State ex rel. Oklahoma Bar Ass'n v. Smolen

• Decision Date: 05 December 2000
• Docket Number: No. SCBD-4522.,SCBD-4522.
• Citation: 17 P.3d 456,2000 OK 95
• Parties: STATE of Oklahoma ex rel. OKLAHOMA BAR ASSOCIATION, Complainant, v. Donald E. SMOLEN, Respondent.
• Court: Oklahoma Supreme Court

17 P.3d 456

2000 OK 95

STATE of Oklahoma ex rel. OKLAHOMA BAR ASSOCIATION, Complainant, v. Donald E. SMOLEN, Respondent.

No. SCBD-4522.

Supreme Court of Oklahoma.

Decided December 5, 2000.

Mike Speegle, Oklahoma Bar Association, Oklahoma City, OK, Attorney for Complainant.

Deborah A. Reheard, Samuel M. Cox, Eufaula, OK, Attorneys for Respondent.

HODGES, J.

I. OVERVIEW

¶ 1 Complainant, the Oklahoma Bar Association, alleged one count of misconduct warranting discipline against respondent attorney, Donald E. Smolen (Respondent). The complaint alleged that Respondent had violated rule 1.8(e) of the Oklahoma Rules of Professional Conduct (ORPC), Okla. Stat. tit. 5, ch. 1, app. 3-A (1991) (prohibition against providing financial assistance to a client in connection with pending or contemplated litigation). Respondent received a public reprimand in 1992 for loaning money to clients. In an unpublished reprimand issued in 1987, the respondent received an eight-month suspension from the practice of law. The 1987 suspension was imposed for violations of DR 1-102(A)(3) ("engaging in illegal conduct involving moral turpitude"), DR 1-102(A)(4) (engaging "in conduct involving dishonesty, fraud, deceit, or misrepresentation"), DR 9-102(B) (failing to preserve the "identity of funds and property of a client"), and rule 1.3 of the Rules Governing Disciplinary Proceedings (acting in a manner "contrary to prescribed standards of conduct").

¶ 2 In the present matter, the parties have stipulated to the facts and recommended discipline. The Professional Responsibility Tribunal (PRT) accepted the stipulations of fact, found that Respondent had violated rule 1.8(e), and recommended Respondent be publicly censured.

II. FACTS

¶ 3 During Respondent's representation of Mr. Miles in a case before the Workers' Compensation Court, Respondent loaned Mr. Miles $1,200. The check to Mr. Miles recited that the money was for travel expenses. Respondent admitted that the true purpose of the loan was for living expenses because Mr. Miles' home had been destroyed by fire. Without the loan, Mr. Miles indicated he would have to move to Indiana and would be unable to continue his medical treatment or make court appearances. At the time of the loan, Mr. Miles was receiving temporary total disability benefits of $426.00 a week from which Respondent's attorney fee was subtracted. Mr. Miles received $384.00 a week before loan payments.

¶ 4 Respondent's loan to Mr. Miles was interest free and without penalty or cost other than the amount of the principle. Mr. Miles was to repay the loan at $100.00 a week from his temporary total disability benefits. Mr. Miles made three $100.00 payments on the loan. One of the payments was returned to Mr. Miles resulting in his paying only $200.00 on the loan. Respondent agreed to forego further repayment until final settlement of the Workers' Compensation case.

¶ 5 When Mr. Miles became involved in other legal matters, he sought an attorney to handle the additional matters together with the workers' compensation claim. After learning of Mr. Miles search for a new attorney, Respondent terminated the attorney-client relationship with Mr. Miles. Thereafter, Mr. Miles hired Mr. Elias to represent him. During mediation over a fee dispute between Mr. Miles and Mr. Elias, the Tulsa County Bar Association learned of Respondent's loan and reported Respondent's conduct to the Oklahoma Bar Association.

¶ 6 Respondent admits the loan to Mr. Miles is not an isolated incident. He testified that he had consulted lawyers whose opinions are well respected in legal ethics, and it was their belief that Respondent's conduct would not violate rule 1.8(e). Respondent admits that his actions violate the express language of rule 1.8(e). However, Respondent submits that he has not violated the intent of rule 1.8(e), and that rule 1.8(e) unconstitutionally treats clients who need humanitarian loans differently than clients who receive advances of litigation expenses and court costs.

III. ANALYSIS

¶ 7 This Court's review of the record is de novo.¹ Even though this Court is not bound by the PRT's recommendations, they are noted. Before this Court will impose discipline, the complainant must prove the charges by clear and convincing evidence.²

¶ 8 Rule 1.8(e) of the ORPC³ under which Respondent was disciplined in 1992 for giving financial assistance to clients, provided:

While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to a client, except that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses.

