By letter dated March 20, 1987, you asked the Professional Guidance Committee to reconsider Professional Guidance Opinion 86-8. That opinion concluded that it would be a violation of DR5-l03 for an attorney to advance funds to his client after a case had been settled. You have asked us to reconsider that ruling in light of your statement that "the established legal doctrine that once a case is settled, the litigation is terminated and the subject matter of the litigation is replaced in total by the settlement contract."
The Committee has reviewed your letter and the case law which is cited. We compliment you on the thoroughness of your presentation. Nevertheless, after discussion of the issue, the Committee voted not to revise Guidance Opinion 86-8 and to reaffirm its position within that opinion.
Disciplinary Rule 5-103(A) prohibits a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation which he is undertaking on his client's behalf. Disciplinary Rule 5-103(B) prohibits a lawyer from providing any financial assistance to his or her client, other than advancement of "expenses of litigation." These disciplinary rules have been followed, in large part, in the Model Rules of Professional Conduct. See Rules 1.8(e) and 1.8(j).
The Committee noted that both the Code of Professional Responsibility and the Model Rules of Professional Conduct refer to "pending" litigation. In that regard, the Committee concluded that so long as litigation is "pending," an attorney cannot advance funds in anticipation of expected settlement proceeds.
In your letter you state, based upon case law authority, that once a case is "settled," it replaces the underlying litigation. That position assumes that a case is, in fact, "settled" because a settlement agreement is reached. However, as I am sure you can imagine, there are many reasons why a settlement agreement can be voided (e.g., lack of authority, etc.) and the parties directed to continue with the underlying litigation Accordingly, the Committee was unwilling to assume that litigation was no longer "pending" simply because a settlement agreement was reached. However, the Committee was of the view that once an order to settle, discontinue and end, or other such order is entered, the action is no longer "pending." At that time, monies may be advanced to the client, so long as the procedure is ethically permissible.
The ABA/BNA Lawyers' Manual on Professional Conduct recently issued a practice guide dealing with the issue on financial assistance to clients. It is a good overview of the issue1. Notes
1. In regard to the overview, please note the discussion of Louisiana State Bar Association v. Edwin's, 329 So.2d 437 (La. 1976) (and two other opinions cited), which would appear to permit the advancement of living expenses to a client. Compare that opinion with In re Berlant, 458 Pa. 439, 32 A.2d 471 (1974), which rejected the client's indigency as a justification for advancing funds to a client. 328 A.2d at 476 n.7.