Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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May an attorney ethically advance costs of litigation on behalf of a client?
It is ethically proper to advance litigation costs for a client who may be unable to repay them, provided that the client remains ultimately responsible for repayment.
Rule 5-104(A)(3) of the Rules of Professional Conduct of the State Bar.
American Bar Association Code of Professional Responsibility, Disciplinary Rule 5-103(B).
The Committee has been requested to give its opinion of the ethical propriety of advancing on behalf of a client the costs of prosecuting a lawsuit where the attorney believes that there is a substantial likelihood that the client will not repay such costs absent a recovery in the action. The requesting attorney posits a situation in which, absent a recovery in the action, he would be unlikely to sue the client for such costs, "given the low likelihood of recovery and because of [the attorney's] reluctance to sue a client."1
The Committee is of the opinion that it is ethically proper to advance costs in such a situation, provided that the client remains ultimately responsible for the costs advanced and that the client is aware of this responsibility.
Rule 5-104 of the Rules of Professional Conduct generally prohibits payments by attorneys of the personal or business expenses of clients. However, in subparagraph (A)(3) of rule 5-104, it is specifically provided that the rule does not prohibit an attorney:
"From advancing the costs of prosecuting or defending a claim or action or otherwise protecting or promoting the client's interests. Such costs within the meaning of this subparagraph (3) shall be limited to all reasonable expenses of litigation or reasonable expenses in preparation for litigation or in providing any legal services to the client."
Included within the concept of "advancing" costs is the requirement that the client be ultimately responsible for the payment of such costs. (See, for example, opns. Nos. 76 (1934), 106 (1936), and 149 (1944) of the Committee on Legal Ethics of the L. A. Co. Bar Assn.; ABA Code of Prof. Responsibility, EC 5-8 and DR 5-103(B).)
Compliance with the existing rule 5-104 of the Rules of Professional Conduct, therefore, involves, as an essential element, that the client is obligated to repay the advanced costs and the client must be informed of his liability to reimburse his attorney.
Nothing in the rule, however, requires the attorney to attempt to evaluate his client's prospective ability to pay such costs in the event that the lawsuit involved is unsuccessful. Nor does the rule require any initial decision by the attorney as to whether, or under what circumstances, he would be willing to sue his client for such costs, should the client fail to pay them.
The Committee does not regard opinions to the contrary from committees in other states, such as Michigan State Bar Ethics opinion No. 66, as persuasive.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
1 This inquiry does not involve costs advanced in a class action and, accordingly, the Committee expressed no opinion on that subject.
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