Ethical Considerations Relating to Lawsuit Financing

Lawsuit financing has been steadily gaining acceptance among plaintiffs’ lawyers, state bar associations and the courts. Nevertheless, some attorneys remain leery of this valuable legal service.

Lawsuit financing has been steadily gaining acceptance among plaintiffs’ lawyers, state bar associations and the courts. Nevertheless, some attorneys remain leery of this valuable legal service. In short, lawsuit settlement funding – also known as advance lawsuit funding, settlement funding or settlement financing – provides non-recourse financial assistance to litigants, keeping plaintiffs financially secure during long periods of litigation.

One concern that attorneys may have regarding lawsuit financing is whether such an arrangement violates state usury laws. Litigation funding is not a loan. Rather, a lawsuit advance is a non-recourse debt, meaning the financing provider is paid only if the plaintiff prevails in securing a settlement or damages award. Should the defendant prevail, the financing company may not seek repayment for its investment from either the plaintiff or the attorney. Thus the financing provider is sharing the risk of non-recovery with the client and the attorney.

Attorneys who wish to explore further ethical considerations should look to their state bar associations for ethics opinions regarding lawsuit funding. The Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility, for example, has issued several opinions relating to settlement financing. These include Formal Opinions 2005-100, 99-8, 99-107 and 93-145. Attorneys should also review their states’ Rules of Professional Conduct. In Pennsylvania, these would include:

• Rules 1.1 and 1.4 (Competence and Communication): Requiring the lawyer to explain the proposed financial arrangement to the client, and alternatives, with care and in detail.

• Rules 1.7 and 1.8 (Conflicts of Interest): Conflicts may arise between the lawyer and the client, the lawyer and the cash provider, and the client and the cash provider. These potential conflicts require full and complete disclosure and discussion between the lawyer and the client, and the client’s informed consent where required.

• Rule 1.6 (Client Confidentiality): Before making any disclosure, the lawyer must seek and obtain the informed consent of the client. In obtaining the client’s informed consent, the lawyer should, among other steps, review with the client any potential waivers and/or disclosures of confidential information, ensuring that the client understands the consequences of such waivers and/or disclosures.

• Rule 2.3 (Evaluation for Use by Third Person): Under this rule, a lawyer may provide an evaluation to the funding organization if the lawyer concludes that doing so is compatible with other aspects of the lawyer’s relationship with the client. If, however, the lawyer knows or should know that the evaluation is likely to affect the client’s interests materially and adversely, the lawyer cannot provide the evaluation unless the client gives informed consent.

• Rule 4.1 (Truthfulness in Statements to Others): This rule prohibits a lawyer from knowingly making a false statement of material fact or law to a third person, or failing to disclose a material fact when disclosure is necessary to avoid aiding and abetting a criminal or fraudulent act by a client.

• Rule 8.4 (Misconduct): It is professional misconduct for a lawyer to, among other things, engage in conduct involving dishonesty, fraud, deceit or misrepresentation.

At USClaims, we offer pre-settlement funding, if a case is qualified for pre-settlement funding then we would purchase a portion of the proceeds of the anticipated court judgment or settlement for some cash now. USClaims only gets paid if a case is won or has reached a settlement! Apply now or call us today at 1-877-USCLAIMS to learn more.

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