Wednesday, February 21, 2018

Why A Lawyer Shouldn't Be Allowed to Pay A Client's Bills: (More) Reflections on Rule 1.8(e), Cohen, Trump, and Daniels (A Response to Prof. Dorf)

by Diane Klein

In this space yesterday, Prof. Dorf argued (not exactly in "defense" of Michael Cohen's payoff to Stephanie Clifford aka Stormy Daniels aka Peggy Peterson, through a shell company created for that purpose only) that while Cohen using his own money to pay off Stormy Daniels for her silence about her affair with Donald Trump might violate Model Rule of Professional Responsibility 1.8(e) (or its New York equivalent), the rule itself is "foolish."  I disagree.

Prof. Dorf identifies three problems with the justification for the rule found at Comment [10]:
Lawyers may not subsidize lawsuits or administrative proceedings brought on behalf of their clients, including making or guaranteeing loans to their clients for living expenses, because to do so would encourage clients to pursue lawsuits that might not otherwise be brought and because such assistance gives lawyers too great a financial stake in the litigation.
Prof. Dorf identifies three problems with this Rule and the reasons offered for it:

1.  The rule is excessively formalistic, because elsewhere the Rules permit contingent fees, and advancing litigation expenses is permitted in that situation.  I would characterize this objection not so much as "formalism," but as an inconsistency between the principles governing contingent and non-contingent fee lawyering.  (More on that below.)

2.  Prof. Dorf is unpersuaded that a lawyer having a "large financial stake" in a case is a bad thing.  On the contrary, he argues, "The legal system should want lawyers to have a large stake in their clients' cases because that aligns the lawyer's interest with the client's interest" (emphasis added).

This is precisely what needs to be parsed more closely.  Arguably, a "large stake" in the case is not quite the same thing as a proper alignment of interest, and this distinction is one of the targets of the rule.

I believe the concern of MR 1.8(e) would be better expressed this way:  If a lawyer has advanced living expenses (not litigation expenses, which would not exist but for the litigation), the lawyer has become the client's general creditor.  These two roles (attorney and creditor) potentially conflict.  Now, the lawyer may have reasons for not settling litigation a client wishes to settle, for example, because the recovery will not cover the debt; the lawyer's duty to the client as a client is now potentially in tension with the lawyer's own financial interests as the client's creditor.  The debt does not vary with the recovery (it's not a fraction, but a set amount).  The client's ability or inability to pay back the debt to the lawyer potentially interferes with and distorts the attorney-client relationship, because what is best for the client qua client is not necessarily what is best for client or the lawyer as debtor-creditor.  It potentially interferes with the lawyer's independent professional judgment, as required under Rule 2.1.

Under Rule 1.8(a), lawyers are not actually prohibited from entering into business relationships with clients "that could result in their ending up on adverse sides," as Prof. Dorf suggests.  Instead, such transactions and relationships are permitted only with additional client-protective safeguards (informed consent, disclosure of all terms, advice to seek independent counsel - all in writing).  The Rules of Professional Conduct are sensitive to the fact that it is not only direct adversity that potentially compromises the attorney-client relationship, but a subtler misalignment, that may lead the attorney to prefer outcomes for himself or herself (as a creditor) other than those best for the client as such. 

3.  Prof. Dorf's third objection to Rule 1.8(e) is that to the extent the Rule discourages litigation, that is a bad thing: "a lawyer's advance of money to a client to bring a lawsuit that she otherwise wouldn't bring promotes justice," because only lawsuits "that have a fair chance of winning" will be brought.

But where proponents of the Model Rule might differ from Prof. Dorf is in his implicit view that all lawsuits that have a fair chance of winning should be brought.  We might hope that Model Rule 3.1, permitting lawyers to advance only meritorious claims and contentions having a "basis in law and fact," would ensure that all cases met that standard.  But there are reasons for skepticism, first noticed as far back as (yes, really) 1399.  A legal author in that year remarked critically that there was money to be made by "maytenance of quereles [quarrels]." In 1628, Coke defined it this way: "Maintenance ... signifieth in Law, a taking in hand, bearing up or upholding of quarrels and sides, to the disturbance or hindrance of common right."  The concern is with a profit-driven misuse of process, certainly as legitimate a worry today as four centuries ago.

