Informed Written Consent for Third Party Payments
In California, attorneys cannot accept payments for fees or costs from third parties without informed, written consent from the client.
Under California Rules of Professional Conduct, Rules 1.8.6, an attorney may not accept compensation from one who is not the client without: (1) assuring the arrangement does not interfere with the attorney’s independence or professional judgment on behalf of the client or with the attorney-client relationship, (2) providing for protection of client confidential information and secrets under Business & Professions Code, section 6068(e), (3) providing the client with a written disclosure of the relevant circumstances and the actual and foreseeable adverse consequences arising from the arrangement and (4) obtaining the client’s informed written consent. This Third Party Payer ("TPP") model, while permitted, does create some potential friction in the typical attorney-client relationship. And it is important that the attorney actually examine it on a case-by-case basis before issuing consent forms and disclosure documents.
Its Just Money?
The potential adverse consequences of having a TPP responsible for payment of attorney’s fees and costs is that the TPP may: (1) attempt to interfere with the attorney-client relationship between the attorney and client, (2) attempt to interfere with the attorney’s exercise of independent professional judgment on behalf of the client, or (3) seek access to client confidential information or secrets contrary to the wishes of the client.
Conflict of Interest
Actual or potential conflicts of interest raised by this model in advance. Attorneys must consider whether the financial arrangement—i.e., the fact that the TPP is paying the client’s legal fees—itself creates a dynamic that prevents the attorney from providing zealous representation or interferes with the exercise of the attorney's independent professional judgment. This could occur, for instance, with the TPP expressing a financial interest in minimizing expense or a particular end result of the representation.
Confidentiality and Privilege
Confidentiality is another aspect of the attorney-client relationship that may be impacted in a TPP situation. The TPP may want to monitor the matter to keep track of what she is paying for, but your duty of confidentiality runs to the client alone. As with the conflicts issue, you may wish to state in your agreement with the TPP that you will not, without the client’s prior permission, disclose confidential information to the TPP. Sharing the client’s confidences with the TPP after the client has given informed consent satisfies your confidentiality obligation, but you will also need to consider the attorney-client privilege when deciding what ought to be disclosed to the TPP.
Scope of Representation
The scope of your representation of the client and the scope of what the TPP has agreed to pay for may or may not be the same, and it is important to have a clear understanding of both at the outset.
If your agreement with the client is silent or unclear as to any limitation on the scope of your representation, that scope is determined by considering what the client might reasonably have expected under the circumstances. Discussions you had with the TPP about the scope of the TPP's payment obligations, to which the client was not privy, would not be considered.
Recommendation - Get it Signed Before Payment
You must get informed written consent as soon as practical. The best practice would be obtaining it from the client at the same time as any fee agreement and/or at the time of receipt of the retainer or initial payment.
Equally important is notice and acknowledgement to the TPP. Although not technically required, getting something in writing that accurately and clearly limits the relationship and addressing the points of contention and confusion above, can resolve lots of headaches down the road.