Formal Opinion 129: Ethical Duties of Lawyer Paid by One Other than the Client, 0517 COBJ, Vol. 46 No. 5 Pg. 19
CBA Ethics Committee
Formal Opinion 129: Ethical Duties of Lawyer Paid by One Other than the Client
Introduction and Scope
It is not uncommon for some or all of a client’s cost of legal representation to be paid by a person or entity other than the client-a third-party payer. When a third party agrees to pay a client’s legal fees, tensions can arise between the lawyer’s duties to the client and the third-party payer’s expectations. The CBA Ethics Committee (Committee), in its Formal Opinion 91, “Ethical Duties of Attorney Selected by Insurer to Represent Its Insured,” has addressed issues that can occur when an insurance company pays its insured client’s legal bills. This opinion more broadly addresses the ethical questions that can arise in third-party payer situations that do not involve insurance as a source of payment. This Opinion strives to provide practical guidance to the lawyer whose legal fees, or some portion of them, are to be paid by a source other than the client and to suggest matters for the lawyer to consider in structuring that arrangement in compliance with the lawyer’s ethical responsibilities.
Syllabus
The Colorado Rules of Professional Conduct (Colo. RPC or Rules) allow a lawyer to provide legal services to a client and to accept payment for those services from a third party, as long as the requirements of Colo. RPC 1.8(f) are satisfied: The client must give informed consent, there must be no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship, and the confidentiality of information related to the representation must be maintained. The lawyer must understand the primacy of the lawyer’s duties to the client and may need to manage the expectations of the third-party payer with respect to involvement in the representation Discussing and defining the relationships among the client, the lawyer, and the payer in a written agreement among them at the outset of the representation can avoid or mitigate issues throughout the course of the representation.
Analysis
There are many situations, apart from insurance coverage, in which a third party undertakes to pay the client’s cost of legal representation A family member or friend may pay the defense costs of someone charged with a crime. In the domestic relations field, a parent or prospective new partner of the client may pay the costs to dissolve the client’s marriage. A corporation may pay the legal fees of an officer or employee concerning a matter arising in the course of the office or employment. Family members, including potential beneficiaries of a will, often pay a lawyer’s fees to draft testamentary documents for the lawyer’s client, their relative. A contractual indemnitor may pay the legal fees incurred by an indemnitee. A principal may pay the legal fees of an entity filing bankruptcy. The parents of a newlywed couple might assist with the purchase of a new home and include payment of the couple’s legal fees in the financial assistance provided. Legal services programs or other similar nonprofit providers of legal services may receive funding to provide legal representation to employees or indigent individuals.1 Even pro bono or reduced-rate legal services programs may invite some application of the rules relating to third-party payers, as when, for instance, a legal assistance organization pays the client’s litigation expenses. The principles of Rules 1.7, 1.8(f), and 5.4(c) apply to each circumstance in which a lawyer accepts compensation for representing a client from a source other than the client.
I. Obligations Imposed by Rules of Professional Conduct in Third-Party Payment Arrangements
“Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.” Colo. RPC 1.7, cmt. [1]. Rule 1.7 provides the general rules for addressing conflicts of interest involving current clients; Rule 1.8 provides additional rules regarding certain specific concurrent conflicts of interest that can arise from, among other things, the lawyer’s responsibilities to another client or a third person. Colo. RPC 1.7, cmt. [1].
Rule 1.8(f) permits a lawyer to accept compensation for representing a client from a source other than the client only if three requirements are met: (1) the client gives informed consent; (2) there is no interference with the lawyer’s independent judgment or the client–lawyer relationship; and (3) information relating to the representation is protected from disclosure. These requirements are defined in Colo. RPC 1.0(e) (informed consent) and established by Colo. RPC 5.4(c) (independent judgment) and Colo. RPC 1.6 (confidentiality).
A third party’s involvement in payment for the lawyer’s services to a client implicates several additional principles that, although elementary, are not so conspicuous. The first is the need to unequivocally and plainly identify, preferably in writing, who the client is and who the third-party payer is. The second is the need to express, again preferably in writing, the scope of the duties owed and the services to be provided to the client, the absence of professional duties owed to the third party, and the terms of the fee arrangement with the third party.
A. Informed Consent
In all situations, the client must give informed consent to the third-party payer arrangement. Colo. RPC 1.8(f) (1).2 A client’s “informed consent” is the client’s agreement to a proposed course of conduct after the lawyer has communicated and explained to the client sufficient information about the risks of and available alternatives to that course of conduct for the client to make an adequately informed decision. Colo. RPC 1.0, cmt. [6]. The lawyer should discuss with the client the details of the third-party payment arrangement so that the client understands the circumstances and conditions under which the payment is to be provided. Colo. RPC 1.8, cmt. [12] (referencing client’s informed consent regarding the fact of the payment and the identity of the third-party payer); Colo. RPC 5.4, cmt. [1] (the lawyer should “make full disclosure” of third-party payment arrangements to the client); Restatement (Third) of the Law Governing Lawyers (Rest.), § 134(1) (2000) (“A lawyer may not represent a client if someone other than the client will wholly or partly compensate the lawyer for the representation, unless the client consents . . . and knows of the circumstances and conditions of the payment.”).
The communication necessary to obtain informed consent will vary according to the circumstances. Colo. RPC 1.0, cmt. [6]. It may be presumed that the client has received adequate communication to give an informed consent under Rule 1.8(f)(1) when the court has appointed counsel in response to the client’s application for appointment of counsel and in other situations in which a statute or court order authorizes the representation. See, e.g., CRS § 21-1-103 (representation by public defender); CRS § 19-2-706 (appointment of counsel in juvenile delinquency proceedings); CRS § 19-2-508(2.5) (public defender representation of...
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