Scruples: Helping Litigation Clients Pay Expenses

“A lawyer may lend money to a client, as long as the lawyer is not handling litigation matters for the client,” Ethox answered. “The lawyer should comply with Rule 1.8(a), because the loan would be a business transaction between the lawyer and client, but that can be managed.

“When the lawyer is handling actual or contemplated litigation for the client,” Ethox continued, “ABA Model Rule 1.8(e) generally prohibits the lawyer from providing ‘financial assistance to a client in connection with pending or contemplated litigation.’

“Nemesis is representing a client in suing ACME,” Ethox confirmed. “Rule 1.8(e) therefore limits the financial assistance Nemesis can provide to the client.”

“So,” Paradox sounded proud, “Nemesis is acting unethically.”

“Rule 1.8(e) has two exceptions, both of which relate to the payment of ‘court costs and expenses of litigation.’ The first allows a lawyer to advance court costs and litigation expenses, with repayment contingent on outcome of the matter. Thus, if an ordinary client recovers in the matter, the client is expected to repay court costs and litigation expenses from the recovery.

“The second exception allows the lawyer to advance payment of court costs and litigation expenses, and not to seek repayment at all—even if the client does recover in the case—when the client is indigent.”

“Nemesis’s client is penniless,” Paradox responded. “But Nemesis plans to pay travel expenses like airfare and hotels. These are not court costs.”

“In some contexts, what are considered court costs can be pretty narrow. For example, 28 U.S.C. § 1920 limits what costs can be taxed to a losing party. Courts read section 1920 pretty narrowly and refuse to award costs for expert witnesses, parking at the courthouse, and performing research.

“But Rule 1.8(e) does not limit lawyers to advancing funds only for court costs,” Ethox continued. “The term ‘expenses of litigation’ in Rule 1.8(e) is read more broadly than court costs, and includes other expenses directly associated with litigation. In fact, ethics authorities accept that litigation expenses encompasses fees for travel relating to litigation, just like what Nemesis is proposing.”

Paradox was unimpressed. “So Nemesis can pay to fly the plaintiff to doctors’ appointments, to live the high life, and anything else, as long as litigation is pending?”

“No. The expenses must be directly related to litigation,” Ethox answered. “Under most authorities, it is OK to pay for travel expenses so that a client can attend a deposition or mediation. A lawyer may also pay for independent medical examinations or other examination intended for use in the litigation. But the lawyer cannot pay living expenses, or expenses associated with medical treatment, or even expenses to live and eat. The expenses have to be associated with prosecuting or defending the case. That medical bills might be recoverable as damages is not enough. A medical examination needs to be for litigation, not treatment, for Rule 1.8(e) to allow the lawyer to pay.”

“Rule 1.8(e) draws a tough line,” Paradox complained. “A lawyer can help a client get to a deposition but cannot advance some funds so the client can eat while holding out for a larger settlement?”

“You understand Rule 1.8(e),” Ethox agreed. “Rule 1.8(e) reflects tough compromises. When the ABA Model Rules were written, there was an effort to write Rule 1.8(e) to allow lawyers to advance living expenses for litigation clients, but that language was rejected. Some jurisdictions allow lawyers to provide basic humanitarian aid or emergency assistance, but most follow Model Rule 1.8(e).

“I think that Nemesis is probably acting ethically,” Ethox concluded, “in paying for Nemesis’s client to travel for a deposition.”