CSG Law Alert: New York Ethics Opinion Requires Attorneys Paid in Cryptocurrency to Treat it as Business Transaction
The ABCNY has issued Formal Opinion 2019-5, requiring a lawyer receiving payment in cryptocurrency to comply with RPC 1.8(a) (business transactions with client), concluding it is different than an ordinary fee agreement. It is thus advisable for attorneys to become familiar with RPC 1.8(a) and not assume that a typical engagement letter will be sufficient.
RPC 1.8(a) provides that:
A lawyer shall not enter into a business transaction with a client if they have differing interests therein and if the client expects the lawyer to exercise professional judgment therein for the protection of the client, unless:
- The transaction is fair and reasonable to the client and the terms of the transaction are fully disclosed and transmitted in writing in a manner that can be reasonably understood by client;
- 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
- 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.
ABCNY concluded that while RPC 1.8(a) “does not apply to ordinary fee arrangements between client and lawyer reached at the inception of the client-lawyer relationship” [Rule 1.8 Cmt [4C]], because cryptocurrency is more property than cash, RPC 1.8(a) may be implicated under the following circumstances:
- The lawyer agrees to provide legal services for a flat fee of X units of cryptocurrency, or for an hourly fee of Y units of cryptocurrency.
- The lawyer agrees to provide legal services at an hourly rate of $X dollars to be paid in cryptocurrency.
If, however, a client is given a choice between paying in dollars or cryptocurrency, the ABCNY found that RPC 1.8(c) is not implicated because in that situation paying in cryptocurrency is more of a convenience, rather than a requirement.
ABCNY then noted that RPC 1.8(a) is only implicated if the client expects the lawyer to advise the client concerning the fee arrangement. Thus, “if the client is a sophisticated party who is knowledgeable about cryptocurrency or is represented by separate counsel, it is unlikely that the client expects the lawyer to exercise professional judgment for the client. Indeed, in many instances the client may be more sophisticated than the lawyer on matters relating to cryptocurrency, in which case it would not be reasonable for the client to rely on the lawyer’s exercise of professional judgment. Conversely, if the lawyer is advising the client about the implications of paying fees in cryptocurrency, then the client certainly would expect the lawyer to provide professional judgment on the client’s behalf in the transaction.”
Whether or not a client expects a lawyer to advise on the fee arrangement is a fact-intensive inquiry and attorneys should err on the side of caution. The main takeaway is that in any fee arrangement concerning cryptocurrency, the attorney should review RPC 1.8(a) to determine whether it is applicable.