Remember the 3rd-party payor rule

by Diane Karpman

Rule 3-310(E), or third-party payor rule, prohibits the lawyer from accepting compensation from anyone other than the client, unless they meet certain requirements. This is one of the most overlooked aspects of the conflict rules and involves common, everyday situations in which a third party is paying for the rendition of legal services.

Recently on “The Practice” (a television program with positive images of practicing law, with an emphasis on legal ethics), a druglord was paying the legal fees for his arrested drug courier. She had ingested balloons filled with cocaine and was hospitalized.

The prosecutor repeatedly reminded the defense lawyer that the penniless young woman was the client, not the wealthy kingpin.

Other scenarios involving a third party are parents paying legal fees for their incarcerated children; parents paying the cost of a marital dissolution; employer paying the cost of the defense for the employee; prepaid legal service plans; indemnification; and insurance cases (although this rule is not intended to abrogate those delicate tripartite relationships).

Compliance

Any time someone signs your check other than your client, you should be complying with this rule. This does not mean you do not have a fee agreement pursuant to Business & Professions Code §§ 6147 or 6148 with the payor, it is just that they are not the clients.

This is not an inexplicable “mystery” rule. The insecurity and doubt that can be created when someone else is paying the bill is a very human and understandable concern.

How does the client know you are on their side, that you will be loyal, that you will be their champion, when an evil druglord, a massive corporation, an insurance company or even their parents are paying the bills?

Compliance with this rule will reassure the client that just because someone else is funding the case, you will not permit interference with the exercise of your independent judgment and that their confidences and secrets will not be disclosed.

Criminal cases

In criminal cases, the consent may offer your only hope to block the government’s motion for disqualification. Remember, it is the client who must consent in writing, not the third party payor, and the terms of payment should be disclosed in writing to the client.

The problem occurs when the corporation wants to settle and the employee wants vindication through trial; the kingpin wants to supervise the case; or Mom and Dad simply want a status report.

Since they are paying for your services, they think they are entitled to control the case, receive privileged and confidential information and call the shots.

You must refuse, respecting your client’s position, and recognizing your fiduciary duties; and then hope and pray that they will pay your future bills.