Is your client responsible for costs?

by Wally Wason, Wallace Wason PLLC, Alexandria

In a contingency fee case, is the client ultimately responsible for the costs of the case, win, lose, or draw?

Answer: Not necessarily.

Traditionally, it was unethical for Virginia attorneys to tell clients that they would not be responsible for costs, no matter what happened to the case. Virginia’s Rule of Professional Conduct 1.8(e) permitted an attorney to advance all of the case costs provided the client remained “ultimately responsible” for them. Lawyers could explain to their clients that it would be unethical for them not to send a bill for costs in the event of a negative case outcome. That is no longer the case, however.

Effective February 15, 2019, the Supreme Court of Virginia amended VRPC 1.8(e)(1) to replace “provided the client remains ultimately liable for such costs and expenses” with “the repayment of which may be contingent on the outcome of the matter.”

The current version of the Rule reads as follows:

Virginia Rule of Professional Conduct 1.8 Conflict of Interest: Prohibited Transactions

(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

1. a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and
2. a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

With that amendment, it would be unethical for a lawyer to tell the client that they are required to bill for costs. They aren’t. But there is nothing to stop the lawyer and client from making that agreement between them. It is also perfectly appropriate to make recovery of costs advanced by the attorney contingent on the result of the case, just the same as the legal fees are contingent on the case outcome.

In drafting contingency fee contracts, the attorney needs to specify whether they are also making recovery of costs contingent upon the outcome of the case. For some attorneys, that is a client-by-client, case-by-case decision that varies based on perceived strength of the case and likelihood of recovery. As long as the client’s obligation for reimbursement of costs is clearly stated, the attorney can either bill for costs under the traditional model or make them contingent on case success.