Florida State Bar

District Court of Appeal of Florida, Fourth District. Julian B. KRAFT; Falcon Food Service Company, Inc., Harold R. Newburg, Sea-Good Seafood, Inc., a Florida corporation, Seagood Trading Corporation, a Florida Corporation, and Blaine H. Winship as partner of Winship & Byrne, Appellants/Cross-Appellees, v. Zelda Pincourt MASON, Appellee/Cross-Appellant. No. 94-2544. Feb. 28, 1996.

Reconsideration and Clarification Denied April 19, 1996.

Sister who lent brother money to continue antitrust litigation, in consideration of share of proceeds if case settled or was decided in brother’s favor, sought share of proceeds after suit was settled. The Circuit Court, Palm Beach County, Richard I. Wennet, J., entered final judgment on behalf of sister while rejecting sister’s claim to share of full settlement amount before deducting attorney fees. Cross-appeals were taken. The District Court of Appeal, Henning, Patti Englander, Associate Judge, held that: (1) loan agreement was not champertous; (2) loan was not usurious; (3) action for sister’s share of recovery was within statute of limitations; and (4) sister was entitled to recover share of proceeds calculated prior to deduction of attorney fees.

Affirmed in part, reversed in part and remanded.

HENNING, PATTI ENGLANDER, Associate Judge. STATEMENT OF THE FACTS

Julian Kraft, Harold Newburg and their companies were plaintiffs in a federal antitrust suit in the mid-1980s. They were represented by a law firm, which, after a time, told them that the firm would be required to settle the case or withdraw from representation unless fees and costs were paid. Without the financial wherewithal themselves, the plaintiffs sought financing from others.

First, Kraft approached a gentleman named Gross with a contract drafted by Kraft himself. The contract provided for an interest in the antitrust suit if Gross would obtain a bank loan and, in turn, lend the proceeds to the plaintiffs. Specifically, the terms were for 20% of the first $1,000,000 recovered, 6% of the next $4,000,000 recovered and 3% of any recovery in excess of $5,000,000 in exchange for a loan of $100,000. The plaintiffs were obligated to pay Gross the first $100,000 of any recovery, and Gross was obligated to utilize that $100,000 in reducing the loan principal. Additionally, the loan was guaranteed and the borrowers would pay interest payments. Gross declined to provide the financing.

Still needing the funds, Kraft sought help from his sister Zelda Mason. She reviewed the loan agreement (identical to the one Kraft had drafted for Gross) and after considering the matter for a few weeks agreed to lend her brother the money. She made no changes in the loan document. She believed that the $100,000 loan would be repaid and that she would receive interest payments on the loan. She was also obligated by the loan agreement to use the first $100,000 received by her to reduce the loan principal. She testified that her brother said any additional money received under the loan agreement was like “icing on the cake” for her. Mason did not consider it a necessary incentive for making the loan. She had no expectations as to any further recovery. Important for issues presented to this court, we note that the contract contained no fixed repayment dates.

Once Mason lent the money, the antitrust lawsuit continued. The law firm modified its agreement with Kraft and Newburg to a straight contingent fee agreement. Because of this, Mason actually bore the cost of the litigation with her $100,000 loan.

In 1987, there was a partial settlement of the antitrust litigation for $200,000. Mason received $85,000 to reduce her loan obligations with the bank; with agreement of all, $15,000 was paid to her prior attorney; and all agreed the remaining $15,000 principal would be paid from any later settlement.

In June of 1987, Kraft stopped making the contractually mandated interest payments. By October, Mason demanded in writing full payment of the principal and unpaid interest. Testimony reveals that Kraft had repudiated the contract because of an unrelated family dispute Kraft had with his sister. Mason did not file a lawsuit at that time.

Eventually in December 1992, the antitrust suit settled for $5,015,000. Although the attorneys notified Mason in writing that she was entitled to $355,450, no money was actually disbursed at the direction of Kraft. He still believed he was entitled to a setoff for that family matter. Mason demanded her settlement proceeds and instituted this suit when she was not paid. The suit was defended on the basis that the original contract was champertous and usurious and that the suit had been filed outside the statute of limitations.

This amount was calculated by Kraft’s attorney pursuant to paragraph 6 of the loan agreement by taking 20% of the first $1 million ($200,000), 6% of the next $4 million ($240,000) and 3% of the remaining $15,000 ($450) less the $85,000 previously paid to Mason. Interestingly, this original calculation is the calculation demanded by Mason at trial and before this court on appeal, but rejected by the defendants and trial court below.

After a nonjury trial, the trial court entered final judgment on behalf of Mason rejecting all defenses. However, the trial judge rejected Mason’s position that she was entitled to have her recovery based on the full settlement amount before deducting attorneys’ fees. This is the appeal and cross-appeal to this court of those rulings.

