Ethical Considerations when Accepting Cryptocurrency as Payment for Legal Services
With the rise of cryptocurrencies in recent years, more and more law firms are allowing clients to pay for legal services with bitcoin and other cryptocurrencies. There are a number of ethical issues that firms should consider, however, before entering into fee arrangements that allow or require payment in cryptocurrency.
The New York City Bar Association’s Professional Ethics Committee recently issued a formal opinion on this topic. It concluded that if payment in cryptocurrency is required by the terms of the agreement, then the fee agreement would constitute a “business transaction” under Rule 1.8 of the New York Rules of Professional Conduct and that the lawyer and client would have differing interests in negotiating the agreement.
Because the value of cryptocurrencies varies and has been somewhat volatile in recent years, “an agreement to value a transaction in cryptocurrency or convert cryptocurrency into traditional currency on a certain date carries potential risks for both sides.” For instance, depending on how and when fees are incurred or billed, this could result in significant differences in how much the lawyer is owed due to fluctuations in cryptocurrency markets.
The Opinion recognized that fee arrangements are subject to New York Rule 1.5(a), which prohibits lawyers from accepting an excessive or illegal fee. Compare Utah R. Prof. Resp. 1.5(a). The focal point of the opinion, however, was on New York Rule 1.8, which largely mirrors Utah’s Rule 1.8.
Utah’s Rule provides,
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
(a)(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;
(a)(2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and
(a)(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.
The New York committee concluded that where a client is required to pay their bill in cryptocurrency this constitutes a business transaction. It noted several complexities with cryptocurrencies that make them more like property than currency. For instance,
“The variables associated with payment in cryptocurrency include the rate of exchange on any given day, any associated fees when converting cryptocurrency to currency, whether (and when) cryptocurrency must be converted into cash, the exchange to be used, the type of cryptocurrency being used (or whether the payment would be in a single cryptocurrency or a combination of cryptocurrencies), and how any dispute will be handled in the event of a disagreement between the lawyer and the client related to these issues.”
In assessing these factors, the New York committee noted that the level of client sophistication and the client’s reliance on the lawyer’s professional judgment relating to payment in cryptocurrency would be important factors to consider when agreeing to such arrangements.
Based on these considerations, the New York committee concluded that where a fee agreement must be paid by the client in cryptocurrency, New York Rule 1.8(a) applies. That requires that (1) the terms of the agreement must be fair and reasonable to the client and disclosed in writing such that they can be reasonably understood by the client, (2) the lawyer advise the client in writing of the desirability of seeking independent legal counsel, and (3) and the client must give informed consent in writing to the essential terms of the transaction and the lawyer’s role in the transaction. Compare Utah R. Prof. Resp. 1.5(a).
Utah has yet to weigh in on this issue and there are a number of other ethical rules that may be implicated depending on the nature of the fee arrangement such as Rule 1.4 Communication and Rule 1.15 Safekeeping of Property.
When you need a professional liability lawyer in Utah.
Robert is a shareholder at Snow Christensen & Martineau where he devotes a significant portion of his practice to defending professionals who have been sued for malpractice or are facing other professional turmoil. He takes pride in assisting other lawyers and has successfully defended many of Utah’s most prestigious lawyers, law firms, and many other professionals including real estate agents, insurance agents, accountants, and more.
Every case is different. This article should not be construed to state enforceable legal standards or to provide guidance for any particular case.