October 13, 1980
(1) DR 1-103 imposes an affirmative duty upon a lawyer to report unprivileged knowledge of another lawyer's violation of the Disciplinary Rules of Professional Conduct.
(2) DR 5-103(B) prohibits a lawyer from advancing personal living expenses to or for the benefit of a client where payment os contingent upon the successful outcome of the cause of actionor subject matter of litigation.
You have inquired into the professional responsibility of a member of the State Bar of Michigan given the following circumstances:
"X, a lawyer who is a member of the State Bar of Michigan, has undertaken to represent Y in connection with a legal malpractice claim against Z, a lawyer who is a member of the State Bar of Michigan. This claim involves the failure of Z to communicate an offer to settle a personal injury claim in which Z represented Y. "Repayment" was to be made out of the recovery effectuated in that personal injury action. Further, it appears that such "repayment" was to be absorbed by Z, being received out of his/her 1/3 contingency as opposed to being received out of the 2/3 interest of Y in that recovery pool.
Under these circumstances, is X burdened with a DR 1-103(A) obligation to report the foregoing conduct of Z to the Attorney Grievance Board?"
DR 5-103(B) clearly states that during representation of a client, in connection with contemplated or pending litigation, no advances for "financial assistance" are permissible except for the litigation related expenses enumerated in the Rule and then only to the extent the client remains ultimately responsible for payment. Litigation expanses are generally understood to refer to court costs, fees of witness, and expenses incurred by the client because of the wrongful act that resulted in the litigation.
The failure of lawyer Z to notify client Y of the $6,000 settlement offer may well have been motivated by the fact that if the client accepted the offer, the lawyer would have received no fee since the entire $2,000 to which he would have been entitled to under the contingent fee agreement would only have reimbursed him for the advances made-a conflict which the Rule is intended to avoid.
The Committee is of the opinion that DR 5-130(B) prohibits a lawyer from advancing personal living expenses to or for the benefit of a client under circumstances where repayment is totally contingent upon the outcome of litigation and ultimate satisfaction of a judgement.
In conclusion, DR 1-103 imposes an affirmative duty upon the lawyer, who is involved in adversary proceedings, to report unprivileged knowledge of a violation of the Disciplinary Rules. Mere suspicions of misconduct need not be reported. See ABA Informal Opinion 1377 (December, 1976). Furthermore, the privilege exception of DR 4-101 is not applicable to the circumstances outlined in your request since the facts of misconduct were disclosed to you by the opposing lawyer (party) not by your client.
Although this opinion has been written by the undersigned, it has been circulated to oter Committee Members for their concurrence prior to its release to you.