HODGES, J.
I. OVERVIEW
T1 Complainant, the Oklahoma Bar Association, alleged one count of misconduct warranting discipline against respondent attorney, Donald E. Smolen (Respondent). The complaint alleged that Respondent had violated rule 1.8(e) of the Oklahoma Rules of Professional Conduct (ORPC), Okla. Stat. tit. 5, ch. 1, app. 3-A (1991) (prohibition against providing financial assistance to a client in connection with pending or contemplated litigation). Respondent received a public reprimand in 1992 for loaning money to clients. In an unpublished reprimand issued in 1987, the respondent received an eight-month suspension from the practice of law. The 1987 suspension was imposed for violations of DR 1-102(A)(8) ("engaging in illegal conduct involving moral turpitude"), DR 1-102(A)(d4) (engaging "in conduct involving dishonesty, fraud, deceit, or misrepresentation"), DR 9-102(B) (failing to preserve the "identity of funds and property of a client"), and rule 1.3 ° of the Rules Governing Disciplinary Proceedings (acting in a manner "contrary to prescribed standards of conduct").
2 In the present matter, the parties have stipulated to the facts and recommended discipline. The Professional Responsibility Tribunal (PRT) accepted the stipulations of fact, found that Respondent had violated rule 1.8(e), and recommended Respondent be publicly censured.
IIL FACTS
3 During Respondent's representation of Mr. Miles in a case before the Workers' Compensation Court, Respondent loaned Mr. Miles $1,200. The check to Mr. Miles recited that the money was for travel expenses. Respondent admitted that the true purpose of the loan was for living expenses because Mr. Miles' home had been destroyed by fire. Without the loan, Mr. Miles indicated he would have to move to Indiana and would be unable to continue his medical treatment or make court appearances. At the time of the loan, Mr. Miles was receiving temporary total disability benefits of $426.00 a week from which Respondent's attorney fee was subtracted. Mr. Miles received $884.00 a week before loan payments.
T4 Respondent's loan to Mr. Miles was interest free and without penalty or cost other than the amount of the principle. Mr. Miles was to repay the loan at $100.00 a week from his temporary total disability benefits. Mr. Miles made three $100.00 payments on the loan. One of the payments was returned to Mr. Miles resulting in his paying only $200.00 on the loan. Respondent agreed to forego further repayment until final settlement of the Workers' Compensation case.
15 When Mr. Miles became involved in other legal matters, he sought an attorney to handle the additional matters together with the workers' compensation claim. After learning of Mr. Miles search for a new attorney, Respondent terminated the attorney-client relationship with Mr. Miles. Thereafter, Mr. Miles hired Mr. Elias to represent him. During mediation over a fee dispute
between Mr. Miles and Mr. Elias, the Tulsa County Bar Association learned of Respondent's loan and reported Respondent's conduct to the Oklahoma Bar Association.
T6 Respondent admits the loan to Mr. Miles is not an isolated incident. He testified that he had consulted lawyers whose opinions are well respected in legal ethics, and it was their belief that Respondent's conduct would not violate rule 1.8(e). Respondent admits that his actions violate the express language of rule 1.8(e). However, Respondent submits that he has not violated the intent of rule 1.8(e), and that rule 1.8(e) unconstitutionally treats clients who need humanitarian loans differently than clients who receive advances of litigation expenses and court costs. |
III, ANALYSIS
17 This Court's review of the ree-ord is de novo.
Even though this Court is not bound by the PRT's recommendations, they are noted. Before this Court will impose discipline, the complainant must prove the charges by clear and convincing evidence.
T8 Rule 1.8(e) of the ORPC
under which Respondent was disciplined in 1992 for giving financial assistance to clients, provided:
While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to a client, exeept that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses.
Based on the Model Rules adopted by the American Bar Association,'
rule 1.8(e) was amended in 1993 to provide:
A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter.
19 The primary change under the Model Rules is that the repayment of litigation expenses and court costs may be contingent on the outcome of the case. Both the 1992 and 1993 versions of rule 1.8(e) unambiguously prohibit a lawyer from advancing living expenses to clients. In this case, Respondent advanced funds for living expenses to be repaid from the client's worker's compensation benefits, an action admittedly prohibited by rule 1.8(e).
{10 Most authorities prohibit a lawyer from providing financial assistance to clients for living expenses during representation.
In 1991, a draft of a provision of the Restatement of Law would have allowed a lawyer to make or guarantee a loan to a client "if the loan [was] needed to enable the client to withstand delay in litigation that otherwise might unjustly induce the client to settle or dismiss a case because of financial hardship rather than on the merits."
