Ethics in Brief: Considerations When a Third Party is Paying a Client’s Fees
By Anne M. Rudolph
There are various situations that may arise where an attorney may be asked to allow a third party to pay a client’s attorney’s fees and costs. Examples include a parent paying for their child’s criminal defense attorney or divorce attorney. When a third party is paying the bills, it is particularly important that an attorney not conflate the client with the person paying the bills, and that an attorney maintain client confidentiality by not sharing confidential communications with the third party.[1]
Rule of Professional Conduct 1.8.6 provides that an attorney may not accept payment for representing a client from anybody other than the client unless the attorney complies with certain requirements.
First, there must be no interference with the attorney’s independent professional judgment or with the attorney-client relationship. This means that just because a person is paying the bills, she doesn’t get to direct the representation; the attorney takes direction from the client only.
Second, you must strictly maintain the client’s confidential information as required under Business and Professions Code section 6068, subdivision (e) and Rule 1.6. Often a person paying the bill, particularly a parent or other close relative who is genuinely interested in helping the client, will want to be informed about what is going on in the case and offer input on the attorney’s strategy. Also, they may want details about what services they are paying for. However, just like in any other matter, unless the client specifically authorizes the attorney to discuss confidential or privileged information, the attorney cannot disclose anything to the third party who is paying the bills. An attorney should also advise the client that if the client shares confidential information with the third party, that can result in a waiver of the attorney-client privilege.
Third, the attorney must obtain the informed written consent of the client before the attorney may accept payment from a third party. A good practice is to discuss payment terms directly in the engagement agreement and confirm with the client that though a third party will be paying the bills, they shall have no authority to direct the representation, nor shall they have access to confidential client information or privileged communications.
The attorney will also want to have the third party sign an agreement to confirm responsibility to pay the client’s bills. The attorney should consider whether to have the third party sign the same engagement agreement as the client or to enter into a separate agreement with the third party. The agreement with the third party should also confirm to the third party that they are not the client, shall have no authority to direct the representation or have access to confidential client information and privileged communications.
Having a third party pay the bills raises potential conflicts of interest that must be disclosed to the client. The third party may wish to minimize the fees and costs, and therefore may be unwilling to pay for pleadings, motions and discovery that the attorney recommends. That would obviously impact the attorney’s services and should be discussed up front with a client, and preferably included in the written engagement agreement. An attorney may also want to address what will happen if the third party fails to pay the client’s bill as agreed, e.g. is the client personally responsible, will the attorney withdraw?
A related issue is who is entitled to a refund of any funds remaining at the conclusion of representation, the client or the person who paid? COPRAC Formal Opinion 2013-187 addressed this question and concluded that the attorney must return the balance to the third-party payor rather than the client, unless the engagement agreement with the client provides otherwise. Accordingly, the attorney should also clarify return of funds in the client engagement agreement and, if it is separate, the third party payor agreement.
[1] In a situation where an insurance company is paying the bills for an insured, there are various factors (e.g. reservations of rights, cooperation clauses, common interest doctrine) that impact whether the insured and the insurer may be considered joint clients, and/or whether the insurer may be entitled to confidential information, such as copies of attorney invoices. The insured-insurer analysis is outside the scope of this article.
