131 N.J.L.J. 856
July 13, 1992
1 N.J.L. 1043
July 13, 1992
Purchasing Client's JUA
Judgment for a Discounted Price
In the context of the current and much publicized freeze on
payment of JUA judgments, the inquirer asks whether it is
appropriate for an attorney to buy a client's JUA judgment for a
discounted price after making appropriate disclosure and securing
written consent under RPC 1.8(a). Although we note that this
particular inquiry would not ordinarily be cognizable by this
Committee because the transaction in question has already been
consummated, Opinion 650, 128 N.J.L.J. 2 (1991), we nevertheless
address the inquiry not only because the inquirer specifically
agreed in advance with the client to "undo" the transaction should
this Committee decide that it violates RPC 1.8(a), but also, and
more importantly, because the question is a pressing one, given
both the existence of the freeze and the current brokering of
"frozen" JUA judgments by non-attorneys.
In the present inquiry, the client, through the attorney, secured a JUA judgment. The client, who is a high school graduate and can read and write English, wished to emigrate to Israel on an immediate basis and had pressing personal need for monies underlying the judgment. The client apparently approached the attorney, seeking to sell the judgment. The attorney agreed to buy the judgment at a discount and then prepared an agreement which contained the exact terms of the judgment and the related contingency, and explicit advice to secure an independent attorney. The client signed the agreement with the further acknowledgment that if this Committee did not approve the agreement, the client would receive the totality of the judgment, less attorney's fees and costs. In all respects the attorney appears to have complied with RPC 1.8(a).
This does not, however, end the inquiry. The questioned transaction must also be viewed against the strictures of RPC 1.8(j), which decree that "A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client..." (emphasis added). We observe that judgment had already been entered when this transaction occurred. This to us is a crucial distinction: the lawyer was no longer "conducting" the litigation when the judgment was purchased. Recognizing that the crucial distinction is a fine one, we hold that a lawyer who enters into negotiations with a client prior to the entry of judgment violates RPC 1.8(j), while one who accomplishes this after entry of judgment does not.
In undertaking a transaction of the type outlined by the inquirer, we caution attorneys contemplating similar transactions to steer carefully and fairly between the Scylla of RPC 1.8(a), which derives its validity from the underlying assumption that "the transaction and terms in which the lawyer acquires the [adverse] interest are fair and reasonable to the client," and the Charybdis of RPC 1.8(j), which presumes litigation is concluded. In determining what is fair and reasonable under the specific factual circumstances, the purchasing lawyer must be acutely aware of fashioning a discount which bears a direct relationship not only to the judgment in question, but also to the time and effort that will be expended in collecting the judgment. Stated another way, this Opinion is not a wholesale authorization for the purchase of JUA judgments, but itself presumes that any lawyer undertaking to purchase a client's JUA judgment will do so with extreme caution and only in exceptional circumstances, adhering rigidly to the terms and conditions of RPC 1.8(a) and (j).