MAINTENANCE AND CHAMPERTY

“Maintenance is an officious intermeddling in a suit which in no way belongs to the intermeddler, by maintaining or assisting either party to the action, with money or otherwise, to prosecute or defend it.” 9 Fla.Jur.2d Champerty and Maintenance § 1 (1979). Under the modern view, “it is the act of one improperly, and for the purpose of stirring up litigation and strife, encouraging others either to bring [an] action or to … defend [a suit] which they have no right to make….” Id.

Champerty is a form of maintenance wherein one will carry on a suit in which he has no subject-matter interest at his own expense or will aid in doing so in consideration of receiving, if successful, some part of the benefits recovered. 14 C.J.S. Champerty and Maintenance § 1a (1991).

Historically, the common-law doctrines of champerty and maintenance arose in England from causes unique to society as it then existed. §14 Am.Jur.2d Champerty and Maintenance 1 (1964). “The power of influential persons to whom rights of action were transferred in order to obtain their support and favor in suits brought to assert those rights was the cause of the rigid doctrine….” 14 C.J.S., supra, § 3. As civilization and law progressed, the need for these strict rules decreased. 14 Am.Jur.2d, supra, § 1. Today, none of the states adhere to the rigor of the original champerty and maintenance doctrines. Id.

Though Appellants argue to this court that we should follow the strict common-law definitions, the few cases in Florida on this subject support the more modern-day approach that officious intermeddling is a necessary element of champerty. We define officious as “offering unnecessary and unwanted advice or services; meddlesome, esp. in a highhanded or overbearing way.” Webster’s New World Dictionary 988 (2d col. ed. 1986).

In Brown v. Dyrnes, 109 So.2d 788 (Fla. 2d DCA 1959), the Second District Court determined there was sufficient evidence to support the jury’s finding that the contract was champertous. The litigation in question was provoked by the champertor who unjustly aroused the suspicion of one litigant against the other. There, a widow inherited numerous parcels of real estate. Brown managed these properties for the husband and for the widow after her husband’s death. Sometime later, the widow met the plaintiff/champertor and discussed the property. At the time she was content with the management services of Brown. The plaintiff/champertor, however, persuaded the widow to believe that Brown was profiting from the handling of her properties and that through a lawsuit she could recover a large judgment. Believing this, she contracted with the champertor, agreeing to pay him percentages of all properties and money recovered in the suit. Furthermore, if the suit settled without his consent, he would be paid for services rendered.

The litigation that ensued exonerated Brown, and the widow eventually had to pay him $10,000. Next, the champertor filed suit alleging that the widow owed him for his services in the unsuccessful litigation. This time, the widow prevailed. The Second District Court found the verdict could well be sustained on the theory the contract was champertous.

This court in Anderson v. Trade Winds Enterprises Corp. 241 So.2d 174 (Fla. 4th DCA 1970), cert. denied, 244 So.2d 432 (Fla.1971), accepted the definition of maintenance as stated above as well as the following definition of champerty: ” ‘a bargain by a champertor with a plaintiff or defendant for a portion of the matter involved in a suit in case of a successful termination of the action, which the champertor undertakes to maintain or carry on at his own expense.’ ” 241 So.2d at 177 (quoting 14 Am.Jur. § 3 (1964)). After accepting these definitions, this court determined that the facts in that case could not “even remotely resemble maintenance or champerty. In the first place there was obviously no officious intermeddling by anyone in a lawsuit. In the second place there was no bargaining between any person not involved in a law suit to acquire an interest in a matter in litigation”. 241 So.2d at 177 (emphasis added).

In the instant case, Mason clearly did not act in an officious manner. She was not intermeddling in a lawsuit. She did not instigate the litigation. Her assistance was sought out by Kraft when he needed money to continue his lawsuit. She did not bargain for the terms under which she made the loan–they too were prepared by Kraft. Nor did she concern herself with the antitrust litigation or impose her views upon the attorneys or the litigants once she provided the loan.

Accordingly, this court holds that the trial court correctly rejected the champerty argument raised below.

USURY

There are four requirements necessary to establish usury:

1. A loan, express or implied.
2. An understanding between the parties that the money loaned must be repaid.
3. In consideration of the loan, a greater rate of interest than is allowed by law is paid or agreed to be paid by the borrower.
4. A corrupt intent to take more than the legal rate for the use of the money loaned.

See Jersey Palm-Gross, Inc. v. Paper, 639 So.2d 664, 666 (Fla. 4th DCA 1994), app’d, 658 So.2d 531 (Fla.1995); 32 Fla.Jur. Interest and Usury § 52 (1994).

