The Third-Party Payer Problem

Third-Party Payers and Influence

The Third-Party Payer Problem

Family members, employers, and liability insurers frequently pay legal fees for a matter that belongs to someone else, and the arrangement is often entirely proper.¹ That is why the professional rules regulate outside payment instead of forbidding it. Rule 1.8(f) of the Model Rules of Professional Conduct supplies the structure: a lawyer shall not accept compensation for representing a client from one other than the client unless certain conditions are met.² The rule exists because the person who pays and the person who is represented can want different things, and the lawyer sits between them.

The client is the person whose matter it is, and three things belong to that person alone: the lawyer's loyalty, the lawyer's protection of confidential information, and the lawyer's independent judgment. A payer acquires none of them by writing the check. The lawyer's professional obligations, including loyalty and confidentiality, run solely to the client even when someone else funds the work.³ The payer holds only the purse, but the purse still gives the payer leverage.

Control over the fee also creates a quieter pressure. In Cincinnati Insurance Co. v. Wills, the court quoted a warning about liability-insurance arrangements, where a third party pays for a lawyer's service to a client: the lawyer may tailor the representation to please the third party instead of the client.⁴ The distraction becomes acute when the lawyer hopes to be rehired for other clients and so curries favor with the payer of the fee. The mechanism requires no bad character. A lawyer who receives a steady stream of files from one source has a financial reason to keep that source content, and every choice about how hard to push, how much to spend, or what to report is a place where that reason can tip the scales against the client.

Payer problems belong to a family of third-party interference conflicts, and the family looks different from the two others you will meet in this area. A multiple-client conflict arises when the lawyer owes duties to two people whose interests collide, as when one lawyer represents two co-defendants whose best defenses point at each other. A lawyer-interest conflict arises when the lawyer's own stake, such as a business deal with the client, pulls against the client's welfare. A third-party interference conflict arises when someone who is neither client nor lawyer has leverage over the lawyer and can use it to bend the work. The general conflicts rule sweeps all three into one idea: a representation is impermissibly limited when it is materially limited by responsibilities to another client or to a third party, or by the lawyer's own interests.⁵ The payer problem straddles the categories in practice, because a lawyer's wish to be paid and rehired is itself a personal interest, yet the pressure comes from the outsider. On an exam, first say who is pulling on the lawyer and why, then find the rule built for that kind of pull. For a payer, that rule is Rule 1.8(f).

The trigger, then, is the source of the payment. A parent's gift, an employer's funding, and an insurer's contract all set off the same rule, because each puts someone other than the client in the position of paying for the lawyer's work.

Rule 1.8(f) conditions outside payment instead of banning it. The three conditions are that the client gives informed consent, that there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship, and that information relating to the representation remains protected as Rule 1.6 requires.⁶ A flat ban would sweep in arrangements the rules treat as appropriate when the lawyer remembers that the professional obligations are owed solely to the client. The conditions keep the payer's money from buying a claim on the lawyer's loyalty, judgment, or confidences. The next section takes them one at a time, and the payer-direction rule, Rule 5.4(c), follows in its own section.