District of Columbia Bar Legal Ethics Committee, Opinion 345 (2008)

Brief Summary
Lawyers may charge clients for the interest incurred on a line of credit that is used to advance the costs of representation.

Complete Summary
Under District of Columbia Rules 1.5 and 1.8(d), District of Columbia lawyers who use a line of credit to advance the costs of representation may recoup from the client the cost of any interest paid on borrowed funds. To minimize ethics concerns, a lawyer who seeks to recoup interest should follow three guidelines offered by the Legal Ethics Committee.

First, the lawyer should specifically inform the client in writing at the outset of representation that if and when the lawyer pays for litigation expenses with borrowed money, the client will be responsible for interest charges applicable to such borrowing. If a lawyer does change a fee agreement during an ongoing representation, the lawyer’s conduct will be subject to “strict scrutiny,” and will more likely constitute overreaching if, inter alia, the client is unsophisticated or could be prejudiced by switching counsel.

Second, the lawyer may only charge a client for interest directly attributable to the client’s case. Interest cannot be recouped on loans used to pay for the firm’s general overhead expenses. In order to comply with this requirement, “the lawyer must maintain detailed accounts of the amount of any advance and the interest charged by the lender and attributable to the client’s costs.” This duty to account does not, however, require using separate accounts for client costs and overhead.

Third, any interest charged must be reasonable. The lawyer has the burden of establishing reasonableness. It is unreasonable for a lawyer to pass on any fees or costs “that result from the lawyer’s inefficient or imprudent financial management [.]”

Significance of Opinion
This opinion does not necessarily describe a cost saving method, but it does describe a cost allocation method.

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