Transactions and third-party influence - Third-party compens...

Learning Outcomes

After studying this article, you will be able to identify when a lawyer may accept payment from someone other than the client, explain the requirements for informed consent, and apply the rules prohibiting third-party interference with a lawyer’s independent judgment. You will also understand the confidentiality obligations and recognize common MPRE pitfalls involving third-party payors.

MPRE Syllabus

For the MPRE, you are required to understand the ethical rules governing third-party compensation and influence on a lawyer’s representation. This article addresses:

• The prohibition on accepting compensation from third parties without proper client consent.
• The requirements for informed consent and preservation of confidentiality.
• The rule against third-party interference with a lawyer’s independent professional judgment.
• The lawyer’s duties when a third party pays legal fees.
• The consequences of improper third-party influence or unauthorized disclosure.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. A lawyer is paid by a client’s employer to represent the client. Which of the following is required for the arrangement to be proper?
   1. The employer must direct the lawyer’s strategy.
   2. The client must give informed consent.
   3. The lawyer must share confidential information with the employer.
   4. The employer must be present at all meetings.
2. Which statement best describes the rule on third-party payment of legal fees?
   1. It is always prohibited.
   2. It is allowed only if the third party is a family member.
   3. It is allowed if the client consents, there is no interference, and confidentiality is maintained.
   4. It is allowed if the third party is a business partner.
3. If a third party pays a lawyer’s fee, which of the following is NOT permitted?
   1. The third party requests updates on the case.
   2. The lawyer refuses to share confidential information with the third party.
   3. The client consents to the payment arrangement.
   4. The lawyer maintains independent professional judgment.
4. A lawyer is offered a bonus by a client’s insurer for settling quickly. What is the main ethical concern?
   1. The lawyer’s fee is too high.
   2. The arrangement may interfere with the lawyer’s independent judgment.
   3. The lawyer must notify the court.
   4. The client must pay the bonus directly.

Introduction

A lawyer’s primary duty is to the client, not to any third party who may pay for or benefit from the representation. The Model Rules of Professional Conduct strictly regulate when a lawyer may accept compensation from someone other than the client and prohibit any interference with the lawyer’s independent professional judgment. These rules protect the client’s interests and ensure the lawyer’s loyalty remains undivided.

Key Term: Third-Party Compensation
Payment for legal services made by someone other than the client, subject to strict conditions under the Model Rules.

Accepting Payment from Third Parties

A lawyer may accept payment for representing a client from a third party only if all of the following conditions are met:

1. The client gives informed consent.
2. There is no interference with the lawyer’s independence or the client-lawyer relationship.
3. Confidential information is protected as required by the rules.

Key Term: Informed Consent
The client’s agreement to a proposed course of conduct after the lawyer has explained the material risks and reasonable alternatives.

Key Term: Independent Professional Judgment
The lawyer’s obligation to exercise legal judgment solely in the client’s best interests, free from third-party influence.

Key Term: Confidentiality
The lawyer’s duty to protect all information relating to the representation of a client from unauthorized disclosure.

Requirements for Informed Consent

The lawyer must explain to the client:

• Who will pay the fees.
• That the third party will not control the representation.
• That confidential information will not be shared with the third party without the client’s permission.

Consent must be informed, but does not always need to be in writing unless required by local rules or the nature of the arrangement.

Prohibition on Interference

Even if a third party pays the lawyer’s fee, the lawyer must:

• Remain loyal to the client.
• Refuse to allow the third party to direct or regulate the lawyer’s professional judgment.
• Decline to share confidential information unless the client consents.

If the third party attempts to influence the lawyer’s decisions or demands information, the lawyer must resist such interference.

Common Scenarios

• Insurance Defense: An insurer pays for the defense of an insured. The lawyer’s client is the insured, not the insurer. The lawyer must act in the insured’s best interests and maintain confidentiality.
• Family Member Payment: A parent pays for a child’s legal fees. The lawyer’s client is the child. The parent cannot direct the representation or receive confidential information without the client’s consent.
• Employer Payment: An employer pays for an employee’s legal representation. The lawyer must clarify who the client is and ensure the employer does not control the representation.

Worked Example 1.1

A lawyer is hired to represent a tenant in a dispute with a landlord. The tenant’s friend offers to pay the legal fees. The friend asks the lawyer to provide regular updates and to approve any settlement before agreeing. The tenant consents to the friend paying the fees.

Is this arrangement proper?

Answer:
No. While the tenant’s informed consent to the friend paying the fees is required and present, the friend’s demand to approve settlements and receive updates interferes with the lawyer’s independent professional judgment and the duty of confidentiality. The lawyer must refuse any arrangement that allows the third party to control the representation or receive confidential information without the client’s consent.

Worked Example 1.2

A company’s insurer pays a lawyer to defend an employee in a lawsuit. The insurer asks the lawyer to keep costs low and to settle quickly. The employee wants to contest the claim.

What must the lawyer do?

Answer:
The lawyer must act in the employee’s best interests, not the insurer’s. The lawyer cannot allow the insurer to dictate strategy or settlement decisions. The lawyer must also protect the employee’s confidential information and may not share it with the insurer unless the employee consents.

Exam Warning

On the MPRE, do not assume that a third party’s payment of legal fees gives them any right to control the representation or access confidential information. The client’s interests always come first.

Revision Tip

When answering MPRE questions, always ask: Who is the client? Has the client given informed consent? Is the lawyer’s independent judgment protected?

Key Point Checklist

This article has covered the following key knowledge points:

• A lawyer may accept payment from a third party only with the client’s informed consent.
• The third party must not interfere with the lawyer’s independent professional judgment or the client-lawyer relationship.
• Confidentiality must be preserved; information cannot be shared with the third party without client consent.
• The client, not the payor, controls the objectives and means of the representation.
• Improper third-party influence or unauthorized disclosure of information is subject to discipline.

Key Terms and Concepts

• Third-Party Compensation
• Informed Consent
• Independent Professional Judgment
• Confidentiality