In The State of Florida v. Michell Espinoza, Florida’s Third District Court of Appeals ruled that cryptocurrency constitutes a “payment instrument.” The Third DCA’s ruling is a shift from the 2014 IRS guidance notice 2014-21,which classified cryptocurrency as property. Bitcoin
The Espinoza case, coupled with recent developments in cryptocurrency case law, raises questions as to whether attorneys may accept fees via cryptocurrencies, without violating the legal ethics rules pertaining to attorney fees.
Prior to the Espinoza case, the Nebraska Lawyer’s Ethics Advisory Committee issued an ethics advisory opinion advising that an attorney may “hold property, including bitcoin and other virtual currencies, in escrow or trust for clients or third parties.” Nebraska’s Committee also concluded that an attorney may accept virtual currencies as payment for legal services subject to certain conditions.. Specifically, the Nebraska opinion advises that given the volatility of virtual currencies, to avoid violating Nebraska Rule §3-505.5(a) that prohibits unreasonable attorney fees, an attorney must: (1) notify the client that the attorney will immediately convert the virtual currency to dollars; (2) convert the currency to dollars at the market rate; and (3) credit theclient’s account with the amount of converted virtual currency.
The legal ethics query after Espinosa may be whether if cryptocurrency is no longer considered property but rather a payment instrument, whether an attorney must continue, under the Nebraska reasoning, to convert bitcoin to accept it as payment for attorney fees. Florida has specifically addressed whether attorneys may accept bitcoin as payment and if so, under what conditions..
Moreover, Espinoza is not fully settled as the Third DCA remanded the case for further proceedings. Espinoza may be an early step towards increased regulation of cryptocurrency transactions with the goal of achieving ultimate uniformity in the treatment of cryptocurrency.
Read State v. Espinoza here.
Read the IRS Notice here.
Read the Nevada Ethics Advisory Opinion here.
