PUBLIC INFORMATION OFFICER
Chief Justice Pascal
F. Calogero, Jr. announced today the
Supreme Court’s adoption of amendments to the Rules
of Professional Conduct concerning financial assistance to
clients.1 The new rule
changes place a number of parameters and restraints on lawyers
who provide financial assistance to their clients, and thereby
promote clarity, consistency and accountability. Chief among
the beneficial changes to the rules is the placement of a
monetary cap on the amount of interest charges that lawyers
may pass on to their clients when lawyers are involved in
procuring financial assistance for their clients.
In a 1976 decision
(LSBA v. Edwins), the Supreme Court of Louisiana
held that an attorney would not be subject to discipline for
providing limited financial assistance to a client in necessitous
circumstances. However, questions have arisen over the years
regarding the parameters of such humanitarian assistance.
In a recent case,
Chittenden vs. State Farm Mutual Automobile Insurance
Co., this Court held that an attorney was not ethically
prohibited from entering into an agreement which obligated
the client to reimburse the attorney for interest charged
on loans used to fund litigation expenses and certain living
expenses incurred on the client’s behalf. The Supreme
Court Committee to Study Financial Assistance to Clients was
formed after the Chittenden decision.
The Committee, which
consists of 18 members (including Supreme Court Justices Catherine
D. Kimball and Jeannette Theriot Knoll), studied this subject
and made a series of recommendations. The Committee did pay
particular attention to the issue of the amount of interest
which may ethically be passed on to the client when the lawyer
is involved in procuring financial assistance for the client.
Also, the Committee and the Court twice reviewed comments
from the public.
changes to the Rules of Professional Conduct adopted this
week by the Court include the following.
• The humanitarian rule which allows attorneys to
provide limited financial assistance to clients in necessitous
circumstances has been retained. However, the provision
of such assistance is subject to specific restrictions.
• Prior to providing financial assistance, attorneys
are to inform their clients in writing of the terms and
conditions under which such financial assistance is made.
• Where a lawyer uses a line of credit or loans obtained
from financial institutions to provide financial assistance
to a client, the lawyer shall not pass on to the client
interest charges, including any fees or other charges attendant
to such loans, in an amount exceeding the actual charge
by the third-party lender, or ten percentage points above
the bank prime loan rate of interest, whichever is less.
• A lawyer who provides a guarantee or security on
a loan made in favor of a client may do so only to the extent
that the interest charges do not exceed ten percentage points
above the bank prime loan rate of interest.
• Lawyers are to make reasonable good faith efforts
to procure a favorable interest rate for their clients.
• Lawyers are to procure the client’s written
consent to the terms and conditions under which any such
financial assistance is made.
• A listing of court costs and expenses of litigation
which may be advanced on the client’s behalf, and
a definition of “overhead costs” which may not
be passed on to clients, have been included in the rule
The new rule changes
become effective on April 1, 2006.
Justice dissented from this decision.