Based on the Model Rules adopted by the American Bar Association,⁴ rule 1.8(e) was amended in 1993 to provide:

A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter.⁵

¶ 9 The primary change under the Model Rules is that the repayment of litigation expenses and court costs may be contingent on the outcome of the case. Both the 1992 and 1993 versions of rule 1.8(e) unambiguously prohibit a lawyer from advancing living expenses to clients. In this case, Respondent advanced funds for living expenses to be repaid from the client's worker's compensation benefits, an action admittedly prohibited by rule 1.8(e).

¶ 10 Most authorities prohibit a lawyer from providing financial assistance to clients for living expenses during representation.⁶ In 1991, a draft of a provision of the Restatement of Law would have allowed a lawyer to make or guarantee a loan to a client "if the loan [was] needed to enable the client to withstand delay in litigation that otherwise might unjustly induce the client to settle or dismiss a case because of financial hardship rather than on the merits."⁷ However, in 1996 the American Law Institute Council decided the rule was ill-advised,⁸ and, in 1998, the provision was removed.⁹ The final draft of the Restatement would not allow a lawyer to make or guarantee a loan to a client except for litigation expenses and court costs.¹⁰ Rule 1.8(e) of the American Bar Association's Model Rules of Professional Conduct (Model Rules) adopted in 1983 prohibits a lawyer from advancing funds to a client for living expenses.¹¹ A proposal to allow lawyers to advance clients funds for living expenses was rejected by the American Bar Association House of Delegates.¹²

¶ 11 Twenty-nine states have adopted the current version of ABA Model Rule 1.8(e) which allows repayment of litigation costs to be contingent on the outcome of the case but forbids advances for living expenses.¹³ Fourteen other states follow the ABA Model Code of Professional Responsibility, adopted in 1969,¹⁴ or a version of the Model Rules or Model Code that requires the client remain liable for litigation expenses and court costs and prohibits advances for living expenses.¹⁵ Only eight states explicitly allow lawyers to advance or guarantee loans to clients for living expenses: Alabama,¹⁶ California,¹⁷ Louisiana,¹⁸ Minnesota,¹⁹ Mississippi,²⁰ Montana,²¹ North Dakota,²² and Texas.²³

¶ 12 Only one state has refused to discipline a lawyer for advancing funds to clients for living expenses during representation.²⁴ In Louisiana State Bar Ass'n v. Edwins,²⁵ the Louisiana State Supreme Court stated that advancing money to an indigent client for necessary living expenses during representation did not violate the Louisiana rules of legal ethics.²⁶ Even though the Edwins court questioned the constitutionality of the rule, the court based its conclusion on a finding that the conduct did not violate the rule's intent.²⁷ The lawyer in Edwins was disciplined for making advances which were not based on the client's needs.²⁸ In In re K.A.H.,²⁹ the Alaska Supreme Court held the rule did not unconstitutionally deny or interfere with the client's access to the courts.³⁰ Further, no court has invalidated rule 1.8(e) based on a constitutional infirmity.

¶ 13 We have has previously disciplined lawyers for providing financial assistance to clients for purposes other than litigation expenses and court costs.³¹ Several other courts addressing the question have also imposed discipline on lawyers for like conduct.³² In Mississippi Bar v. Attorney HH,³³ the Mississippi Supreme Court expressed its concern that allowing a lawyer to advance funds to a client for living expenses would "generate unseemly bidding wars for cases and inevitably lead to further denigration of our civil justice system."³⁴

A. INTENT OF THE RULE

¶ 14 Respondent admits violating rule 1.8(e) but argues that he should not be disciplined because he did not violate the intent of the rule. What Respondent in reality requests is that we adopt an exception to the rule that allows attorneys to make loans to clients for necessary living expenses after the attorney-client relationship is established.

¶ 15 The rule against attorneys providing financial assistance to clients for living expenses is based on the common-law prohibitions against practice of champerty and maintenance.³⁵ The evils associated with champerty and maintenance intended to be prevented by rule 1.8(e)'s prohibition are: (1) clients selecting a lawyer based on improper factors,³⁶ and (2) conflicts of interest, including compromising a lawyer's independent judgment in the case³⁷ and creating the potentially conflicting roles of the lawyer as both lawyer and creditor with divergent interests.³⁸

¶ 16 Respondent argues that he advanced the funds only after the attorney-client relationship was established with repayment to be made from benefits which had already been awarded,...