March 14, 1974
Ethics Opinon 1974-6
SUBJECT: FEES: PARTICIPATION IN CREDIT CARD PLAN
Whether an attorney may ethically participate in a credit card plan as a means of enabling clients to pay legal fees.
No. The attorney may not ethically participate in a credit card plan as a means of enabling clients to pay legal fees. However, it is not per se unethical for a local or state bar association to approve and for lawyers to participate in a plan for financing legal fees, provided adequate precautions are taken to see that the plan is formulated and administered within the framework of the Canons of Ethics. In particular, the standing Committee on Ethics and Professional Responsibility of the American Bar Association in Formal Opinion 320 has set out precise guidelines for a local bar association to establish a financing program with a bank whereby legal clients can finance legal fees.
STATUTES AND CANONS
Rule 1 of the Rules of Professional Conduct of the State Bar of California provides that the Code of Professional Responsibility of the American Bar Association should be noted by the members of the State Bar. The Code of Professional Responsibility of the A.B.A. and its precursor, the Code of Professional Ethics of the A.B.A. (old canons) have been interpreted by both formal and informal opinions adopted by the standing Committee on Ethics and Professional Responsibility of the A.B.A. The following specified old canons are relevant to the questions presented:
Canon 29 which provides in pertinent part that a lawyer:
". . . should strive at all times to uphold the honor and maintain the dignity of the profession . . ."
Canon 42 which prohibits a lawyer from bearing the expense of litigation.
Canon 12 which states that:
". . . it should never be forgotten that the profession is a branch of the administration of justice and not a mere money-getting trade."
In Formal Opinion No. 307, the Standing Committee on Ethics and Professional Responsibility of the A.B.A. considered the question of whether a local or state bar association could set up and allow attorneys to participate in a plan for financing legal fees, which provided adequate precautions so that the plan as formulated and administered came within the framework of the Canons of Ethics (old canons). Although the Committee in this formal opinion was considering the specific issue of how a local or state bar association could establish a plan for financing legal fees, the opinion, by implication, indicates that an individual attorney or a law office could not ethically establish such a financing plan. The basic objections to an individually established credit plan noted in the opinion are that any such plan would of necessity involve a "recourse provision" which would create a conflict of interest in that if the attorney should be called upon by virtue of the "recourse provisions" to reimburse the financial institution to which the attorney was obligated, the attorney then might find himself in a position where his representation of the client would be adversely affected by the fact that he was out of pocket in the amount of the reimbursement. The Committee also objected to individually designed credit plans on the ground that such plans would detract from the dignity and honor of the legal profession by introducing an unnecessary element of commercialism. Finally, the Committee was convinced that an individually established credit card plan would be unacceptable insofar as all advertising would not be subject to bar association approval.
The Standing Committee on Ethics and Professional Responsibility of the A.B.A. in Informal Opinion No. 1120 directly considered the issue of whether or not attorneys could ethically participate in credit card plans as a means of enabling clients to pay legal fees. The specific credit card plan under discussion was that of the Bank of America for its credit card plan entitled "BankAmericard". The Committee held as follows:
"It is our opinion, however, that it is unprofessional for a lawyer to subscribe to credit card plans of the specific type involved in this inquiry as a means of enabling clients to pay his legal fees. Such plans are primarily aimed at facilitating the sales of merchandise and sales of nonprofessional services. All the publicity is directed to that end. The general public understands this to be the case. It is wrong, in our opinion, to put professional services in those categories.
"Lawyers' services, moreover, are not subject to the relatively precise objective determination possible for merchandise, air travel, and so on. It is our judgment, that, as a practical matter, credit card plans for payment of legal fees could not work unless all qualified lawyers might join the plan and all publicity would be subject to bar association approval as we stated in Opinion No. 320. The publicity might include the names of lawyer members but it would not tend to channel business to any particular attorney or attorneys.
"This credit card plan, furthermore, involves a recourse provision, which, of course, is an integral part of any general credit card plan. Merchants presumably have no particular difficulty agreeing to recourse provisions. Lawyers, however, if called upon to 'buy back' the so called 'Sales Draft' would inevitably find themselves in a position where their future relationship with their clients would be adversely affected by the fact that they would be out of pocket in the amount of the 'buy back.' It is well recognized that lawyers should not voluntarily put themselves into positions where the condition of their compensation may interfere with the full discharge of their duty to the client."
Once again in Informal Opinion 1176, the Standing Committee on Ethics and Professional Responsibility of the A.B.A. was called upon to consider the ethical implications of lawyers participating in a credit card plan where by the terms of the plan, the participating law firm would agree not to display any promotional material and where the collection of accounts by banks participating in the plan would be without recourse. The Committee held that such innovations did not obviate the objections to credit card plans which were the basis of the Committee's opinion in Informal Opinion 1120, and that such plans were not ethical. The rationale of Informal Opinion 1176 is that any credit card plan necessarily involves a factor of commercialism which the Committee felt would detract from the dignity of the profession and further, that any such plan was objectionable because the publicity associated with such plans would not be subject to bar association approval and that therefore all credit card plans were unacceptable as a means of financing legal fees.
The Los Angeles Bar Association Legal Ethics Committee Opinion No. 228 was also called upon to consider the ethical propriety of a lawyer entering into an arrangement with a bank or other lending institution for financing legal fees. The Committee in this opinion held that individually established credit plans with banks for the payment of fees might be a sound and proper practice in business, but that such plans were not suited to the legal profession. The Committee went on to say that business transactions are frankly impersonal and commercial in character. On the other hand, the professional relationship between an attorney and his client was found to be highly personal, involving an intimate appreciation of such individual client's particular problem. The Committee found that practices which tend to undue commercial emphasis are to be condemned.
A.B.A. Informal Opinion No. 1120 has prohibited an attorney from ethically participating in a credit card plan as a means of enabling clients to pay legal fees. A.B.A. Informal Opinion No. 1176 has stated that it is unethical for an attorney to participate in a credit card plan even where the participating law firm agrees not to display any promotional material and the collection of accounts by the banks are without recourse. A.B.A. Formal Opinion No. 370 sets out specific requirements whereby a local bar association can establish a plan with local banks whereby attorneys can participate in legal fee financing plans. It is the writer's opinion that Los Angeles Bar Association Legal Ethics Committee Opinion NO. 288 was correctly decided and that it would be unethical for an attorney to participate in a credit card plan for the financing of legal fees unless the plan is adopted and sponsored by the local bar association in a manner consistent with the requirements of A.B.A. Formal Opinion No. 370.
This opinion is advisory only. It is not binding upon the State Bar, the Board of Governors, its agents or employees.
EDITOR'S NOTE: The Board of Governors of the State Bar issued a Policy Statement in the State Bar Reports of February 1975 which stated that they do not oppose the use of credit cards provided that provisions of the State Bar Act and Rules of Professional Conduct are fully observed. Also see A.B.A. Formal Opinion No. 338. Effective 1/1/75, California Rule 1 has been superseded by Rule 1-100 which does not specifically commend the A.B.A. Code.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.