Bar Rules

Formal Advisory Opinion No. 13-2

Ethics & Discipline / Advisory Opinions / Formal Advisory Opinions / Formal Advisory Opinion No. 13-2

STATE BAR OF GEORGIA
ISSUED BY THE FORMAL ADVISORY OPINION BOARD
PURSUANT TO RULE 4-403 ON OCTOBER 23, 2013
FORMAL ADVISORY OPINION NO. 13-2
Supreme Court Docket No. S14U0706

QUESTIONS PRESENTED:

  1. May a lawyer representing a plaintiff personally agree, as a condition of settlement, to indemnify the opposing party from claims by third persons to the settlement funds?
  2. May a lawyer seek to require, as a condition of settlement, that a plaintiff’s lawyer make a personal agreement to indemnify the opposing party from claims by third persons to the settlement funds?

SUMMARY ANSWER:

  1. A lawyer may not ethically agree, as a condition of settlement, to indemnify the opposing party from claims by third persons to the settlement funds. Such agreements violate Rule 1.8(e) of the Georgia Rules of Professional Conduct, which prohibits a lawyer from providing financial assistance to a client in connection with pending or contemplated litigation.
  2. Further, a lawyer may not seek to require, as a condition of settlement, that a plaintiff’s lawyer make a personal agreement to indemnify the opposing party from claims by third persons to the settlement funds. Such conduct violates Rule 8.4(a)(1) of the Georgia Rules of Professional Conduct, which prohibits a lawyer from knowingly inducing another lawyer to violate the Georgia Rules of Professional Conduct.

OPINION:

Lawyers often represent clients in civil actions, such as personal injury or medical malpractice, who have incurred substantial medical bills as a result of their injuries. These lawyers are required to work diligently to obtain a fair settlement for these clients. Obtaining a settlement or judgment can sometimes take years.

The proper disbursement of settlement proceeds is a tremendous responsibility for a lawyer who receives such proceeds. Clients are often in need of funds from the settlement. Lawyers need payment for their services. And third persons such as medical providers, insurance carriers, or Medicare and Medicaid seek reimbursement of their expenses from the settlement.

Increasingly, lawyers who represent plaintiffs are being asked to personally indemnify the opposing party and counsel from claims by third persons to the settlement proceeds. Lawyers are concerned not only about whether it is ethical to enter into such an agreement but also whether it is ethical to seek to require other lawyers to enter into such an agreement.[1] 

1. A lawyer may not ethically agree, as a condition of settlement, to indemnify the opposing party from claims by third persons to the settlement funds.

The first issue is governed by Rule 1.8(e) of the Georgia Rules of Professional Conduct, which provides as follows:

“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; or

2. a lawyer representing a client unable to pay court costs and expenses of litigation may pay those costs and expenses on behalf of the client.”

Comment 4 provides further guidance:

“Paragraph (e) eliminates the former requirement that the client remain ultimately liable for financial assistance provided by the lawyer. It further limits permitted assistance to court costs and expenses directly related to litigation. Accordingly, permitted expenses would include expenses of investigation, medical diagnostic work connected with the matter under litigation and treatment necessary for the diagnosis, and the costs of obtaining and presenting evidence. Permitted expenses would not include living expenses or medical expenses other than those listed above.”

Financial assistance can take many forms. Such assistance includes gifts, loans and loan guarantees. Any type of guarantee to cover a client’s debts constitutes financial assistance. Rule 1.8(e) provides narrow exceptions to the prohibition on a lawyer providing financial assistance to a client in connection with litigation. Those exceptions do not apply when a lawyer enters into a personal indemnification agreement. Because a lawyer, under Rule 1.8(e), may not provide financial assistance to a client by, for example, paying or advancing the client’s medical expenses in connection with pending or contemplated litigation, it follows that a lawyer may not agree, either voluntarily or at the insistence of the client or parties being released, to guarantee or accept ultimate responsibility for such expenses.[2] 

Moreover, any insistence by a client that the lawyer accept a settlement offer containing an indemnification agreement on the part of the lawyer might require the lawyer to withdraw from the representation. The lawyer may otherwise be in violation of Rule 1.16(a)(1), which provides that “a lawyer shall … withdraw from the representation of a client if … the representation will result in violation of the Georgia Rules of Professional Conduct.”[3] 

2. A lawyer may not seek to require, as a condition of settlement, that a plaintiff’s lawyer make a personal agreement to indemnify the opposing party from claims by third persons to the settlement funds.