However, in
1996 the American Law Institute Council decided the rule was ill-advised,
and, in 1998, the provision was removed.
The final draft of the Restatement would not allow a lawyer to make or guarantee a loan to a client except for litigation expenses and court costs.
Rule of the American Bar Association's Model Rules of Professional Conduct (Model Rules) adopted in 1983 prohibits a lawyer from advancing funds to a client for living expenses.
A proposal to allow lawyers to advance clients funds for living expenses was rejected by the American Bar Association House of Delegates.
Free access — add to your briefcase to read the full text and ask questions with AI
HODGES, J.
I. OVERVIEW
T1 Complainant, the Oklahoma Bar Association, alleged one count of misconduct warranting discipline against respondent attorney, Donald E. Smolen (Respondent). The complaint alleged that Respondent had violated rule 1.8(e) of the Oklahoma Rules of Professional Conduct (ORPC), Okla. Stat. tit. 5, ch. 1, app. 3-A (1991) (prohibition against providing financial assistance to a client in connection with pending or contemplated litigation). Respondent received a public reprimand in 1992 for loaning money to clients. In an unpublished reprimand issued in 1987, the respondent received an eight-month suspension from the practice of law. The 1987 suspension was imposed for violations of DR 1-102(A)(8) ("engaging in illegal conduct involving moral turpitude"), DR 1-102(A)(d4) (engaging "in conduct involving dishonesty, fraud, deceit, or misrepresentation"), DR 9-102(B) (failing to preserve the "identity of funds and property of a client"), and rule 1.3 ° of the Rules Governing Disciplinary Proceedings (acting in a manner "contrary to prescribed standards of conduct").
2 In the present matter, the parties have stipulated to the facts and recommended discipline. The Professional Responsibility Tribunal (PRT) accepted the stipulations of fact, found that Respondent had violated rule 1.8(e), and recommended Respondent be publicly censured.
IIL FACTS
3 During Respondent's representation of Mr. Miles in a case before the Workers' Compensation Court, Respondent loaned Mr. Miles $1,200. The check to Mr. Miles recited that the money was for travel expenses. Respondent admitted that the true purpose of the loan was for living expenses because Mr. Miles' home had been destroyed by fire. Without the loan, Mr. Miles indicated he would have to move to Indiana and would be unable to continue his medical treatment or make court appearances. At the time of the loan, Mr. Miles was receiving temporary total disability benefits of $426.00 a week from which Respondent's attorney fee was subtracted. Mr. Miles received $884.00 a week before loan payments.
T4 Respondent's loan to Mr. Miles was interest free and without penalty or cost other than the amount of the principle. Mr. Miles was to repay the loan at $100.00 a week from his temporary total disability benefits. Mr. Miles made three $100.00 payments on the loan. One of the payments was returned to Mr. Miles resulting in his paying only $200.00 on the loan. Respondent agreed to forego further repayment until final settlement of the Workers' Compensation case.
15 When Mr. Miles became involved in other legal matters, he sought an attorney to handle the additional matters together with the workers' compensation claim. After learning of Mr. Miles search for a new attorney, Respondent terminated the attorney-client relationship with Mr. Miles. Thereafter, Mr. Miles hired Mr. Elias to represent him. During mediation over a fee dispute
between Mr. Miles and Mr. Elias, the Tulsa County Bar Association learned of Respondent's loan and reported Respondent's conduct to the Oklahoma Bar Association.
T6 Respondent admits the loan to Mr. Miles is not an isolated incident. He testified that he had consulted lawyers whose opinions are well respected in legal ethics, and it was their belief that Respondent's conduct would not violate rule 1.8(e). Respondent admits that his actions violate the express language of rule 1.8(e). However, Respondent submits that he has not violated the intent of rule 1.8(e), and that rule 1.8(e) unconstitutionally treats clients who need humanitarian loans differently than clients who receive advances of litigation expenses and court costs. |
III, ANALYSIS
17 This Court's review of the ree-ord is de novo.
Even though this Court is not bound by the PRT's recommendations, they are noted. Before this Court will impose discipline, the complainant must prove the charges by clear and convincing evidence.
T8 Rule 1.8(e) of the ORPC
under which Respondent was disciplined in 1992 for giving financial assistance to clients, provided:
While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to a client, exeept that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses.
Based on the Model Rules adopted by the American Bar Association,'
rule 1.8(e) was amended in 1993 to provide:
A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter.
19 The primary change under the Model Rules is that the repayment of litigation expenses and court costs may be contingent on the outcome of the case. Both the 1992 and 1993 versions of rule 1.8(e) unambiguously prohibit a lawyer from advancing living expenses to clients. In this case, Respondent advanced funds for living expenses to be repaid from the client's worker's compensation benefits, an action admittedly prohibited by rule 1.8(e).
