NY Ethics Rule Change Is Good News For Public Interest Attys

By Sateesh Nori and Anita Desai
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Law360 (July 19, 2020, 8:02 PM EDT) --
Sateesh Nori
COVID-19 has devastated communities of color across the nation, with people dying at higher rates, losing their jobs in greater numbers, and facing eviction, consumer debt, and other legal issues in gross.

The pandemic has also had a seismic effect on the legal profession. Courts have closed, litigation has dried up, and transactional work has been postponed indefinitely. Public interest lawyers, in this climate, have been working tirelessly to find inventive ways to ensure that everyone still has access to justice. Fortunately, the ethical rules in New York now give lawyers acting in a public interest role a new way to help, by making minimal financial contributions to support their clients.

Public interest lawyers have always bumped up against American Bar Association Model Rule of Professional Conduct 1.8(e). This rule, put simply, states that while we could give our time, legal skills and effort to our clients, we could not act on our humanitarian impulses to assist with their living expenses.

During the pandemic, this has restricted the resources that lawyers could provide to their clients for incidental but important needs. We could not help with the many novel tangential costs of this crisis that have limited our clients' access to legal recourse.

In recent months, expenses like increased cellphone bills have become barriers to both communication with attorneys and virtual court appearances for many of our clients. Rule 1.8(e) meant that we were powerless to change this new reality.  

Rule 1.8(e) of the New York Rule of Professional Conduct had stated:

While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to the client, except that: (1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; (2) a lawyer representing an indigent or pro bono client may pay court costs and expenses of litigation on behalf of the client; and (3) a lawyer, in an action in which an attorney's fee is payable in whole or in part as a percentage of the recovery in the action, may pay on the lawyer's own account court costs and expenses of litigation. In such case, the fee paid to the lawyer from the proceeds of the action may include an amount equal to such costs and expenses incurred.

New York, like almost every other state, has adopted most of the Model Rules of Professional Conduct, which are nearly identical in their prohibition against giving money to a client.

The rule seems to have been intended to address three issues: (1) to prevent lawyers from using clients to advance their own issues, (2) to protect the client's free agency and autonomy, and (3) to prevent conflicts of interest between the lawyer and the client.

The origins of Rule 1.8(e) lie in the Star Chamber Act of 1487 and the Statute of Liveries of 1504, which were intended to prevent wealthy landowners from bankrolling legal claims of their serfs as a means to gain more land and power for themselves. Rule 1.8(e) derives from the historical prohibitions on champerty and maintenance.

Champerty was the crime of improperly stirring up litigation by investing in a lawsuit. The landowners would hire lawyers and advance financial support through these lawyers to the individual claimants.[1] In essence, the rule was intended to prevent the rich from using the poor to engage in proxy fights for money and power.

Later, the rules evolved to address cases in which personal injury lawyers would advance funds to support their clients through the course of litigation. An early opinion of the Association of the Bar of the City of New York (today the New York City Bar Association) addressed a case in which a lawyer supported a client who had lost his hand during an accident on a ship and was therefore unable to work. The bar ethics committee ruled that the lawyer's support of his client gave him too much control over his client and the litigation.

Maintaining a client's free agency should always be at the forefront of attorneys' minds. When our clients see us as an essential factor in their ability to access justice, we, as free public interest attorneys, can already wield a great degree of influence over their choices. From this perspective, Rule 1.8(e) makes sense: It seeks to minimize the potential imbalance between attorneys and clients, and to maintain the clients' interests as central to every case.

Also, it is clear that Rule 1.8(e) sought to limit conflicts of interest. Simply stated, where a lawyer has financially invested in the outcome of a case, whether through a gift or a loan to the client, the lawyer's independent judgment may be clouded.

