Recently, the New Jersey Advisory Committee on Professional Ethics addressed whether a lawyer who represents plaintiffs in personal injury lawsuits can be required to personally guarantee a client’s failure to repay an asserted reimbursement interest out of the personal injury recovery obtained with the services of the attorney to the client’s health plan.  See more information here.  In Advisory Opinion 727, the Committee found that a lawyer may not agree to personally guarantee a client’s repayment of monies to a plan, however, a lawyer may agree to satisfy a valid lien out of funds in the lawyer’s possession.

The committee did not render any opinions on substantive law or construe any subrogation agreements in reaching its conclusion.  However, the Committee’s Opinion does relate the decisions in various federal circuits with regard to the treatment of settlement funds and an alleged subrogation or reimbursement claim by a self-funded ERISA covered plan.  The basis for the Advisory Committee’s finding was Rule of Professional Conduct 1.8(e) which prohibits a lawyer from providing financial assistance to a client in connection with pending or contemplative litigation.  It was found that a personal guarantee is considered improper financial assistance to a client. See Opinion 719, 2002 N.J.L.J. 997 (December 13, 2010).  Importantly, the Committee found that it was permissible to acknowledge a lien and satisfy it out the funds in the lawyer’s possession and if the plan does not attempt to control the direction of litigation or otherwise interfere with the lawyer’s duties to the client, ethical issues do not arise.