The main issue before this court is whether the trial court erred in determining that no corrupt intent existed to collect interest at a usurious rate. This court in Jersey provided a succinct background on usury relevant to this issue:

Civil usury involves loans of $500,000 or less and an interest rate of greater than 18% and less than 25%. See § 687.03, Fla.Stat. (1993). Criminal usury involves any loan amount with a rate of interest greater than 25% but not in excess of 45%. See § 687.071, Fla.Stat. (1993). The penalties for civil usury include forfeiture of all interest charged; the civil penalties for criminal usury are forfeiture of the right to collect the debt. See § 687.04, Fla.Stat. (1993). In the case of either criminal or civil usury, the lender’s willfulness to charge an excessive interest rate is determined by considering all of the circumstances surrounding the transaction. This might involve looking beyond the terms of the loan documents. If a borrower promises or is otherwise required to pay a bonus or other consideration as an inducement to the lender to make the loan, such added obligations may be considered interest and can render a loan usurious. 639 So.2d at 667 (citations omitted).

In Jersey, the lender was to receive 15% interest on a loan of $200,000 for eighteen months. Shortly before closing on the loan, the lender insisted upon 15% equity in the borrower’s partnership. With the inclusion of the partnership interest, the interest rate on the loan was 45% per annum. The trial court found that the lender had knowingly and willingly charged a usurious rate.

This court affirmed and stated:

The determination of intent is the responsibility of the trier of fact. …. The supreme court in Dixon

[v. Sharp, 276 So.2d 817 (Fla.1973) ]

cited with approval the definition of willfully and knowingly set forth in Chandler v. Kendrick, 108 Fla. 450, 146 So. 551, 552 (1993):

A thing is willfully done when it proceeds from a conscious motion of the will intending the result, which actually comes to pass. It must be designed or intentional, and may be malicious, though not necessarily so.

We agree that mathematical calculations alone do not equate with usurious intent. However, here the lender knew at the outset the total value of the amount he was receiving in consideration for making the loan. Gross, the lender’s president and sole stockholder, is a developer with 40 years experience and not an unsophisticated lender. He knew that the borrowers had an urgent need for the money. He dictated the terms of the loan. The fact that the borrowers were “in distress” or “necessitous” when the loan was made is as significant as the fact that the lender dictated the terms of the loan. Our supreme court explained the purpose of Florida’s usury statute:

The very purpose of statutes prohibiting usury is to bind the power of creditors over necessitous debtors and prevent them from extorting harsh and undue terms in the making of the loans.

639 So.2d at 668 (citations omitted). The Supreme Court, in approving this court’s opinion, further stated:

“[U]sury is largely a matter of intent, and is not fully determined by the fact that the lender actually receives more than law permits, but is determined by the existence of a corrupt purpose in the lender’s mind to get more than legal interest for the money lent.” Moreover, “the question of intent is to be gathered from the circumstances surrounding the entire transaction.” Consequently, the ultimate arbiter on the issue of intent is the trial court because “the question of intent is one of fact.”

658 So.2d at 534 (citations omitted).

The instant case appears to be the antithesis of Jersey. Here, Mason was an unsophisticated lender. She did not know at the outset the total amount she would receive. The evidence is uncontroverted that it was the borrowers who dictated the terms of the loan, not Mason. The loan was to be paid back after the disposition of the lawsuit. Accordingly, no one could have known at the loan’s inception the total amount Mason would be receiving in consideration for making the loan. Clearly, the record does not demonstrate the necessary ” ‘corrupt purpose in the lender’s mind to get more than legal interest….’ ” Jersey, 658 So.2d at 534 (quoting Dixon, 276 So.2d at 820). This is not a case of an overreaching lender taking advantage of a desperate borrower to impose undue or harsh terms.

Yet another reason the loan was not usurious is that the money to be paid Mason could be characterized as a bonus to be received for participating in an uncertain transaction. A loan agreement is not usurious when payment depends upon a contingency. See, e.g., Bailey v. Harrington, 462 So.2d 861 (Fla. 3d DCA), rev. denied, 472 So.2d 1180 (Fla.1985), and rev. denied sub nom., N-Site Associates v. Harrington, 472 So.2d 1181 (Fla.1985); Schwab v. Quitoni, 362 So.2d 297 (Fla. 3d DCA 1978). Here, when the loan was given, any talk of recovery was pure speculation. Quite possibly, there would be no successful recovery from the antitrust litigation, and Mason might have collected nothing beyond the pay back of the loan. This contingent nature of any “interest” to Mason makes the agreement non-usurious.

Case appears to be the antithesis of Jersey. Here, Mason was an unsophisticated lender. She did not know at the outset the total amount she would receive. The evidence is uncontroverted that it was the borrowers who dictated the terms of the loan, not Mason. The loan was to be paid back after the disposition of the lawsuit. Accordingly, no one could have known at the loan’s inception the total amount Mason would be receiving in consideration for making the loan. Clearly, the record does not demonstrate the necessary ” ‘corrupt purpose in the lender’s mind to get more than legal interest….’ ” Jersey, 658 So.2d at 534 (quoting Dixon, 276 So.2d at 820). This is not a case of an overreaching lender taking advantage of a desperate borrower to impose undue or harsh terms.

