The inquirer asks if there is any ethical impediment to a law firm taking a judgment note to secure a fee when the firm is extending credit to the client with respect to the firm's fee.
The Committee advises that there is no per se prohibition on this practice. However, the situation does trigger the procedures outlined in Pennsylvania Rule of Professional Conduct 1.8a which provides:
A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
the transaction and terms on which the lawyer acquires the interest are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;
the client is advised and is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
the client consents in writing thereto.
Clearly, obtaining a judgment note in favor of the firm from a client constitutes a business transaction i.e., the acquisition of a security interest adverse to a client, and constitutes a conflict of interest under Rule 1.8a. As such, provided the inquirer's law firm complies with the express requirements of Rule 1.8a (1)(2) & (3) the transaction is ethically permissible.