Colorado State Bar

Abstract 96/97-17

Summary of Facts Provided

An attorney represents a personal injury client who wishes to sell a portion of the proceeds of the client’s personal injury claim to a third party in order to obtain living expenses from the third party pending resolution of the claim. The attorney has been requested to acknowledge and agree to the arrangement, and to pay over to the third party the amount of advances and a percentage of the gross recovery upon final disposition of the claim, after deducting attorneys’ fees, expenses of litigation, and hospital and medical liens.

Issue and Conclusion

Does the attorney violate the Colorado Rules by consenting to an agreement between the client and third party for advances of living expenses? If the attorney has no financial interest in the arrangement with the third party, the attorney is not prohibited from acknowledging and honoring the agreement. Although the Colorado Rules do not prohibit the concept of the proposed arrangement, any such agreement must be closely examined in order to confirm that its terms and implementation will not violate individual provisions of the Colorado Rules.

A number of possible effects of the Colorado Rules were considered and determined not to prevent the agreement. Colorado Rule 1.8(e), while prohibiting the attorney from advancing or guaranteeing financial assistance to a client, does not apply to the proposed agreement if the attorney has no financial interest in the agreement. Because Colorado Rule 5.4 requires protection of the attorney’s professional independence against interference from third parties, any proposed agreement must be reviewed in order to confirm that this prohibition is not violated. Any limitation upon the attorney’s professional independence or judgment under Colorado Rule 1.2, any provision which could result in a breach of confidentiality prohibited under Colorado Rule 1.6, or a conflict of interest prohibited under Colorado Rule 1.7 should be expunged or the problem should be specifically discussed with the client and the client’s consent should be obtained, if compliance with the Colorado Rules can be attained through such consent. Examples of provisions which would require particular scrutiny under the Colorado Rules include a requirement to disclose information to the third party; restrictions on the attorney’s ability to proceed independently on behalf of the client in the event of a dispute with the third party or a negotiated settlement of the litigation; restrictions on the client’s right freely to change attorneys; and definitions of expenses which may be deducted prior to computing the percentage due to the third party.

Because of the involvement of the attorney in the transaction, it may be advisable to have the client consult with other counsel to satisfy the spirit of Colorado Rule 1.8(a)(2).