Yet another reason the loan was not usurious is that the money to be paid Mason could be characterized as a bonus to be received for participating in an uncertain transaction. A loan agreement is not usurious when payment depends upon a contingency. See, e.g., Bailey v. Harrington, 462 So.2d 861 (Fla. 3d DCA), rev. denied, 472 So.2d 1180 (Fla.1985), and rev. denied sub nom., N-Site Associates v. Harrington, 472 So.2d 1181 (Fla.1985); Schwab v. Quitoni, 362 So.2d 297 (Fla. 3d DCA 1978). Here, when the loan was given, any talk of recovery was pure speculation. Quite possibly, there would be no successful recovery from the antitrust litigation, and Mason might have collected nothing beyond the pay back of the loan. This contingent nature of any “interest” to Mason makes the agreement non-usurious.

Thus, the trial court’s finding that the usury defense was inapplicable was correct and is affirmed.

STATUTE OF LIMITATIONS

We write briefly on this issue to affirm the trial court’s finding that the statute of limitations did not commence as to the shares of the recovery and the $15,000 in unpaid principal until the settlement of the underlying antitrust case in December 1992. It did expire as to some unpaid interest payments on the principal as Mason concedes and as the trial court correctly held. When interest payments are payable in installments, the statute of limitations can run on some but not others. See Hannett v. Bryan, 640 So.2d 203 (Fla. 4th DCA 1994); Central Home Trust Co. v. Lippincott, 392 So.2d 931 (Fla. 5th DCA 1980).

CALCULATING SHARES OF THE RECOVERY

Paragraph 6 of the Loan Agreement reads as follows:

6. In consideration of the above, Borrowers hereby direct Winship & Byrne to pay to Lender the following percentages of any Recovery by plaintiffs in the Lawsuit: 20 percent of the first $1,000,000.00 of any Recovery; 6 percent of the next $4,000,000.00 of any Recovery; and 3 percent of any additional Recovery. The term “Recovery”, as used herein, means the proceeds received from any settlement in plaintiffs’ favor of any claims brought by them in the Lawsuit and the proceeds received from any judgment awarding damages to plaintiffs in the Lawsuit, including any amount obtained by reason of trebling of damages or punitive damages, but excluding any award of costs, interest or attorneys fees. Any payment made to Lender by Winship & Byrne in accordance with the provisions of this paragraph shall be made from the net proceeds of any settlement and/or judgment payable to Borrowers, and not from the portion payable to Winship & Byrne. Notwithstanding the above, the first $100,000 of any Recovery shall be paid by Winship & Byrne to Lender for the purpose of enabling Lender to pay off the principal amount of the loan, with said $100,000 to be credited against Lender’s 20 percent share of the first $1,000,000.00 of any Recovery.

The trial court interpreted this provision as requiring Mason’s share to be calculated on the net proceeds of the settlement after attorneys’ fees had been deducted from the gross amount. Mason argues that the trial court’s interpretation is wrong. We agree with Mason.

A careful reading shows that the portion of the paragraph defining “Recovery” relates to the calculation of the lender’s share. Once calculated, the remainder of the paragraph defines how the calculated amount is to be paid. Payment to the lender is to come from the proceeds of the settlement to which the borrowers are entitled after attorneys’ fees are deducted and paid to the lender from Kraft and Newburg’s recovery proceeds and not from the share due the attorneys (Winship & Byrne). The loan agreement does not require that the Lender’s share be calculated from that reduced amount.

The well-formed law on contract construction is dispositive of this issue. Clear and unambiguous contract terms should be construed as written. Institutional & Supermarket Equipment, Inc. v. C & S Refrigeration, Inc., 609 So.2d 66 (Fla. 4th DCA 1992). Extrinsic evidence regarding a contract’s meaning should not be admitted if the contract is not ambiguous. J.C. Penney Co., Inc. v. Koff, 345 So.2d 732 (Fla. 4th DCA 1977).

“[T]he construction placed on the terms of an agreement by a trial court must be accepted by a reviewing court unless the construction is clearly erroneous.” Elmore v. Enterprise Developers, Inc., 418 So.2d 1078, 1079 (Fla. 4th DCA 1982). Here, the trial court clearly erred in finding the agreement ambiguous. Its interpretation of the agreement based on evidence taken at trial need not and should not be accepted by this court. To do so would be to rewrite a contractual provision or vary a party’s obligations under a clearly written contract. This is impermissible under the law. See Koff.

Moreover, even had there been an ambiguity in the contract the record unequivocally confirms that the agreement was drafted by one of the borrowers and so should be construed against them and in favor of the lender. See Home Savings of America, F.A. v. Roehner, 491 So.2d 612 (Fla. 4th DCA 1986); Finlayson v. Broward County, 471 So.2d 67 (Fla. 4th DCA 1985).

On this point, then, the case must be remanded to the trial court for calculations of an award to Mason consistent with this opinion.

CONCLUSION

Because this court holds that the trial court correctly found the contract in issue was neither champertous nor usurious and that the suit was not filed beyond the statute of limitations, the case is affirmed on those issues. Because the trial court erred in calculating the recovery to which Mason is entitled, the case is reversed on that issue. AFFIRMED, in part; REVERSED in part and REMANDED.

