Opinion 2178

FACTS

In a marital dissolution proceeding, a client indicates at the outset of the representation that he or she does not have sufficient liquid funds to pay the attorney’s fees. The client indicates that there is sufficient equity in the marital home to pay the anticipated fees and costs. The lawyer proposes that a legal action be instituted prior to beginning the representation, and that the client agree to entry of a stipulated judgment for the estimated amount of the fees for the representation. The client is fully informed, in writing, of the effect of signing the judgment and is advised to seek independent counsel. The client is informed that the judgment may be entered and may attach to the marital home if the fees are not paid in a timely manner.

The inquirer requests an opinion regarding the ethical propriety of this scenario under the following circumstances: (1) the judgment is recorded prior to beginning representation; (2) the judgment is not recorded until the conclusion of the representation or until counsel has withdrawn from the case; (3) there are temporary orders in place forbidding the encumbrance of any marital property; (4) the client is asked to sign a promissory note in the amount of the anticipated fees rather than a judgment. Also, assuming the ethical propriety of scenarios (1) – (4), may the lawyer request additional judgments and/or promissory notes if the actual legal expenses exceed the amount of the initial judgment and/or promissory note?

DISCUSSION

Scenarios (1) – (3)

Putting aside legal property considerations, including the right of one spouse to encumber marital property in the marriage dissolution context, a lawyer may not ethically obtain a stipulated judgment in a legal action against a client in advance of undertaking a representation in order to secure the lawyer’s fee. This approach to securing a lawyer’s fee violates RPC 1.5, 1.7, and 1.8(a). This conclusion is buttressed to the extent such a judgment constitutes an encumbrance of marital property in violation of a pending court order.

The Inquirer’s proposed approach contemplates from the outset initiating litigation and entering a judgment against a client for fees to be earned in the future representation. As an initial matter, the Committee has significant concerns with lawyers using litigation to obtain leverage against persons who are not separately represented and to whom they intend to represent in a fiduciary capacity. It is the Committee’s view that obtaining a stipulated judgment in advance to secure collection of the fee is unreasonable per se under RPC 1.5(a). It is also a conflict of interest under RPC 1.7(a)(2) because there is a significant risk that the lawyer’s representation will be materially limited by the lawyer’s personal interest in enforcing the judgment. While representation with such a conflict is theoretically possible with the client’s informed consent (confirmed in writing), the Committee believes that where the judgment is obtained for a sum certain in advance of performing any services for the client, a lawyer cannot “reasonably believe that the lawyer will be able to provide competent and diligent service” to the client as required by RPC 1.7(b)(1), and the conflict is therefore not consentable.

In addition, under the Washington Supreme Court’s interpretation of RPC 1.8(a), this proposed judgment also appears to constitute an impermissible business transaction with a client. In Valley/50th Ave., L.L.C. v. Stewart, 159 Wn.2d 736 (2007), the court concluded that a deed of trust obtained from a client to secure fees already owing implicates RPC 1.8(a). Id. at 744. While the court was careful to point out that anticipated fees would not implicate this rule, it also relied heavily on the fact that the relationship created by the security instrument was one of creditor/debtor, and not merely that of a lawyer/client. Id. The Inquirer’s proposal to obtain a judgment essentially moves the creditor/debtor relationship between lawyer and client to the time before the representation even begins, and implicates RPC 1.8(a) for the reasons set forth in Stewart. It is the Committee’s view that the terms of the Inquirer’s proposal to obtain a pre-representation judgment is not “fair and reasonable to the client” under RPC 1.8(a)(1). Thus, the proposed transaction is prohibited even if the lawyer complies with the other requirements of the rule (i.e., that the client is advised of the desirability of obtaining independent legal counsel and that the client gives informed, written consent).

The Committee notes that its conclusions are not affected by whether the proposed judgment is entered and recorded in the real property records before or after the conclusion of the representation. Also, it goes without saying that the lawyer is not ethically permitted to violate court orders prohibiting the encumbrance of marital property, nor may they assist a client or prospective client in doing so. See RPC 1.2(d), 3.4(c), 8.4(d).

Scenario 4
The Inquirer also asks whether obtaining a promissory note rather than a judgment before the commencement of work is ethically proper. The Committee does not have sufficient information about the terms of the promissory note, including any security, to respond to this inquiry specifically. But the Committee questions whether it would be proper under any circumstances to obtain a negotiable promissory note for a sum certain from a prospective client prior to work being performed or fees being earned.