A lawyer may sell an account receivable due from a client for unpaid legal fees only with the client's consent after full disclosure.
Facts: A lawyer has asked if he may sell an account receivable due from a client for the unpaid portion of legal fees charged to the client for representation in litigation that has been concluded. The attorney states that the fee was based upon detailed time records kept during the course of the representation. These time records do not reveal substantive matters concerning the representation.
Discussion: The Canons of Ethics and Disciplinary Rules contain no provision specifically prohibiting the sale of accounts owed by clients. But the very existence of the unpaid obligation may be a confidence or secret, and the purchaser of the account may need to have revealed to it confidences or secrets of the client in order to collect. The transaction, therefore, must conform to the strictures of Disciplinary Rule 4-101.
Subparagraph (C)(4) of that rule permits a lawyer to reveal ''(c)onfidences or secrets necessary to establish or collect his fee ... ." The exception to the rule may not be bestowed on non-lawyers, however, since their conduct is not otherwise restricted by the Disciplinary Rules. The exception can only be exercised by a lawyer whose conduct in making disclosure of confidences or secrets will be circumscribed by limitations contained elsewhere in the Canons of Ethics and Disciplinary Rules.
Disciplinary Rule 4-101(C)(1) allows a lawyer to reveal ''(c)onfidences or secrets with the consent of the client or clients affected, but only after a full disclosure to them." Accordingly, if a lawyer obtains the consent of the client after full disclosure, he may sell an account receivable with or without recourse to a lawyer or to a non-lawyer. In obtaining consent, however, the lawyer must disclose to the client that the purchaser will learn that the client has not paid an obligation promptly. If the matter goes to litigation, the purchaser may also learn the amount of time the lawyer spent on the client's business, what the business was and how the time was spent, and possibly other confidences and secrets relating to the underlying transaction. Because of the possibility of misunderstanding and the potentiality for future litigation about the adequacy of disclosure, we believe that lawyers should be cautious before selling a client's account.
Permission to publish granted by the Board of Delegates, March 10, 1982. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.