NYC Bar addresses Bitcoin as payment for legal services
August 06, 2019
Here is a recent Daily Record column. My past Daily Record articles can be accessed here.
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NYC Bar Addresses Bitcoin as Payment for Legal Services
Cryptocurrency, such as Bitcoin, while still an unusual form of payment, is becoming more common and familiar to the average person. As a result, the issue of whether lawyers can ethically accept Bitcoin as payment for legal services is an issue that ethics committees across the country have begun to grapple with.
The latest to do so is the New York City Bar Associations’s Professional Ethics Committee. Earlier this month, the Committee addressed this very issue in Formal Opinion 2019-5.
Specifically, the issue considered by the Committee was whether “a fee agreement requiring the client to pay for legal services in cryptocurrency (is) a business transaction governed by Rule 1.8(a)?”
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 would not apply to the following scenario:
“The lawyer agrees to provide legal services at an hourly rate of $X dollars, which the client may, but need not, pay in cryptocurrency in an amount equivalent to U.S. Dollars at the time of payment.”
The Committee explained that Rule 1.8 is inapplicable because “the fee agreement is, in our view, 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.”
However, in these 2 situations, Rule 1.8 does apply:
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.”
2. “The lawyer agrees to provide legal services at an hourly rate of $X dollars to be paid in cryptocurrency.”
The Committee determined that Rule 1.8 applies in these situations since both constitute a “business transaction.” This is because there are increased complexities presented in each scenario relating to accepting cryptocurrency as payment that would require the lawyer and client to negotiate certain variables and and issues that will arise due to the proposed payment terms.
For that reason, the Committee concluded that “(a) fee agreement requiring the client to pay cryptocurrency in exchange for legal services is subject to Rule 1.8(a) if the client expects the lawyer to exercise professional judgment on the client’s behalf in the transaction. In that case, the lawyer must comply with the procedural requirements of Rule 1.8(a)(1)-(3) before entering into the fee agreement.”
As such, the Committee explained that in both situations, the lawyers must comply with the requirements of Rule 1.8, which require that:
1) “(T)he transaction is ‘fair and reasonable to the client’ and must disclose the terms of the transaction in writing and ‘in a manner that can be reasonably understood by the client…’”
2) “(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.”
3) “(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.”
The bottom line: accepting cryptocurrency as payment for legal services isn’t impermissible in New York, but it’s important to tread lightly and think through your options carefully prior to doing so. The good news is that if you’re a New York lawyer and have been pondering whether to accept Bitcoin as payment for legal services, this opinion offers some very helpful and timely guidance.
Nicole Black is a Rochester, New York attorney, author, journalist, and the Legal Technology Evangelist at MyCase law practice management software for small law firms. She is the author of the ABA book Cloud Computing for Lawyers, co-authors the ABA book Social Media for Lawyers: the Next Frontier, and co-authors Criminal Law in New York, a Thomson Reuters treatise. She writes legal technology columns for Above the Law and ABA Journal and speaks regularly at conferences regarding the intersection of law and technology. You can follow her on Twitter at @nikiblack or email her at niki.black@mycase.com.