Louisiana Supreme Court - 400 Royal St., New Orleans, LA 70130 | Tel: 504-310-2300 Hon. Bernette J. Johnson. Chief Justice.  John Tarlton Olivier., Clerk of Court.  Sandra A. Vujnovich. Judicial Administrator
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2006 Press Releases

CONTACT PERSON: VALERIE WILLARD
PUBLIC INFORMATION OFFICER
(504) 310-2590

 JANUARY 5, 2006

FOR IMMEDIATE RELEASE

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.

Other noteworthy 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 changes.

The new rule changes become effective on April 1, 2006.


_____________________

1 One Justice dissented from this decision.

 

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