{10 Most authorities prohibit a lawyer from providing financial assistance to clients for living expenses during representation.
In 1991, a draft of a provision of the Restatement of Law would have allowed a lawyer to make or guarantee a loan to a client "if the loan [was] needed to enable the client to withstand delay in litigation that otherwise might unjustly induce the client to settle or dismiss a case because of financial hardship rather than on the merits."
However, in
1996 the American Law Institute Council decided the rule was ill-advised,
and, in 1998, the provision was removed.
The final draft of the Restatement would not allow a lawyer to make or guarantee a loan to a client except for litigation expenses and court costs.
Rule of the American Bar Association's Model Rules of Professional Conduct (Model Rules) adopted in 1983 prohibits a lawyer from advancing funds to a client for living expenses.
A proposal to allow lawyers to advance clients funds for living expenses was rejected by the American Bar Association House of Delegates.
11 Twenty-nine states have adopted the current version of ABA Model Rule 1.8(e) which allows repayment of litigation costs to be contingent on the outcome of the case but forbids advances for living expenses.
Fourteen other states follow the ABA Model Code of Professional Responsibility, adopted in 1969,
or a version of the Model Rules or Model Code that requires the client remain liable for litigation expenses and court costs and prohibits advances for living expenses.
Only eight states explicitly allow lawyers to advance or guarantee loans to clients for living expenses: Alabama,
California,
Louisiana,
Minnesota,
Mississippi,
Montana,
North Dakota,
and Texas.
112 Only one state has refused to discipline a lawyer for advancing funds to clients for living expenses during representation .
In Louisiana State Bar Ass'n v. Edwins,
the Louisiana State Supreme Court stated that advancing money to an indigent client for necessary living expenses during representation did not violate the Louisiana rules of legal ethics.
Even though the Edwins court questioned the constitutionality of the rule, the court based its conclusion on a finding that the conduct did not violate the rule's intent.
The lawyer in Eduwins was disciplined for making advances which were not based on the client's needs.
In In re KAH.,
the Alaska Supreme Court held the rule did not unconstitutionally deny or interfere with the client's access to the courts.
Further, no court has invalidated rule 1.8(e) based on a constitutional infirmity.
113 We have has previously disciplined lawyers for providing financial assistance to clients for purposes other than litigation expenses and court costs.
Several other courts addressing the question have also imposed discipline on lawyers for like conduct.
In Mississippi Bar v. Attorney HH,
the Mississippi Supreme Court expressed its concern that allowing a lawyer to advance funds to a client for living expenses would "generate unseemly bidding wars for cases and inevitably lead to further denigration of our civil justice system."
A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that ... A lawyer may guarantee a loan reasonably needed to enable the client to withstand delay in litigation that would otherwise put substantial pressure on the client to settle a case because of financial hardship rather than on the merits, provided the client remains ultimately liable for repayment of the loan without regard to the outcome of the litigation and, further provided, that no promise of financial assistance was made to the client by the lawyer or by another in the lawyer's behalf, prior to the employment of that lawyer by the client.
A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation or administrative proceedings, except that:
(1) a lawyer may advance or guarantee court costs, expenses of litigation or administrative proceedings, and reasonably necessary medica and living expenses, the repayment of which may be contingent on the outcome of the matter....
A. INTENT OF THE RULE
{14 Respondent admits violating rule 1.8(e) but argues that he should not be disciplined because he did not violate the intent of the rule. What Respondent in reality requests is that we adopt an exception to the rule that allows attorneys to make loans to clients for necessary living expenses after the attorney-client relationship is established.
T15 The rule against attorneys providing financial assistance to clients for living expenses is based on the common-law prohibitions against practice of champerty and maintenance.
The evils associated with champerty and maintenance intended to be prevented by rule 1.8(e)'s prohibition are: (1) clients selecting a lawyer based on improper factors,
and (2) conflicts of interest, including compromising a lawyer's independent judgment in the case
and creating the potentially conflicting roles of the lawyer as both lawyer and creditor with divergent interests.
