Bar News - November 15, 2017
Ethics Corner: Third Party Payment of Legal Fees
Dear Ethics Committee:
I recently met with a prospective client regarding his upcoming domestic relations contempt hearing. I went over the fee agreement, the retainer amount, hourly rate, and details about billing with him. At the end of the appointment, he thanked me for my time but said hedid not have the funds to pay me. Today I received a check for the full retainer amount, however the check is from his mother, not him. Can I accept it?
Dear Attorney Doe:
The short answer is yes, you may. However, when a third party wants to pay the legal fees for another, several ethical issues must be addressed. NHRPC 1.8(f) outlines the three criteria that must be met before you may accept payments from a third party.1 First, the client must give informed consent. Second, there can be no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship. Third, the information relating to the representation of the client is protected as required by NHRPC 1.6.
Who Is Your Client?
When the client pays for their own legal services, the identification of the client is straightforward. However, when a third party pays a client’s legal bill and has a possible interest in the matter, many lawyers forget that the payor is not their client. In this case, your client is the son, regardless of who pays his legal fees.
Unfortunately, third-party payors may have a false impression that they have some authority to influence how the case will be handled. That is not true. Your representation of your client must be free of all influences by the third-party payor, or you should not accept the representation.
In addition, in situations such as yours, the parents who are also grandparents, may request a parenting schedule that benefits them, and that may conflict with the best interests of your client and his or her children and family. If that is the case, you must decline the third-party payments, if acceptance of such payments would likely influence or impair your ability to exercise your independent professional judgment on behalf of your client.
Your inquiry also highlights the interplay between the second prong of NHRPC 1.8(f) and NHRPC 1.6. NHRPC 1.6 protects all information related to the representation of a client, including the information that is included in hourly billing statements and in correspondence with and on behalf of the client. If a client asks that information such as billing statements or correspondence be provided to the third-party payor—the attorney must ensure that the client understands that the information that would be provided may be confidential and the potential ramifications of disclosure. The lawyer must also receive the informed consent of the client, preferable in writing, if the other exceptions to NHRPC 1.6 do not apply.
Safekeeping Property and Return of Unearned Fees
A lawyer who contemplates receiving payments from a third-party payor should also review NHRPC 1.15. Under NHRPC 1.15(e), an attorney has a duty to promptly notify a client or third party upon receipt of funds in which a client or third party has an interest. Additionally, under NHRPC 1.15(e), a lawyer also has a duty to promptly deliver to the client or third party any funds or other property that the client or third person is entitled to receive. Lastly, section (f) of NHRPC 1.15 makes it clear that a lawyer must keep separate and secure all property in their possession in which two or more persons claim interest until the dispute over ownership is resolved.
Given the requirements of NHRPC 1.15(e) and (f), it is also important for you to communicate clearly with your client how unused portions of retainer funds will be refunded. This should be done at the outset of the representation, directly in the fee agreement.
Agreement With Third Party
If a third party will be paying the retainer, you should also require the payor to sign a separate agreement that not only spells out the limitations on your right to disclose client information, and the absence of the payor's right to influence your services, but also specifies how any future legal fees will be paid and how any unused retainer funds will be refunded and to whom.
Failure to do so may result in you being required to return the third-party’s money, at which point you may have a client who cannot pay you for your services. Should non-payment of your fees become an issue, you will also have to consult NHRPC 1.16 regarding the limitations on your right to withdraw from the representation.
1 Of note, the New Hampshire Ethics Committee has previously addressed the issue of third-party payors in a variety of contexts. E.g., New Hampshire Ethics Opinions Annotated 1985- 86/3 partially superceded by NH Opinion 1990-91/5 (payment by insurer for representation of the insured); New Hampshire Ethics Opinions Annotated 1988-89/17 (payment by a pre-paid legal services program for legal services provided to a program participant); New Hampshire Ethics Opinions Annotated 1991-92/9 (payment by a nonprofit corporation for representation of individual members of the corporation); and New Hampshire Ethics Opinions Annotated 1989- 90/9 (concerning lawyer employee leasing).
The Ethics Committee provides general guidance on the New Hampshire Rules of Professional Conduct and publishes brief commentaries in the New Hampshire Bar News. New Hampshire lawyers may contact the Committee for confidential and informal guidance on their own prospective conduct or to suggest topics for “Ethics Corner” commentaries by emailing Robin E. Knippers.