The second issue is governed by Rule 8.4(a)(1), which provides that “It shall be a violation of the Rules of Professional Conduct for a lawyer to … violate or knowingly attempt to violate the Georgia Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another.” (emphasis added). Comment 1 to Rule 8.4 also provides direction:

“The prohibitions of this Rule as well as the prohibitions of Bar Rule 4-102 prevent a lawyer from attempting to violate the Georgia Rules of Professional Conduct or from knowingly aiding or abetting, or providing direct or indirect assistance or inducement to another person who violates or attempts to violate a rule of professional conduct. A lawyer may not avoid a violation of the rules by instructing a nonlawyer, who is not subject to the rules, to act where the lawyer cannot.”

In light of the conclusion that plaintiff’s counsel may not agree to indemnify the opposing party from claims by third parties, it is also improper for a lawyer representing a defendant to seek to require that a plaintiff’s lawyer make a personal agreement to indemnify the opposing party from claims by third parties to the settlement funds. Nor can the lawyer representing the defendant avoid such a violation by instructing his client or the insurance company to propose or demand the indemnification.[4] 

_______________________________________________

1.This opinion is intended to address the ethical concerns associated with a lawyer’s agreement to indemnify. This opinion does not address the legal or ethical issues involved in the disbursement of settlement funds.

 

2. This opinion is consistent with advisory opinions from other states holding that an agreement by a client’s lawyer to guarantee a client’s obligations to third parties amounts to guaranteeing financial assistance to the client, in violation of Rule 1.8(e) or its equivalent. See, e.g., Alabama State Bar Ethics Opinion RO 2011-01; Arizona State Bar Ethics Opinion 03-05; Delaware State Bar Association Committee on Professional Ethics Opinion 2011-1; Florida Bar Staff Opinion 30310 (2011); Illinois State Bar Association Advisory Opinion 06-01 (violation of Illinois Rule 1.8(d), which is similar to Rule 1.8(e)); Indiana State Bar Association Legal Ethics Opinion No. 1 of 2005 (non-Medicare and Medicaid settlement agreement that requires counsel to indemnify opposing party from subrogation liens and third-party claims violates Indiana rules); Maine Ethics Opinion 204 (2011); Missouri Formal Advisory Opinion 125 (2008); Association of the Bar of the City of New York Committee on Professional and Judicial Ethics Formal Opinion 2010-3; Supreme Court of Ohio Opinion 2011-1; Philadelphia Bar Association Professional Guidance Committee Opinion 2011-6 (2012); South Carolina Ethics Advisory Opinion 08-07; Utah Ethics Advisory Opinion 11-01; Virginia Legal Ethics Opinion 1858 (2011); Washington State Bar Association Advisory Opinion 1736 (1997); Wisconsin Formal Opinion E-87-11 (1998).

 

Many of these jurisdictions also hold that an agreement to guarantee a client’s obligations to third parties also violates Rule 1.7(a) or its equivalent regarding conflicts of interest. In reaching its decision, the Board does not consider it necessary to address that issue here.

3.The mere suggestion by the client that the lawyer guarantee or indemnify against claims would not require withdrawal by the lawyer, only the client’s demand that the lawyer do so would require withdrawal. See Rule 1.16(a)(1) (“A lawyer ordinarily must decline or withdraw from representation if the client demands that the lawyer engage in conduct that is illegal or violates the Georgia Rules of Professional Conduct or other law. The lawyer is not obliged to decline or withdraw simply because the client suggests such a course of conduct; a client may make such a suggestion in the hope that a lawyer will not be constrained by a professional obligation.”).

 

4.This opinion is consistent with advisory opinions from other states holding that a lawyer’s demand that a plaintiff’s lawyer make a personal agreement to indemnify the opposing party from claims by third parties to the settlement funds violates Rule 8.4(a)(1) or its equivalent. See, e.g., Alabama State Bar Ethics Opinion RO 2011-01; Florida Bar Staff Opinion 30310 (2011); Missouri Formal Advisory Opinion 125 (2008); Association of the Bar of the City of New York Committee on Professional and Judicial Ethics Formal Opinion 2010-3; Supreme Court of Ohio Opinion 2011-1; Utah Ethics Advisory Opinion 11-01; Virginia Legal Ethics Opinion 1858 (2011)).
 

 

  The second publication of this opinion appeared in the December 2013 issue of the Georgia Bar Journal, which was mailed to the members of the State Bar of Georgia on or about December 19, 2013. The opinion was filed with the Supreme Court of Georgia on January 21, 2014. No review was requested within the 20-day review period. On March 28, 2014, the Supreme Court of Georgiai issued an order declining to review the opinion on its own motion. In accordance with Rule 4-403(d), this opinion is binding only on the State Bar of Georgia and the person who requested the opinion, and not on the Supreme Court of Georgia, which shall treat the opinion as persuasive authority only.



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