Bitcoin as Payment for Legal Services:
Is it Ethical?

These days, you’re likely hearing a lot of buzz about cryptocurrency, such as bitcoin. Oftentimes, the hype surrounds the large returns gained by individuals who invested in bitcoin early on. But rest assured, bitcoin has more practical applications as well – namely that it’s a 21st century form of currency.

In other words, now that bitcoin is becoming more common, you never know when a client might request to pay your firm using bitcoin. That’s why it’s important for lawyers to understand whether it’s ethically permissible for them to accept it as payment for legal services.

So far, there has been very little ethical guidance for lawyers interested in accepting bitcoin as payment. In 2017 Nebraska weighed in, opining that accepting bitcoin as payment for legal services is permissible, with some limitations.

Based on that opinion, lawyers have been advised by some experts to treat bitcoin payments for legal services as if they were foreign currency, and immediately convert the bitcoin payment into U.S. currency upon receipt. This is because bitcoin isn’t particularly stable and its value can change quite a bit from day to day. So by converting it into U.S. currency upon receipt, you’ll ensure that you fully mitigate the risk of volatility and possible unconscionable overpayment for legal services.

For a number of years, no further guidance was offered for lawyers in other jurisdictions who sought to accept bitcoin as a form of payment. That changed over the summer when the New York City Bar Associations’s Professional Ethics Committee addressed this issue in Formal Opinion 2019-5. At issue in this opinion was whether a fee agreement requiring the client to pay for legal services in cryptocurrency constituted a business transaction, thus triggering the requirements of Rule 1.8(a). This rule sets forth procedural requirements that lawyers must comply with, and which were created for the client’s protection due to the risk that lawyers may exploit their superior knowledge and take unfair advantage of the client’s trust.

At the outset, the Committee noted that Rule 1.8 is inapplicable to ordinary fee arrangements between lawyers and their clients, since “ordinary fee agreements are relatively easy to understand, do not entail complex negotiation, and do not involve a significant risk that the client will repose misplaced trust in the lawyer to protect the client’s interests.”

However, according to the Committee, unlike traditional fee agreements, some contemplated cryptocurrency fee agreements may trigger the requirements of Rule 1.8. The Committee explained that whether the fee agreement regarding cryptocurrency payment constitutes a “business transaction” will depend on the way in which the lawyer and client intend to use cryptocurrency as payment.

According to the Committee, Rule 1.8 is inapplicable where a lawyer agrees to provide legal services at a set hourly rate of $X dollars, and the client is given the option of paying for legal services rendered using cryptocurrency in an amount equivalent to U.S. Dollars at the time of payment. According to the Committee, Rule 1.8 does not apply in that instance since “the fee agreement is…an ordinary one where the lawyer is simply agreeing as a convenience to accept a different method of payment but the client is not limited to paying in cryptocurrency if it is not beneficial to do so.  The lawyer and the client do not have to resolve terms as to which they may have differing interests. Cryptocurrency functions merely as an optional way of transmitting payment.”

In comparison, the Committee concluded that the following two situations constituted a “business transaction” due to increased complexities that would require a negotiation between the lawyer and client regarding certain variables that would arise as a result of the proposed payment terms: 1) “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” or 2) “The lawyer agrees to provide legal services at an hourly rate of $X dollars to be paid in cryptocurrency.”

According to the Committee,  in both cases the “fee agreement requiring the client to pay cryptocurrency in exchange for legal services is subject to Rule 1.8(a) (since) the client expects the lawyer to exercise professional judgment on the client’s behalf in the transaction.”

The Committee explained that in those situations, lawyers must comply with the requirements of Rule 1.8, which requires the following:

  • The lawyer ensures that “the transaction is ‘fair and reasonable to the client’ and…disclose the terms of the transaction in writing and ‘in a manner that can be reasonably understood by the client…'”
  • ‘(T)he lawyer must advise the client, in writing, about the desirability of seeking separate counsel and must then give the client a reasonable opportunity to consult separate counsel.’
  • ‘(T)he client must understand and agree 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 lawyer must secure the client’s ‘informed consent’…in writing.’

With this issuance of this opinion, New York lawyers have explicit guidance when it comes to accepting bitcoin as payment from their clients for legal services. And lawyers in other jurisdictions now have two different opinions that address this evolving and increasingly common issue.

Until your jurisdiction offers ethical guidance I would suggest that you err on the side of caution when accepting bitcoin as payment for legal services, and follow the recommendations of the experts outlined in this post. And for even more advice on legal billing practices, make sure to download this FREE guide: “The Ultimate Guide to Legal Billing.”

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