we resolve the case?
A. In most states, the answer is "no."
As adopted in most jurisdictions, Rule 1.8 of the Rules of Professional Conduct forbids lawyers from lending financial assistance to their clients. While they may advance court costs and litigation expenses, the provision is designed to eliminate the inherent conflict arising when clients become indebted to their lawyers. Beyond the conflict of interest, clients who "owe" their lawyers may not feel free to terminate representation or to seek legal assistance elsewhere.
Recognizing the hardship on impoverished clients who cannot wait for their day in court, several states have relaxed this rule and are letting lawyers provide some financial aid to indigent clients. Unlike the absolute prohibitions in Maryland and a majority of states, the District of Columbia and a growing minority of jurisdictions permit lawyers to pay for their clients' medical or living expenses if "reasonably necessary to permit the client to institute or maintain the litigation." This relieves the economic pressure on clients whose financial circumstances would otherwise force them to settle cheaply.
To prevent lawyers from dangling cash in front of needy clients as a means of luring their business, even states that permit some humanitarian aid forbid their lawyers from offering such loans prior to retention.
In most jurisdictions, clients must either settle for pennies on the dollar or incur substantial fees charged by litigation lenders. While the latter often require clients to assign a portion of their recovery to such lenders, they can still be a lifesaver to those who may lose even more in a "fire sale" settlement.
But, regardless of the circumstances, lending any "principal" to a client will attract the "interest" of Bar Counsel and the potential for substantial penalties thereafter.