Ethics Hotline & Opinions

ETHICS DOCKET NO. 1989-28

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MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1989-28

Attorney charging interest on fees and advanced litigation expense funds


Your question is whether it is ethical to charge your client interest on litigation expense money that has been advanced by your law office.

Rule 1.8(e) (1) of the Rules of Professional Conduct provides as follows:

(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

(1) a lawyer may advance court costs and expense of litigation, the repayment of which may be contingent on the outcome of the matter; and . . .

This section clearly permits you to advance litigation expenses, but does not specify whether interest may be charged. The answer to that question comes from Rule 1.8 (a) (1) and (2), which provides as follows:

(a) A lawyer shall not enter into a business, financial or property transaction with a client unless:

(1) the transaction is fair and equitable to the client; and

(2) the client advised to seek the advice of independent counsel in the transaction and is given a reasonable opportunity to do so.

The act of loaning or advancing money and the charging of interest thereon clearly is a financial transaction covered by the above quoted rule. We do not see the rule as prohibiting the charging of interest on advanced or loaned funds. In that connection it is required that the transaction be ""fair and equitable: and that the client be advised to seek the services of independent counsel. so long as these requirements are met, the Committee does not see an ethics violation by charging interest on advanced litigation expenses.

You propose to charge simple interest, not to exceed ten (10) percent. What interest is ""fair and equitable"" will vary from time to time, depending on existing economic conditions. In light of that variability, the Committee will leave it your judgment as to whether ten (10) percent is fair in light of the prevailing rates at the time the client agrees to the payment of interest.


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DISCLAIMER: Opinions of the Maryland State Bar Association (MSBA) Ethics Committee are an uncompensated service of the MSBA. This Committee’s opinions are not binding on the Maryland Court of Appeals, Maryland Attorney Grievance Commission, MSBA or this Committee. The reader is advised that subsequent judicial opinions, revisions to the rules of professional conduct, and future opinions of this Committee may render the Opinions stated herein outdated. As such, the Committee’s opinions are advisory only and neither the Committee nor the MSBA assumes any liability whatsoever with respect thereto. Accordingly, reliance upon the opinions of this Committee is solely at the risk of the user.