GUNTHER, C.J., and SHAHOOD, J., concur. Fla.App. 4 Dist.,1996. Kraft v. Mason

Florida

OPINION 61-29
January 10, 1962

As to the ethical propriety of the Bar or a lawyer’s association providing a revolving fund to be used for loans to needy plaintiffs, to enable them to bear the cost of litigation until recovery can be had, the following issues are raised:

1. The increased ability of plaintiffs to finance themselves would tend to create litigation, which could be construed as champerty.
2. If a lawyer must follow Canon 42 relating to expenses, logic indicates a bar association should not violate the same canon.
3. There never would be a case in which the plaintiff was certain to obtain recovery.
4. Any attorney forced to contribute to such a fund would therefore have an interest in the litigation and be subject to conflicting interests.

Canons: 6, 10, 28, 42

Chairman Holcomb stated the opinion of the committee:

A member of The Florida Bar has in mind the possibility of The Florida Bar, the Academy of Florida Trial Lawyers or some other similar group providing a revolving fund to be used in loans to needy plaintiffs having meritorious personal injury claims to enable them to meet their many medical and living costs while awaiting collection on their claims. He points out that many persons with small cash reserves are unable to finance themselves; that their counsel cannot advance funds because of a champerty problem; that they cannot borrow on their claim even though it is apparently clear cut and there is adequate insurance coverage; thus placing the claimant at the mercy of borrowing from a small loan company at exorbitant rates of interest.

He also suggests that it might be possible for the lawyer to seek third parties to lend the client money upon being satisfied the claim was one on which recovery was certain and that he would be repaid out of any judgment or settlement. He points out the social problem involved and asks if there is an ethical problem involved and asks for suggestions.

One Committee member thinks that the increased ability of persons having claims for personal injuries to finance themselves would tend to create litigation which would otherwise be settled because of the economic pressure. A literal application of the principle that anything tending to promote litigation tends toward champerty would suggest the impropriety of such a proposal. But against this is the fact that defendants, and particularly insurers of defendants, capitalize upon the economic need of the claimant to obtain settlements at less than the real value of the claim. One of the major factors leading to the adoption of workmen’s compensation laws has been the deliberate delay of employers in making settlement to force injured employees to accept unreasonably low settlements. Such a plan could not be adopted without adequate regulation and safeguard by The Florida Bar. More good than bad would result from such a plan.

Another member thinks we should in no way approve any of the projects mentioned. We should not do by indirection what we cannot do directly. There is a substantial possibility that any such plan might be misunderstood and lead to improper practices. Another member thinks such a plan would not be ethical.

Another member suggests that there never would be a case in which the plaintiff was certain to obtain a recovery. If such a fund were to be set up by the Bar, any attorney forced to contribute thereto would have an interest in the litigation and be subject to conflicting interests, violating Canon 6, also Canon 10, and also possibly Canon 28 against stirring up litigation. If a lawyer must follow Canon 42 relating to expenses, a bar association should not violate the same canon. Likewise, the question arises as to loans to needy defendants, possibly uninsured, and burdened with the defense of an unjust claim. Certainly a claimant has the right to borrow from whomever he wants and from whomever will loan to him.

Florida

OPINION 65-39
June 15, 1965

A lawyer may not advance living expenses to a client pending settlement and collection of a claim, judgment, or award.

Canons: 6, 10
Opinions: ABA 288, NY City 779

Chairman Smith stated the opinion of the committee:

In fine, a member of The Florida Bar inquires if it is unethical for an attorney to advance money to a client for living expenses while awaiting payment of the client’s claim against a third party. Further, he asks us to assume that the client badly needs the money for basic necessities and inquires if it would make a difference (1) if there was no dispute as to liability, the third party was financially responsible at the time, and the client was simply waiting to determine the result of medical treatment or (2) if settlement had been agreed upon and the attorney was merely awaiting receipt of the release and draft.

This Committee has considered and answered the same inquiry, or ones quite similar, on several occasions. Canon 6 provides that an attorney should not allow himself to be placed in inconsistent positions and Canon 10 prohibits an attorney from acquiring a financial interest in the subject matter of litigation he is handling. The member indicates his awareness of Opinion 288 of the Professional Ethics Committee of the American Bar Association and the holding therein that an attorney may not ethically lend or advance living expenses to clients during the pendency of personal injury actions even though the clients are injured and cannot work. The same conclusion has been reached by a similar committee for the Bar Association of the City of New York, Opinion 779.

This Committee heretofore has agreed with the views expressed in the opinions aforementioned. It continues to do so. Further, it is our opinion that the additional circumstances stated in this inquiry do not prompt a different response in either case posed.

