There are many instances in which a business entity, or even an individual, will undertake the obligation to pay legal fees on behalf of another person. Companies often agree to pay the legal fees of current or former employees. For example, a company may determine that the value of a new employee is worth paying the defense costs in a lawsuit brought by the employee’s former employer for breach of a noncompete agreement. A parent company may agree to pay legal fees of a subsidiary involved in a dispute that may affect the interests of the parent, or a company that is the target of a governmental investigation may offer to provide defense costs to its employees who also may be targets. A similar dynamic also occurs when friends or relatives agree to pay legal fees of a loved one, usually in the context of criminal or divorce proceedings.
Parties who enter into these arrangements often overlook or fail to appreciate the ethical issues implicated, particularly the potential for a conflict of interest that arises among the three parties involved. Payers of legal fees undoubtedly have an interest in minimizing the expense of the representation, whereas it may be in the client’s best interest to file motions and conduct extensive discovery, which inevitably increases litigation costs. Likewise, a third-party payer may desire to monitor the progress of litigation and feel the need to dictate the terms of the representation, since after all, he or she is footing the bill. But the payer must remember that he or she is not the client. An attorney’s ethical duties—the duty of zealous representation, trust and confidentiality, the attorney-client privilege, and the duty to abide by the client’s wishes—belong only to the client. Indeed, the Rules of Professional Conduct (RPC) expressly provide that a lawyer must maintain professional independence and shall not permit a third-party payer to interfere with the attorney’s professional judgment or with the attorney-client relationship. SeeRPC 1.8(f); RPC 5.4(c).
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