Aug. 17, 2022 – My client has a novel and interesting legal issue – but if the case goes against us, my client may be ordered to pay attorney’s fees for the opposing party. Can I persuade the client to pursue a matter by offering to indemnify my client, if the client is ordered to pay the fees?

Question

I have a client whose case presents a new and interesting legal issue. We have tried unsuccessfully to resolve the matter through negotiation. But if the case proceeds to trial, the controlling law permits the possibility that the prevailing party may ask for an award of attorney’s fees.

This concerns the client, given the novel legal issue and the fact that the opposing party is represented by a firm that does not work cheap. I would like to encourage the client to pursue the matter by agreeing to indemnify the client against an award of attorney’s fees should we lose the case.

May a lawyer agree to indemnify a client against an award of attorney’s fees that the court has specifically ordered the client to pay?

Answer

A previous Ethical Dilemmas column discussed the question of whether a lawyer, at the insistence of opposing party, may agree as a condition of settlement to personally indemnify the opposing party against any future medical bills related to the matter.

That column noted that such agreements were impermissible because of the prohibition on providing financial assistance to clients found in SCR 20:1.8(e).¹ That rule states:

(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.

The present question was addressed in Oklahoma Ethics Op. 323 (2007), which began by addressing the distinction between the terms “advance” and “indemnify”:

Rule 1.8(e) allows a lawyer to “advance court costs expenses of litigation” when the repayment of such costs and expenses may be “contingent on the outcome of the matter” (emphasis added). “Advance” means “to supply or furnish in expectation of repayment.” Merriam-Webster’s Collegiate Dictionary 17 (10th ed. 1999). To agree to indemnify is not to “advance.” The lawyer who agrees to indemnify would have no expectation of repayment under any circumstances. See Cynthia Bulan, A Small Question in the Big Statute: Does Section 402 of Sarbanes-Oxley Prohibit Defense Advancements?, 39 Creighton L. Rev. 357, 360 & n. 21 (2006) (hereinafter, “Bulan”). According to Bulan,

[t]he right to indemnification is not the same as the right to advancement of defense costs. The right to indemnification gives a person the right to reimbursement of losses or expenses; it is not a right for payment at the time the loss is incurred. On the other hand, a right to advancement requires payment of the defense costs as the costs are incurred.

The opinion discusses the history and rationale for the Oklahoma equivalent of SCR 20:1.8(e), noting that “court costs and expenses of litigation” have not been considered to include an award of attorney’s fees, and then concludes:

The rationale for allowing a lawyer to advance costs of litigation is to ensure an indigent client access to justice: A case can neither start nor proceed without payment of costs, experts and discovery. But the access-to-justice rationale does not warrant or justify the provision of an indemnity against an unconventional, non-traditional litigation risk–a risk which will not even be determined until after the case is over. A client can get to his or her day in court without being first insured against the possibility of adverse party attorney’s fees. …

An agreement to indemnify a client against attorney’s fees and costs that might be awarded to a defendant as a prevailing party – an agreement to make a payment in the future, upon the fulfillment of a condition – is not an “advance” within the meaning of Rule 1.8(e). Such agreements are prohibited by Rule 1.8(e) and Rule 1.8(j).

This conclusion² is not surprising, given the number of ethics opinions holding that indemnification provisions in settlements making lawyers responsible for liabilities of clients violate SCR 20:1.8(e).³

A lawyer therefore must avoid agreeing to indemnify a client against an award of fees when the court has ordered the client responsible for those fees.

Endnotes

¹ See also Wisconsin Ethics Opinion E-87-11.

² The opinion notes a prior Alaska ethics opinion reaching a different conclusion, but criticizes the reasoning:

The Alaska Bar Association has addressed a related question – whether an attorney may contingently agree to pay attorney’s fees assessed against a client if the client loses on appeal. Ethics Opinion No. 2004-02, 2004 WL 1853007 (April 27, 2004). That opinion dealt with a situation where an attorney fee might be assessed against a client in the event that an appeal in a civil case were to be unsuccessful. The Alaska Bar Association, citing no authority other than Rule 1.8 of the Alaska Rules of Professional Responsibility, concluded that such an agreement was permissible. The Alaska ethics opinion, however, failed to deal with the use of the term “advance” in Rule 1.8(e). In particular, there was no discussion of how an agreement to indemnify – to make a payment in the future – could be an “advance.” The distinction between “payments” and “advances” is discussed in Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility, Informal Opinion Number 2000-14, 2000 WL 1616267 at page *2 (2000). Andsee Bulan, 39 Creighton L. Rev. at 360-361 & n. 21 (quoted above). From a risk management perspective, the Oklahoma opinion is better reasoned and more likely to be found persuasive.

³ Utah State Bar Ethics Advisory Opinion 11-01; Virginia Legal Ethics Opinion 1858 (2011); Ohio Supreme Court Ethics Opinion 2011-1; Florida Bar Staff Opinion 30310 (2011); Alabama Ethics Opinion RO 2011-01; Maine Ethics Opinion 204 (2011).