The rule prohibiting an attorney from acquiring a financial interest in the litigation of a client has proved to be of benefit both to the public and the bar. The plight of a client undoubtedly will invoke the sympathies of his attorney from time to time. In our opinion, however, the solution does not lie in relaxing a salutary ethical standard. Generally the lawyer can assist his client in obtaining the essential financial support from appropriate sources and/or can assist in postponing payment of outstanding debts. This would be particularly true in those cases when payment of third party claims is assured. In those cases where such solution is not possible the remedy, in our opinion, does not lie in alteration of the Canons of Ethics.

Florida
OPINION 65-39
June 15, 1965

A lawyer may not advance living expenses to a client pending settlement and collection of a claim, judgment, or award.

Canons: 6, 10
Opinions: ABA 288, NY City 779

Chairman Smith stated the opinion of the committee:

In fine, a member of The Florida Bar inquires if it is unethical for an attorney to advance money to a client for living expenses while awaiting payment of the client’s claim against a third party. Further, he asks us to assume that the client badly needs the money for basic necessities and inquires if it would make a difference (1) if there was no dispute as to liability, the third party was financially responsible at the time, and the client was simply waiting to determine the result of medical treatment or (2) if settlement had been agreed upon and the attorney was merely awaiting receipt of the release and draft.

This Committee has considered and answered the same inquiry, or ones quite similar, on several occasions. Canon 6 provides that an attorney should not allow himself to be placed in inconsistent positions and Canon 10 prohibits an attorney from acquiring a financial interest in the subject matter of litigation he is handling. The member indicates his awareness of Opinion 288 of the Professional Ethics Committee of the American Bar Association and the holding therein that an attorney may not ethically lend or advance living expenses to clients during the pendency of personal injury actions even though the clients are injured and cannot work. The same conclusion has been reached by a similar committee for the Bar Association of the City of New York, Opinion 779.

This Committee heretofore has agreed with the views expressed in the opinions aforementioned. It continues to do so. Further, it is our opinion that the additional circumstances stated in this inquiry do not prompt a different response in either case posed.

The rule prohibiting an attorney from acquiring a financial interest in the litigation of a client has proved to be of benefit both to the public and the bar. The plight of a client undoubtedly will invoke the sympathies of his attorney from time to time. In our opinion, however, the solution does not lie in relaxing a salutary ethical standard. Generally the lawyer can assist his client in obtaining the essential financial support from appropriate sources and/or can assist in postponing payment of outstanding debts. This would be particularly true in those cases when payment of third party claims is assured. In those cases where such solution is not possible the remedy, in our opinion, does not lie in alteration of the Canons of Ethics.

Florida
OPINION 67-44

Originally issued January 8, 1968
Revised April 23, 1993

A member of The Florida Bar who subpoenaed a physician to offer expert testimony in a personal injury case and who did not advise the physician until subsequent to his testimony that he considered the expert witness fee to be an obligation of his client should advance such reasonable witness fee as may be assessed by the court.

Statute: F.S. § 92.231

In the course of the presentation of a plaintiff’s personal injury case, a member of The Florida Bar subpoenaed a physician to offer expert testimony, such subpoena being accompanied by the standard mileage and per diem fee as prescribed in the Florida Statutes. Before trial, counsel had advised the plaintiff that the expenses of the trial, including expert witness fees, would be entirely his obligation. Although no agreement was made by the attorney to compensate the physician for his expert witness fee, apparently the attorney did not advise the physician until subsequent to his testimony that he considered the expense an obligation of the client. Following the rendition of a verdict for the defendant, the physician has requested that his compensation as an expert witness be paid by the attorney. We are requested to advise the lawyer concerning his professional responsibility with reference to this request.

We emphasize at the outset that to the extent this inquiry involves the law of express or implied contracts it is one beyond our jurisdiction. A comprehensive annotation setting forth cases expressing divided views on the subject is found in 15 ALR 3rd 531.

We deal solely with the ethical aspect of the matter. We further assume at the outset that there is no custom in the community or county involved wherein it was or should have been understood by the physician that he was to look solely to the client, and further that there is no inter-professional code between the county bar association and the county medical society, which in effect would be a written embodiment of the custom governing attorneys and physicians insuch circumstances.

With these assumptions, we note the provisions of Section 92.231, Florida Statutes, provide in part as follows:

(2) Any expert or skilled witness who shall have testified in any cause shall be allowed a witness fee including the cost of any exhibits used by such witness in the amount of $10 per hour or such amount as the trial judge may deem reasonable, and the same shall be taxed as costs.

In view of the fact that the physician who was entitled to rely upon this statute appeared and offered expert testimony, and in the absence of a disclaimer by the attorney prior to the testimony, we think that it would be unprofessional for the lawyer to decline under these particular circumstances to advance such reasonable fee as may be assessed by the court. It is to be noted that while ordinarily costs are taxed only to a successful party, the statute in question is not limited to experts testifying for the successful party.

Florida
OPINION 72-27

Originally issued July 30, 1972
Revised April 23, 1993

A lawyer may advance or guarantee fees of medical witnesses in accordance with Rule of Professional Conduct 4-1.8(e).

