An Attorney’s Ethical Obligations to the Client Who Seeks Litigation Financing

Litigation financing can help plaintiffs cover their legal costs and living expenses while they wait for a settlement or judgment, but it can also complicate the relationship between the plaintiff and his or her attorney.  In particular, ethical rules may limit the attorney’s ability to facilitate the plaintiff’s arrangements with the litigation financing company.  When a litigation financing arrangement is a possibility, both plaintiffs and their counsel need to be careful.

A Florida case illustrates the complicated issues that can accompany the pursuit of litigation financing.  In Fausone v. U.S. Claims, Inc., the client was a single mother who was hit by a dump truck while cycling.  She hired an attorney through a contingent fee agreement, but she struggled to pay living expenses and her medical bills while her case was pending.  She learned that litigation finance companies could provide her with loans that could cover her legal and living expenses in return for a share of her recovery, and she decided to pursue litigation financing.

But completing the agreements was not easy.  As a condition for entering the loan contract and advancing the loan funds, the litigation finance company wanted to know about all settlement offers as soon as they came in.  In addition, the lender wanted the attorney to enter an agreement to pay the loan back directly from the proceeds of any judgment or settlement.

The client needed the attorney to make these agreements because she needed the loan funds to keep her head above water while her case was pending.  But these agreements essentially called upon the attorney to compromise some of any lawyer’s most fundamental ethical duties.  For example, if the lawyer disclosed settlement offers to the lender, the disclosure could be a breach of a client confidence.  Moreover, if the lender used information about the settlement offer to pressure the plaintiff into accepting a settlement, the lawyer’s action could be construed as being adverse to the plaintiff’s interests.  That could be a breach of the lawyer’s duty of loyalty.  Another problem could arise if, at the end of the case, for whatever reason, the plaintiff instructed the lawyer not to release the proceeds of her suit directly to the lender.  In that situation, the lawyer would be forced to choose between observing his own contractual agreement with the lender and keeping his loyalty to his client.

This situation illustrates the importance of taking great care when a party in litigation seeks to work with a litigation financing company.  The litigant must be sure to maintain full communication with the attorney throughout all aspects of his or her negotiation with the lender.  And the attorney must be sure that he or she explains the consequences of any financing agreement for the attorney-client relationship.  If there are any requirements of the financing arrangement that could implicate an important aspect of the attorney-client relationship, both the attorney and the client must be clear about what they are before the financing contract is executed, and it would be wise for the attorney and client to execute a waiver agreement so that there could be no confusion that the client was authorizing actions by the attorney that might otherwise cause ethical problems.  Such careful conduct is much more likely to make litigation financing a success.

Works Cited:

Fausone v. U.S. Claims, Inc., 915 So. 2d 626 (Fla. 2d DCA 2005).

Julia H. McLaughlin, Litigation Funding: Charting a Legal and Ethical Course, 31 Vt. L. Rev. 615 (2007).

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TownCenter Partners, LLC lead Asset Manager is Mr. Roni A. Elias. From modest beginnings, and with the help of a hand-picked dream team of professionals we have built one of the most dynamic and fastest growing companies in the country. TownCenter Partners LLC(TCP) is a real estate partner and master-planner providing development, leasing, management, and third party services. The company’s demonstrated ability to apply big ideas in creative and innovative ways has played a defining role in the firm’s success. Yet, TCP's most important insight has been the core understanding that it is not sight lines or site plans, but human activity, that defines a space and creates a place.

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