What to Do-a Third Party Is Paying My Client's Fees
| Publication year | 2013 |
| Pages | 111 |
| Citation | Vol. 42 No. 8 Pg. 111 |
Whoops-Legal Malpractice Prevention
What to Do-A Third Party is Paying My Client's Fees
By Rachel L. Kranz, Christopher B. Little
This Department is sponsored by the CBA Lawyers' Professional Liability Committee to assist attorneys in preventing legal malpractice. For information about submitting a manuscript or topic suggestion, contact Andrew McLetchie-(303) 298-8603, a_mcletchie@fsf-law.com; or Reba Nance-(303) 824-5320, reban@cobar.org.
You have been referred a new client, Wendy Wife, who hasn't worked in a decade and wishes to divorce her spouse, Henry Husband. Henry has just left Wendy for a younger woman and has frozen her out of all of their joint accounts. How is Wendy going to afford your retainer fee so she can file for divorce before Henry has depleted all of their assets and moved to Fiji with the new girlfriend? Luckily, Wendy has wealthy parents who want to assist their daughter any way they can, including helping their daughter pay for her divorce. So, they accompany Wendy to the intake meeting and pay your retainer fee with their credit card.
As shown in this example, clients sometimes will bring a friend, family member, or other third party to an initial consultation to retain an attorney. This person may be attending the meeting for moral support, but in some cases, he or she may be there to pay the lawyer for the representation. This can happen in a variety of legal settings, including criminal defense and personal injury cases, as well as in representations involving personal and business transactions.
Although it might not seem problematic to have a third-party payer, this type of a situation presents a number of challenges for the lawyer. Among them are conflicts of interest, complications related to confidentiality, and COLTAF management concerns.[1] This article discusses issues that may arise when a third party is funding your legal services.
Overview
Third persons paying for a lawyer's services often will be a client's relative, friend, insurance company, or co-client.[2] Colorado Rule of Professional Conduct (Rule) 1.8(f) prohibits a lawyer from accepting compensation from a third party for representation of a 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.
There is very little case law in Colorado regarding third-party funding of domestic actions. The domestic practitioner, of course, frequently encounters the paradigm, and the situation has potential for many risk management problems.[3] To begin, the third person is not the lawyer's client.[4] The issues of privilege and confidentiality are not fully discussed in this article, but the attorney should discuss the parameters and obligations of confidentiality and waiver of confidentiality with the client and the potential third-party payer.[5]
The Attorney's Role
First, documenting every aspect of an attorney's legal representation, though sometimes tedious, is paramount in risk management. There should be a paper trail showing you explained every situation to your client. The documentation will assist the lawyer in defending a claim, and will inform the trial judge about relevant discussions between counsel and client.
As with many ethical issues, the threshold question often is: Who is the client? Because most of a lawyer's ethical and legal duties arise out of the attorney-client relationship, this question is critical in determining the scope of an attorney's duties. For example, it is the client who sets the objectives of the representation,[6] who decides whether to accept an offer of settlement or compromise,[7] and with whom the lawyer must communicate.[8] Identifying the client is seemingly easy, but it can become complicated when third-party payers are themselves interested parties and/or want to become interested parties in a related matter.
Imagine the common situation where an insurance carrier hires and pays a lawyer to represent its insured. The Colorado Bar Association Ethics Committee has written that the insured is the client to whom the lawyer owes the duty of loyalty, regardless of any contractual arrangement between the lawyer and the insurance carrier.[9] The lawyer's relationship with the carrier is "less clear," but it is not, according to the Committee, a per se lawyer-client relationship, even though its communications with the lawyer are protected. In contrast to Colorado, other jurisdictions have held that the lawyer represents both the insured and the insurer.[10] Although this view is a minority position, it is seemingly inconsistent with the traditional view that an attorney always puts his or her client's interests first.
Conflicts of Interest
Third-party payers may have interests that differ from those of your client, such as their interest in minimizing the attorney fees and costs incurred in the representation, as well as the litigation's progress or the eventual outcome.[11] Once the identity of the client is clarified, an attorney-client relationship...
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