RPC: 4-1.8(e)

A lawyer whose firm frequently represents plaintiffs in personal injury litigation advises that he is often requested by medical witnesses to guarantee payment of their witness fees. He asks whether he may properly do so under the Rules of Professional Conduct.

Rule 4-1.8(e) provides:

(e) Financial Assistance to Client. A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, 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; and
(2) A lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

Clearly the lawyer is permitted, but not required, to advance litigation costs and expenses-including witness fees-on behalf of a client. Subdivision (1) of this rule allows the lawyer and a non-indigent client to agree that the client is obligated to repay the lawyer for advanced costs and expenses only if a recovery is obtained. In a contingent fee case, any such agreement should be included in the required written employment contract.

Subdivision (2) allows the lawyer and an indigent client to agree that the lawyer will pay the litigation costs and expenses of the indigent client if a recovery is not obtained.

Florida
OPINION 75-24

November 30, 1975

A lawyer may not participate in an arrangement in which a small loan company agrees to make loans for living expenses to the attorney’s clients awaiting settlements on the condition that the attorney and client sign an agreement that the loan will be repaid from the settlement proceeds.

CPR: EC 5-8; DR 5-103(B)
Opinions: 65-39, 68-15, 70-8, 72-27
Statute: F.S. §516

Vice Chairman Sullivan stated the opinion of the committee:

A company, duly registered as a small loan business pursuant to Chapter 516, Florida Statutes, is willing to make loans to persons who are awaiting settlement of estates or are involved in personal injury suits or in divorce cases and who are in immediate need of funds for living expenses.

The company considers an application for such a loan only upon the recommendation of a member of The Florida Bar representing the client seeking the loan. The company then makes its own determination about the basic security for each loan, i.e., the probability of success and recovery in the court proceeding. If it decides to make the loan, the company requires both the borrower and his lawyer to sign a loan disbursement agreement which obligates both lawyer and client to see that the loan is repaid from the proceeds of the settlement or judgment before other funds are disbursed.

The loans average between $100 and $600 although on occasion the company makes loans up to its legal limit of $2,500. The loan agreement calls for monthly payments, but in practice the loans are repaid from the proceeds of funds received from court proceedings or not at all. A lawyer representing a loan applicant has no personal liability on the loan but obviously is obligated to comply with the terms of the loan disbursement agreement.

We are asked whether a lawyer may ethically participate in this arrangement, and our answer is that he may not.

DR 5-103(B) forbids a lawyer from advancing or guaranteeing financial assistance to clients except it allows a lawyer to advance or guarantee litigation expenses provided the client remains ultimately liable for them. EC 5-8 and our Opinion 72-27 are to the same general effect. In Opinion 70-8 the Committee said that a lawyer should not guarantee a client’s financial obligation for litigation expenses.

In Opinion 65-39, decided under the former Canons, the Committee said a lawyer should not advance living expenses to a client pending settlement of a lawsuit. The Opinion did state that generally lawyers can assist clients in obtaining financial support but did not suggest how this could be done.

In Opinion 68-15, also decided under the former Canons, the Committee disapproved a proposal similar in many ways to the present one. A lawyer proposed instituting a non-profit lending fund financed by contributions from lawyers. The lawyers would process loans to accident victims, and the loans would be secured by assignments of claims and repaid by proceeds of settlements or judgments.

Although the CPR allows a lawyer to advance litigation costs under certain conditions, we do not believe that concept should be expanded. Where the lawyer initiates the loan by recommending his client to the loan company, it seems to us that he is inherently representing to the loan company that the client’s claim is meritorious. It becomes unclear whether the lawyer is acting for the client or the loan company.

Even though the lawyer recommending a loan applicant has no personal liability on the loan, the amount of the recovery in court in relation to the amount of the loan also presents problems in relation to the lawyer’s right to recover costs he may have advanced and the lawyer’s right to a contingent fee from that recovery, as well as payment of other outstanding litigation expenses.

A lawyer may suggest to a client where the client may try to obtain financial help for individual needs, Opinion 65-39, but the lawyer should not become part of the loan process.

Florida
OPINION 92-6

March 1, 1993

An attorney’s involvement with a proposed corporation that would loan money to claimants in personal injury matters would be unethical. Under the proposed plan, in order to ensure repayment of the loan from the recovery the attorney and the client would sign a trust declaration by which the attorney would become a trustee for benefit of the loan company. Note: This opinion was approved by the Board of Governors at its February 1993 meeting.

RPC: 4-1.7, 4-1.8(e), 4-3.7(a), 4-8.4(a)
CPR: DR 5-103(B)

Opinion: 75-24

Case: The Florida Bar v. McAtee, 601 So.2d 1199 (Fla. 1992)

The inquiring attorney previously received an informal staff opinion concerning the inquiry presented below. At the inquirer’s request, the Committee reviewed the staff opinion. Following the Committee’s affirmance of the staff opinion, the inquirer petitioned for Board of Governors review. The Board approved the result reached in the staff opinion, but directed that the Committee render an advisory opinion to provide guidance to the practicing bar.

