Categories of Interaction Within Third-Party Funding
The three categories of interactions within third-party funding are transactional, procedural, and ethical. First, with respect to the transactional category, almost all funding arrangements are comprised of contracts. Contract law derives from national or state laws regardless of the forum for dispute resolution, the type of client, or the amount in dispute.
Second, with respect to the procedural category, all third-party funding of dispute resolution is for either litigation or arbitration. Many funders fund cases involving both litigation and arbitration. The funder’s participation affects the procedure of litigation or arbitration. Moreover, the litigation or arbitration procedural rules govern the participation of all non-party actors, such as attorneys, experts, witnesses, and amici curiae.
Third, with respect to the ethical category, attorney client ethical rules in a majority of the states maintain that a funder may not exercise any control over the legal representation or the attorney. The lawyer representing the client must adhere to any rules of professional responsibility or specific ethical rules in the practicing jurisdiction.
Controversial ethical issues worldwide relating to the attorney’s role in a third-party funding arrangement include:
- the maintenance and champerty doctrines;
- whether attorneys may refer their clients to funders, conflicts of interest involving the attorney funder and attorney-client relationships;
- the possible disclosure of third-party funding arrangements to the court or to the opposing side;
- the reasonableness of the attorney’s fees, the funder’s influence over settlement negotiations; and
- the possible waiver of the attorney-client privilege or the work product doctrine for documents and information disclosed to the funder.
Moreover, because funders are not directly regulated, and the importance of ethics as a unifying feature of both litigation and arbitration, regulatory standards for appropriate conduct for third-party funders has been highly desired.
Topics: third-party funding, arbitration, litigation
Work Cited: Victoria A. Shannon, HARMONIZING THIRD-PARTY LITIGATION FUNDING REGULATION, Cardozo Law Review (2015).
