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VaLawyer_June/July 2013

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Risk Management Three's a Crowd: Avoiding Problems with Third-Party Payer's by Wendy Inge You take a new domestic case. It has its twists and turns, including mounting legal fees that are not being paid by the client. After several communications with the client about the need to pay the fees so that you can continue your efforts to protect her and get her a fair share of the marital estate, the client indicates a relative might be willing to help with the fees and costs. How do you respond? Headline: Virginia Lawyer's Weekly 10/31/2011: Fairfax lawyer hit for fraud, legal malpractice and Attorney is tagged for malpractice, fraud- $524,975. A Fairfax lawyer has been hit with a malpractice verdict in a claim brought by a divorce client who argued he convinced her to take an unfavorable settlement. And in the same case, her brother-in-law won a fraud verdict, including a punitive award, because the lawyer borrowed money to prosecute the case, then paid himself back fees, according to the lawyer who represented both plaintiffs. Three months before trial, the defendant attorney spoke telephonically with his client's brother-in-law, plaintiff Wright, and misrepresented what work he intended to do on the case so as to induce the brother-in-law to immediately wire him $150,000. The defendant promptly took for himself $90,000 of these funds for what he alleged to be past, unpaid attorneys' fees and costs. The jury found fraud in the inducement by the attorney and returned a verdict against him for $125,000 in compensatory damages, $125,000 in punitive damages, and interest at 6 percent from the date of the divorce trial, March 2009. The jury also awarded the former client $206,500 plus interest from March 2009, on her claim of legal malpractice. www.vsb.org The Rules For lawyers in private practice collecting fees from clients is an ongoing concern. Just like in the above case, when the client can't pay the bill, a third party such as a parent, other relative, or a friend who is willing to help the client may be the solution. The RPCs under Rule 1.8(f) permit a lawyer to accept fees from a third party provided the client consents, the lawyer continues to protect the client's confidential information, and the lawyer recognizes that the third party is not the client and should not direct the representation. And therein lie the problems. Rule 1.8(f) states: (f) A lawyer shall not accept compensation for representing a client from one other than the client unless: (1) the client consents after consultation; (2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and (3) information relating to representation of a client is protected as required by Rule 1.6. The Ethical Pitfalls Are there ethical pitfalls here? Yes. The lawyer needs to focus on the requirements of Rule 1.8(f) before accepting the fee from the third party. Let's break down some of the issues the lawyer should be aware of when a third party will be paying the bill. • Conflict of Interest Affecting Lawyers Professional Judgment: Before obtaining client consent the lawyer must determine whether there is a significant risk that the lawyer's representation will be materially limited by the lawyer's responsibility to the relative or friend paying the fee. Often the payer has a potential interest in minimizing the expense of the representation and this issue should be discussed with the client. Will it affect the representation, and if so, how? Will the lawyer's representation be conditioned upon the payer's willingness to pay fees? These issues should be discussed with the client so the client understands the impact before the client consents. In the event the lawyer's analysis of the payer's conditions reveals that payment by the third party will interfere with the lawyer's ability to represent the client in a manner consistent with the lawyer's best judgment and consistent with the client's goals and objectives, it could be inappropriate to seek consent from the client. • Confidentiality and a Third Party Payer: A third-party payer's desire or need to monitor the progress of the representation must be considered. Even among friends and relatives, few are willing to blindly pay another's legal fees without some degree of accountability. The payer may demand status reports as a condition of providing financial assistance to the client. When dealing with a third party, who is paying the bill but is not the client, the lawyer must be careful to continue to maintain confidentiality and the evidentiary (attorney-client) privilege (ACP). The duty of confidentiality under Rule 1.6 applies to all information received by the lawyer relating to the representation, regardless of its source, and includes information protected by ACP. ACP applies generally only to information communicated by the client to the lawyer; the ethical rule of confidentiality applies to all situations in which a client's "confidences" might be disclosed. Thus, when talking to a relative who may be willing to pay the bill the lawyer needs to continue to protect both confidentiality and ACP. ACP can protect a lawyer's communi- Vol. 62 | June/July 2013 | VIRGINIA LAWYER 53

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