However, the gaping hole in the New York rules is 1.8(e)(3), which allows for contingency fee arrangements. These arrangements allow lawyers to advance the costs and fees of litigation and then recover them later from the proceeds of the action. This exception clearly swallows the rule because all contingency fee agreements tie lawyers to the outcomes of cases. The ABA acknowledged this conflict:

[T]his conflict of interest need not and should not be extended to permit the lawyer to acquire an additional stake in the outcome of the suit which might lead him to consider his own recovery rather than that of this client and to accept a settlement which might take care of his own interest in the verdict but would not advance the interest of his client to the maximum degree.[2]

Nevertheless, contingency fees and Rule 1.8(e)(2) has allowed private sector lawyers to entangle themselves financially in their cases' outcomes for years. At the same time, public interest lawyers, who don't operate on a contingency fee model, were prohibited from providing nonlegal financial assistance to their clients. This contradiction made little sense, and did a disservice to low-income litigants.

COVID-19 further tested the obsolescence of the rule, as many lawyers, working from home, had the desire and motivation to help their clients in need, but were limited by the rules. All of this changed last month, when the New York Court System's Administrative Board formally adopted a "humanitarian exception" to Rule 1.8:

A lawyer providing legal services without fee, a not-for-profit legal services or public interest organization, or a law school clinical or pro bono program, may provide financial assistance to indigent clients but may not promise or assure financial assistance prior to retention, or as an inducement to continue the lawyer-client relationship. Funds raised for any legal services or public interest organization for purposes of providing legal services will not be considered usable for providing financial assistance to indigent clients, and financial assistance referenced in this subsection may not include loans or any other form of support that causes the client to be financially beholden to the provider of the assistance.

This new exception applies to lawyers providing legal services pro bono, public interest organizations, and law school programs. The financial assistance they give cannot include loans, or otherwise be so substantial as to cause the client to be financially beholden to the provider of assistance.

In practice, this means that attorneys can now help cover small costs that quickly stack up to onerous amounts for low-income members of our communities. Our clients can now worry less about modest expenses for diapers, increased utility bills and other necessaries. Fees that have previously outweighed court costs in importance will no longer make litigation so cost-prohibitive.

The new rule appropriately retains the prohibition against promising or assuring financial assistance prior to retention, or as an inducement to continue the lawyer-client relationship. Continuing this prohibition guards against the risk that the lawyer's own financial or professional interests in the matter could influence the conduct of the litigation, giving rise to a potential conflict of interest.

It also prohibits lawyers from shifting funds, raised by the organization to provide legal services, to provide financial assistance to clients. This provision is a bar for many organizations that often raise money for direct services work. It prevents the reappropriation of donations from one cause to another, protecting the original intent of donors and ensuring the maintenance of sufficient funds for legal representation.

New York's revised Rule 1.8 is a positive step toward mitigating some of the many hidden expenses that separate rich and poor litigants in our justice system. In our new, pandemic-ridden world, public interest attorneys can now help cover costs of document scanning applications for cellphones or utility bills that have risen due to increased time spent at home. Donations of tablets, cellphones and laptops to help clients connect to court appearances will also be acceptable.

Having always been caught between the law and our desire to minimize the barriers faced by our low-income clients, we are finally permitted to exercise our humanity. In the midst of an epic crisis, this rule change comes not a moment too soon.

Sateesh Nori is the attorney-in-charge of the Queens neighborhood office of the Legal Aid Society. 

Anita Desai is a law student intern in that office.

"Perspectives" is a regular feature written by guest authors on access to justice issues. To pitch article ideas, email expertanalysis@law360.com.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] James E. Moliterno, Broad Prohibition, Thin Rationale: The "Acquisition of an Interest and Financial Assistance in Litigation" Rules, 16 GEO. J. LEGAL ETHICS 223, 228 (2003) (drawing on Max Radin, Maintenance by Champerty, 24 CALIF. L. REV. 48 (1934)).

[2] ABA Formal Op. 288 (1954), in ABA Journal, Jan. 1955, at 33 n.53.

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