Opinion ID: 1699019
Heading Depth: 1
Heading Rank: 5

Heading: The Ethics of Charging Client Interest

Text: The first issue we must face is whether an attorney may ethically charge his client interest for funds advanced during the litigation process. In order to address this question, we must place the attorney-client contract into the perspective of the Louisiana Civil Code and the RPC, and further review what interest is. A contingent fee agreement entered into between an attorney and client is governed by the laws of obligations. See LA. CIV.CODE ANN. arts. 1756, 2990; Rush, Rush & Calogero v. Barrios, 97-1532 (La.App. 3 Cir. 4/22/98), 716 So.2d 23, writ denied, 98-2114 (La.11/6/98), 728 So.2d 868. Furthermore, based upon an attorney's requisite membership in the Louisiana State Bar Association, Articles of Incorporation, Art. IV(1), and this Court's adoption of the RPC on February 6, 1990, it is clear that the RPC permeates all facets of the lawyer-client relationship. Similarly, although the basic relationship between client and lawyer may be contractual, that association is nonetheless subject to the inherent authority of this Court to positively affect that fiduciary relationship [16] through its power to regulate the practice of law. See O'Rourke v. Cairns, 95-3054 (La.11/25/96), 683 So.2d 697; Edwins, 540 So.2d at 299. As we stated in Succession of Wallace, 574 So.2d 348 (La.1991): This court has exclusive and plenary power to define and regulate all facets of the practice of law, including the admission of attorneys to the bar, the professional responsibility and conduct of lawyers, the discipline, suspension and disbarment of lawyers, and the client-attorney relationship. LSBA v. Edwins, 540 So.2d 294 (La.1989); Saucier v. Hayes Dairy Products, Inc., 373 So.2d 102, 109, 115 (La.197[8]); LSBA v. Connolly, 201 La. 342, 9 So.2d 582 (1942); Ex Parte Steckler, 179 La. 410, 154 So. 41 (1934); Meunier v. Bernich, 170 So. 567 (La.App.[Orleans ]1936). The sources of this power are this court's inherent judicial power emanating from the constitutional separation of powers, La. Const.1974, Art. II; Saucier v. Hayes Dairy Products, Inc., supra; Ex Parte Steckler, supra ; Meunier v. Bernich, supra , the traditional inherent and essential function of attorneys as officers of the courts, Ex Parte Steckler, supra ; Meunier v. Bernich, supra; and this court's exclusive original jurisdiction of attorney disciplinary proceedings. La. Const.1974, Art. V, § 5(B); Saucier v. Hayes Dairy Products, Inc., supra . The standards governing the conduct of attorneys by rules of this court unquestionably have the force and effect of substantive law. Succession of Cloud, 530 So.2d 1146 (La.1988); Succession of Boyenga, 437 So.2d 260 (La.1983); Leenerts Farm[s], Inc. v. Rogers, 421 So.2d 216 (La.1982); Singer, Hunter, Levine, Seeman & Stuart v. LSBA, 378 So.2d 423, 426 (La.1979); Saucier v. Hayes Dairy Products, Inc., supra ; LSBA v. Connolly, supra ; Ex Parte Steckler, supra . Succession of Wallace, 574 So.2d at 350; see also In re: Bar Exam Class Action, 99-2880 (La.2/18/00), 752 So.2d 159, 160. Therefore, any dispute relative to an attorney-client relationship is subject to the close scrutiny of this Court and is resolved under the codal provisions as illuminated by the RPC. See Leenerts Farms v. Rogers, 421 So.2d 216 (La.1982); see also Watson v. Cook, 427 So.2d 1312, 1316 (La.App. 2 Cir.1983). In the present case, it is eminently clear that Chittenden authorized Carimi in the written retainer agreement to secure a loan at his discretion to [pay] the costs and expenses necessary to prosecute his tort claim. Thus, it is clear that the various loans that Carimi made at the bank were made with Chittenden's authorization. Moreover, in accordance with RPC Rule 1.4 (Communication), Chittenden was fully informed through the written retainer agreement that Carimi would utilize loans needed to prosecute Chittenden's tort claim, and thus Carimi kept Chittenden properly informed of this likelihood. [17] Additionally, it is clearly provided in the contract between Chittenden and Carimi that Chittenden agreed that the full amount of the interest charged on such loans will be reimbursed to Attorneys ... out of the funds received on this claim. Thus, once again, the contract between the parties articulated both the expectation that interest would be charged on the loans Carimi made and that Chittenden would ultimately be responsible for the payment of that interest. [18] This Court adopted the RPC as regulatory laws in the interests of the public, the courts, and the legal profession. Succession of Wallace, 574 So.2d at 356. Nevertheless, the disciplinary rules are rules of reason that should be interpreted and applied with reference to the purposes of maintaining appropriate profession standards and protecting the public from substandard attorney conduct. In performing its regulatory function by applying and interpreting the disciplinary rules, this court will look beyond superficialities for legal, economic and social realities. Id. In light of our decision in Edwins and the policy reasons which Justice Tate enunciated therein and after considering the various RPC provisions, we do not find that Carimi was ethically prohibited from entering into an agreement which obligated Chittenden to reimburse him for interest charged on loans used to fund litigation expenses and Chittenden's living expenses under the constraints of Edwins. [19] First, there is nothing to show in this record, assuming for the moment that Chittenden was charged 12% interest on these loans, that this interest rate was unreasonable. [20] As Chittenden and Carimi testified, the Chittendens paid 20% interest on a loan that a previous attorney arranged for them and 24%-38% on another loan that the Chittendens secured at a finance company. Second, this record is devoid of any evidence that Carimi utilized this interest rate as an advertisement to secure his representation of the Chittendens. Third, we cannot ascertain any hidden, improper motive on the part of Carimi in charging interest on the loans which he himself has had to pay to the lending institution. Fourth, as enunciated above, Chittenden has not shown that the loans Carimi secured were for items not contemplated in our Edwins decision. See supra notes 3, 6, and 13. In summation, as noted in the appellate court decision this determination of ethical conduct is in accord with the economic, legal and social realties that are part of the legal profession as we know it today. Chittenden, 748 So.2d at 647. [21] Louisiana is not alone in addressing the economic, legal, and social realities that litigation thrusts upon the legal profession. We note that several states have issued ethics advisory opinions and have approved the charging of interest. Several principles may be drawn from these opinions which we cite with approval: (1) the client must agree in writing to such a charge; and, (2) the interest rate must be lawful and reasonable. See Florida Opinion 86-2 (4/15/86); Maryland Opinion 94-24 (6/16/94); Illinois Opinion 94-6 (7/94); Virginia Opinion 1595 (6/14/94). Having determined this threshold issue, we now turn our attention to the contractual agreement and its specific provision regarding the rate of interest applicable to the sums for which Chittenden is obligated to reimburse. In this regard, we are called upon to examine the Chittenden-Carimi agreement in light of the articles of the Civil Code which relate to interest.