Wednesday, April 11, 2018

Lawyer investor in litigation funding in conflict with client it finances - NY State Bar Assocation

In an advisory ethics opinion the New York State Bar Association has declared that RPC 1.8 Current Clients - Specific Rules bars a lawyer with a substantial interest in a  litigation funding company  from representing a client the company finances.  Read the full opinion here.

the NYSBA found that the representation at issue is impermissible under Rule 1.8(e), which prohibits a lawyer from advancing or guaranteeing financial assistance to a client, and Rule 1.8(i), which prohibits a lawyer from gaining a proprietary interest in the litigation he or she represents a client in. With respect to the former rule, the NYSBA expressed two concerns: “first, that such financial assistance ‘would encourage clients to pursue lawsuits that might not otherwise be brought’”; “second, that ‘such assistance gives lawyers too great a financial stake in the litigation.’ Rule 1.8, Cmt. [10].” The NYSBA further found that none of the exceptions or waiver provisions applicable to Rules 1.8(e) and 1.8(i) would apply. And, with respect to the lawyer’s firm, given that none of the exceptions or waiver provisions apply, the ethical violations would be imputed to the lawyer’s law firm.
This seems right to me - litigation finance companies perhaps appropriate to the risk - charge credit card type interest rates in exchange for a stake in the litigation proceeds.   To encourage access to justice we permit contingent fees.  But a substantial interest in the finance company effectively increases the lawyer's stake and raises the possibility of compromising the lawyer's independent advice beyond what inheres in the contingent fee itself . - gwc

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