The inquiring attorney states that his client is considering forming a corporation that would loan money to claimants in personal injury matters. The loans would be made pursuant to the following arrangement:

(1) In consideration of the proceeds of the loan, the personal injury claimant would execute and deliver to the lender an interest-bearing promissory note.

(2) In addition to the execution and delivery of the promissory note, the personal injury claimant would execute a trust declaration by which his or her lawyer would become a trustee for the benefit of the lender.

(3) The personal injury claimant’s lawyer would sign the trust declaration, thereby accepting responsibility for repayment to the lender of the loan out of the proceeds of the personal injury claim.

(4) The personal injury claimant’s lawyer would receive no pecuniary compensation from any source for his or her service as trustee.

(5) The personal injury claimant’s lawyer would advance none of his or her funds, either directly or indirectly, to his or her client.

(6) The ownership and management of the lender would be completely independent of the personal injury claimant’s lawyer.

The inquiring attorney has asked whether the participation of the personal injury claimant’s lawyer in the proposed financing arrangement would be ethically permissible. For the reasons expressed below, the Committee is of the opinion that an attorney’s participation in this financing arrangement would be unethical.

In Opinion 75-24 we concluded that it would be improper for an attorney to participate in an arrangement in which a lender would agree to make loans to the attorney’s clients for living expenses on the condition that attorney and client sign an agreement that the loan would be repaid from the settlement proceeds. Although Opinion 75-24 was decided under the former Code of Professional Responsibility, for purposes of this inquiry former DR 5-103(B) and present Rule 4-1.8(e) are substantially similar. Rule 4-1.8(e) provides:

(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, 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; and

(2) A lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

In reality, an attorney who routinely refers clients to a loan company and actively participates in the loan transactions would be providing financial assistance to those clients. Such conduct would be unethical even though the attorney would be providing financial assistance indirectly rather than directly. An attorney may not violate the Rules of Professional Conduct through the acts of another. Rule 4-8.4(a). Therefore, if the loan proceeds were used for anything other than “court costs and expenses of litigation,” the attorney would be acting unethically by participating in the proposed financing arrangement.

Other practical problems exist. For example, in some cases a client might stand to receive no cash from a recovery because the client’s entire share of the expected recovery proceeds had been “advanced” by, and thus was owed to, the loan company. Upon realizing that no cash would be forthcoming, the client could decide to cease cooperating with the attorney or simply to forego pursuing the matter. In such a situation, the fact that the client’s share of the expected recovery already had been received by the client could adversely affect the relationship between attorney and client. The attorney’s interest would be served by settlement of the case, yet the client might have little incentive to settle or even to cooperate in pursuing the case.

An attorney’s involvement in the loan process to the extent contemplated by the proposed arrangement also would raise the issue of the attorney’s duty to arrange for financing on the most advantageous terms available for the client. Would the attorney be obligated to “shop” the client’s case to various loan companies in order to obtain the best deal? Must the attorney counsel the client on how much money the client should borrow?

Additional ethical concerns could arise as a result of the attorney’s participation in the proposed arrangement. It is apparent that, in the event of a dispute between the client and the loan company, the attorney would be placed squarely in the middle. A principal purpose underlying Rule 4-1.8(e) is to prevent unnecessary conflict between attorney and client. In the view of the Committee, an attorney’s involvement in the proposed financing arrangement would serve only to increase the likelihood of such conflict. Furthermore, the attorney’s extensive involvement in the loan process could result in the attorney being ethically precluded from representing the client in litigation resulting from the dispute-for example, Rule 4-3.7(a) would prohibit the attorney from representing the client in the litigation if the attorney would be a necessary witness on the client’s behalf.

Finally, under existing ethics rules a potential conflict of interest would be present if an attorney acted to protect the lender’s interest by agreeing to act as trustee for benefit of the lender. See The Florida Bar v. McAtee, 601 So.2d 1199 (Fla. 1992), and Rule 4-1.7. Attorney McAtee was disciplined for representing a personal injury client while, without that client’s knowledge or consent, simultaneously representing the medical provider that had filed a notice of lien against the personal injury client’s recovery. Although such conflicts often can be waived by the affected clients, it is evident that our statement in Opinion 75-24 seems especially applicable to the financing arrangement proposed by the inquiring attorney:

Where the lawyer initiates the loan by recommending his client to the loan company, it seems to us that he is inherently representing to the loan company that the client’s claim is meritorious. It becomes unclear whether the lawyer is acting for the client or the loan company.

In closing, it is noted that the Committee’s opinion is directed at the financing arrangement presented by the inquiring attorney; we have not been asked, nor do we attempt, to provide an opinion concerning ethically proper use of “letters of protection” in personal injury cases.