116 Respondent argues that he advanced the funds only after the attorney-client relationship was established with repayment to be made from benefits which had already been awarded, and the loan was for humanitarian purposes. Thus, he posits that the evils of champerty and maintenance are absent here and that he should not be disciplined because he did not violate the intent of the rule. We reject this argument as have most other states. First, Mr. Miles' workers' compensation claim had not been completely resolved. He was receiving only temporary benefits at the time Respondent made the loan, and, at least, a potential settlement regarding permanent disability remained pending. Second, it would be unrealistic to conclude that even if Respondent does not publicize that he makes loans to clients for living expenses, potential clients would not learn of Respondent's practice from existing and past clients. Thus, potential clients may base their decision to retain Respondent on improper inducements. The fact that the loan was for humanitarian purposes may be a mitigating factor. Nonetheless, Respondent violated rule 1.8(e). "
117 Given that the Restatement and the ABA have rejected the same exception tendered by Respondent and an overwhelming number of courts have also declined to adopt Respondent's proposed exception,
we also decline to make the ad hoe exception to rule 1.8(e) advocated by Respondent. We are not unsympathetic to the plight of litigants. However, because of the potential ethical problems which can arise from a lawyer advancing clients money for living expenses, the explicit prohibition against such conduct in the Oklahoma Rules of Profession
al Conduct, we believe Respondent should be disciplined.
B. CONSTITUTIONALITY
"[ 18 Respondent asserts that rule 1.8(e) is invalid because it does not treat similarly situated classes of litigants equally. The Fourteenth Amendment to the United States Constitution provides: "No State shall make or enforce any law which shall ... deny to any person within its jurisdiction the equal protection of the laws."
This same prohibition is present in article 2, section 7 of the Oklahoma Constitution.
The two classes of clients proposed by Respondent are those who need advances for living expenses and those who need advances for litigation costs.
%19 The deferential rational basis test is applied in constitutional challenges based on the equal protection clause when the classification is not based upon an inherently suspect characteristic or jeopardizes a fundamental right.
The divergent treatment must have only "some relevance to the purpose for which the classification is made."
Respondent does not argue that the classification is based on an inherently suspect characteristic or that a fundamental right is jeopardized. Thus, Respondent's challenge is analyzed under the rational basis test.
120 Assuming for purposes of argument that the two classes posed by Respondent are similarly situated, rule 1.8(e)'s disparate treatment of advances for litigation expenses and court costs and advances for all other expenses is based on legitimate goals and reflects the differences in living expenses and litigation expenses and court costs. First, litigation expenses and court costs are directly related to the actual litigation. Living and other expenses are not. Second, litigation expenses and court costs are within a lawyer's expertise. Other expenses of clients are not considered part of a lawyer's expertise. Third, it is a lawyer's duty to advise his client on which litigation expenses and court costs are necessary for the litigation. It is not generally the lawyer's duty to advise his clients as to what other expenses are necessary. Fourth, a lawyer generally pays the litigation expenses and costs directly to the provider. In the case of other expenses, the lawyer generally would give the money to the client, and there would be no guarantee that the money would be utilized for the loan's intended purpose.
{21 We agree with the drafters of the Restatement and the ABA Model Rules that a rule allowing lawyers to make loans to clients for reasons other that advancing litigation expenses and court costs is ill-advised. Because of the potentially inherent abuses in allowing lawyers to make loans to clients for reasons other than litigation expenses and court costs, the divergent treatment is rationally related to a legitimate goal of protecting clients and maintaining the integrity of the Bar. Respondent has failed to show that rule 1.8(e) is unconstitutional.
IV. APPROPRIATE DISCIPLINE
122 Respondent has been previously disciplined by this Court, once in 1987 and again in 1992. In 1992, Respondent was publicly censured for the same misconduct with which he is presently charged. He admits that the current loan is not an isolated incident. One of the purposes of discipline is "deterrence of like behavior by both the respondent and other members of the bar."
This Court is not bound by the stipulated discipline of the parties.
Because Respondent was previously disciplined in 1987 for violations of ethical standards, was publicly censured in 1992 for the same misconduct for which he is being disciplined in this matter, and has admitted that the current violation is not an isolated incident, we deem the appropriate discipline is a sixty-day suspension.
v. COSTS
123 The Bar Association's application to assess costs in the amount of $588.15 is granted. The respondent shall pay said costs within thirty days from the date this opinion becomes final.
VI. CONCLUSION
I 24 Based on respondent attorney Donald E. Smolen's violation of rule 1.8(e) of the Oklahoma Rules of Professional Conduct, he is suspended from the practice of law for sixty days and is ordered to pay the costs of these proceedings in the amount of $588.15.
RESPONDENT SUSPENDED FOR SIXTY DAYS AND ORDERED TO PAY COSTS.
1 25 HARGRAVE, V.C.J., LAVENDER, OPALA, WATT, and WINCHESTER, JJ., concur.
126 SUMMERS, C.J., and KAUGER, J., concur in part; dissent in part.
€27 BOUDREAU, J., disqualified.