99-2.

• Case Date: April 15, 1999
• Court: Kansas

Kansas Ethics Opinion 1999. 99-2. April 15, 1999KBA Legal Ethics Opinion No. 99-2April 15, 1999 TOPIC: loans for moving expenses of clients DIGEST: Under the current model rules of professional conduct, a one-time loan to a client to help defray moving expenses to establish diversity jurisdiction is not a litigation expense envisioned by MRPC 1.8(e). While the Rules have changed the common law concepts of barratry, champerty and maintenance in considerable degree in Kansas, the fact the loan will be repaid from the potential recovery does not make a moving expense into a litigation expense. Date of Request: January 4, 1999 Reference: MRPC 1.8(e), 8.4 FACTS Requesting counsel contends that the ability to file certain lawsuits in federal court instead of state jurisdiction can make a difference between a case being viable or not. Accordingly, counsel want to advance a one-time payment to a client to assist with moving expenses to another state so client can create diversity of citizenship and create the federal case. The amount advanced would be repaid out of recoveries in the case, if any. QUESTIONS Can a lawyer ethically advance a one-time payment to a client to assist with moving expenses to another state so that the client can create diversity jurisdiction? CAVEAT For purposes of this opinion we assume there is no federal law or regulation or case that prohibits the artificial creation of diversity jurisdiction. We have not done an exhaustive research on this question. If such activity is illegal or prohibited by law, then the activity in question is per se unethical. [1] ANALYSIS Historically, the legal profession has always eschewed paying living expenses of potential litigants. The current set of facts essentially is a loan to a client that may or may not be forgiven, depending on the outcome of litigation. The fact that federal court is the ultimate destination for the litigation is not dispositive. If the rights of the client cannot be protected except by bringing the action in federal court, then the efforts to create diversity should be pursued. However, the question is whether the loan for moving expenses is a form of living expense or a necessary expense of litigation? The fact is the client could seek a bank loan for this purpose. The firm could cosign the note, or somehow guarantee payment if the client cannot establish credit on his or her own. So long as the note is truly arms-length and would have to be repaid to the bank whether the lawsuit is won or not, we see little concern in this regard. History What is proposed is kin to the common law concept of maintenance. Maintenance is "an officious intermeddling in a suit which in now way belongs to the intermeddler by maintaining or assisting either party to the action with money or otherwise, to prosecute or defend it." 14 Am.Jur.2d, Champerty and Maintenance, § 2, p. 843. In the post-depression era, KSA 21-745 made it a misdemeanor to engage in barratry. That statute was not recodified in 1969 when the model penal code was adopted as the basis of our criminal code. The statute made common barratry and champerty synonymous. These actions were defined as that of frequently exciting and stirring up quarrels. Whether champerty and barratry is in violation of public policy cannot be determined by any one rule or statement; it turns largely on the facts and circumstances of each case. [2] Since statutes no longer control this area of the practice of law, common law barratry and champerty cases are somewhat helpful. An advance or loan of money to a client or prospective client in order to "secure a client" is the classic definition of champerty or common law maintenance. The Kansas Supreme Court reviewed that element in a 1965 disciplinary case against two prominent members of the Wichita bar. Canon 42 at the time (1965) held that lawyers could not bear the client's litigation expenses but could make good faith advances of expenses as a matter of convenience, if the expense was...