Rule 1.8(e) is a last, vestigial remnant of some very old common law forms of action, called "barratry" and "maintenance."  These prohibited forms of conduct (by lawyers especially) refer to stirring up litigation, especially vexatiously.  Persons of good conscience can genuinely differ on the question of whether we have too much, too little, or about the right amount of litigation (or whether we have too much of some kinds and too little of others).  Prof. Dorf has in mind the idea that many meritorious (and possibly winning) cases do not get brought because lawyers cannot advance litigation as well as living expenses to their clients.  And while I am sympathetic to the view, it is important to note that it is not universally shared.  Tort reformers, among others, argue that there is too much litigation, and that the rules of professional ethics should deter, rather than encourage, lawsuits.  One might argue that some "quarrels," even if there is a potentially-winning legal claim to be brought, ought to be resolved another way, and lawyers should not be given any motivation to discourage or deter non-litigated resolutions (including by subsidizing the living expenses of litigants).

The common law also prohibited something called "champerty."  Champerty is defined by the OED as "the illegal proceeding, whereby a party not naturally concerned in a suit engages to help the plaintiff or defendant to prosecute it, on condition that, if it be brought to a successful issue, he is to receive a share of the property in dispute."  Arguably, therefore, all contingency fee lawyering is a species of champerty, and the common law prohibition on this conduct, among its other consequences, reduced access to justice for those who could not afford to pay their own lawyers and litigation expenses.  Are we no longer troubled by champerty?  This tension - between wanting not to encourage vexatious and improperly-motivated litigation, while not discouraging those of limited means from seeking justice - has not been fully and satisfactorily resolved.  Hence, we now permit contingency fee lawyering (but not in all cases - family law and criminal law are excluded), and the continuing existence of MR 1.8(e), with a limited exception for indigent clients in MR 1.8(e)(2) ("a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client").)   We permit lawyers to go into business with their clients - but not to loan them money to live upon during the pendency of litigation.

With this week's guilty plea from Alexander van der Zwaan, late of Skadden, Arps, lawyers continue to find themselves in the middle of Trump-Russia, and every other Trump Administration scandal in which the White House seems so far to be swimming, more than drowning.  So keeping a close (and critical) eye on the rules that govern lawyers certainly makes sense.


Michael C. Dorf said...

I appreciate Professor Klein's corrections on some of the technical details. I think a more narrowly crafted rule that aims to prevent a lawyer from becoming a general creditor of a client makes good sense. I will also say that I am highly dubious of the project of using state professional responsibility rules as a means of discouraging MERITORIOUS lawsuits. It seems to me that if tort reform is warranted (and I think it mostly is not) that it ought to be achieved through changes in the substantive law. That said, I certainly concede that the law oughtn't to encourage everyone to sue for the vindication of all of their rights all of the time. The law legitimately encourages dispute resolution through alternatives such as mediation and arbitration. But that's different from what is forbidden here, which is helping a client to make it to the point where she can get what she is entitled to (and the filing of a lawsuit will sometimes be the pathway to a negotiated or other out-of-court resolution).

Diane Klein said...

And I of course agree with that, too! I am totally a proponent of contingency fee lawyering in almost all circumstances, and regard most objections to it as emanating from an antiquated view of the profession. And of course, I also view the misconduct of the Trumpist lawyers as almost certainly going beyond the likes of THIS sort of stuff! Just had to represent as a PR teacher!

Shag from Brookline said...

Speaking of tort reform, I started my law practice in Boston in 1954. At that time contingent fee arrangement were prevalent for personal injury cases even though not blessed by MA legal professional rules. Also back then contributory negligence was a defense in most tort actions. The rules subsequently changed to permit contingent fees in certain tort cases, requiring a written agreement with the client with certain basic requirements. Contributory negligence was no longer an absolute defense. Then we got No Fault for personal injuries resulting from autos. As my general practice advanced I was pleased with No Fault because of many issues involved in handling personal injury cases, some of which were addressed by the rules discussed in this post and and Mike's early post. Jumping ahead to my semi-retirement in 1998, I watched TV occasionally with the barest of cable plans. I noticed ads on TV for loans on personal injury cases by various firms. I wondered how these passed muster with an attorney handling such a case. I haven't seen these ads in recent years. For me such insurance did not pass the smell test, including some of the obnoxious ads. So I don't know the direction of tort reform today. I am exposed to lawyer TV ads of all sorts.

While I am interested in real tort reform, I rather focus on Michael D. Cohen's Stormy whether his role, because he happens to be an attorney, presents issues of concern for our legal profession. Without knowing the contents of the NDA used by Cohen, it is difficult evaluating its legality under public policy contract rules. Also, more information is needed regarding Cohen's role as a lawyer for Trump in order to apply rules of legal professional conduct. Perhaps we shall learn more.