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The following article was written by John J. Hanley, Partner of Rimon Law.

Litigation funding is on the rise in the United States and provides some claimants with a valuable means of defraying the costs of pursuing a lawsuit. The involvement of a lawyer in litigation finance transactions raises many ethical issues for a lawyer such as competence, duty of loyalty, potential waiver of privilege, and third party interference, not to mention. name a few.

Skill

The first rule for lawyers under the New York Rules of Professional Conduct (the “NY PRC“) is the skill.[1] Lawyers and law firms should exercise caution when considering undertaking engagements with clients in an area in which they do not have the knowledge and skills required to provide competent representation for their clients. Official Commentary 1 to Rule 1.1 provides in part that the factors relevant to determining whether a lawyer has the requisite knowledge and skills in a case include the relative complexity and specialized nature of the case, the general experience of the case. lawyer, his training and experience in the field in question, and the preparation that the lawyer is able to give to the case.[2]

This does not mean that lawyers cannot deal with matters in which they are not initially familiar. Indeed, the American Bar Association points out in the comments to Rule 1.1 that “[a] the lawyer does not necessarily need to have special training or previous experience in dealing with legal issues of a type with which the lawyer is unfamiliar. Analysis of the previous one. . . and legal drafting are necessary in all legal issues. Perhaps the most basic legal skill is determining what kind of legal problems a situation may involve, a skill that necessarily transcends any particular specialist knowledge. A lawyer can provide adequate representation in an entirely new field through the necessary study.[3]

According to the New York City Bar Report to the President by the New York City Bar Association Working Group on Litigation Funding: “[a] the lawyer whose client seeks third-party funding should determine up front whether they have the transactional experience and sophistication required to negotiate a beneficial deal with the funder or whether an expert in the field should be involved.[4]

Litigation financing skills include knowledge of various litigation financing structures and non-disclosure privileges, among others.[5] For example, the structure may involve different types of collateral, different means of funding legal fees and expenses, the way the funding is disbursed, and the return structure of the funding. A lawyer who focuses his practice on litigation financing may also be better able to determine the “market” conditions for financing.

Lawyer’s duty of loyalty and financial interests

Of course, the lawyer is the trustee and agent of the client who owes his client unfailing loyalty and refrains from putting his interests ahead of that of the client. The New York State Bar Association, Committee on Professional Ethics reminds lawyers that their financial interests should not interfere with client representation.[6] Normally, there is nothing negative for a client about a lawyer being paid for legal services.[7] but in a litigation financing transaction, the lawyer might have a personal interest in the transaction. For example, a litigation financing agreement may facilitate the payment of a portion of the lawyer’s fees or ensure the reimbursement of certain expenses assumed by the lawyer.[8] The American Bar Association postulates that if an attorney has a relationship with a funder, it creates financial interest for the attorney. . . this may interfere with the lawyer’s obligation to provide impartial and impartial advice to the client (the “”ABA reportt “)[9].

The ABA report goes on to say that a lawyer who has worked for a long time with a particular funder may have an interest in keeping the funder’s content, which would create a conflict even in the absence of an explicit agreement. . The NY RPC, in particular Rule 1.7 (a) (2), like the Model Rules of Professional Conduct, prohibits a lawyer from representing a client if there is “a significant risk that the professional judgment of the lawyer at the name of a client is affected by the financial, property or other interests of the lawyer. In addition, NY RPC Rule 5.4 and its similar provisions in other jurisdictions require a lawyer to maintain independence.[10]. Therefore, such an attorney, representing a client in a case for which litigation funding is requested, may generally be able to represent the client with respect to the litigation funding agreement, but should disclose the lawyer’s relationship with the funder and receive informed written consent from the client. .

Communication and confidentiality

NYRP Conduct Rule 1.4 requires a lawyer to promptly communicate and provide full information to the client regarding the matter, and to reasonably consult with the client on ways to achieve the client’s goals.[11]

Trusted funders usually make sure to state in litigation funding documents that the funder will not be involved in lawyer-client discussions about the case, and that the funder will not lead. nor will it control the dispute. In some circumstances, an inexperienced lawyer may consider involving the funder in case strategy discussions, but caution should be exercised. If a party other than the client and the attorney is involved in communications involving legal issues or the matter, attorney-client privilege and the confidentiality of communications are likely violated and the attorney may be guilty of professional misconduct. This is because NYRPC Rule 1.6 requires that an attorney not knowingly disclose confidential information, or use that information to the detriment of the client or to the advantage of the attorney or a third party, provided certain exceptions.[12]

Conclusion

A lawyer who represents a client in a matter to be funded under a litigation financing agreement should consider the ethical implications discussed herein. Overview, among other things, before representing the client in the financing agreement. The lawyer would avoid any ethical considerations that may arise in referring the client to an outside lawyer experienced in litigation financing.

[1] NY Rules of Professional Conduct R.1.1. The California Rules of Professional Conduct and the American Bar Association Model Rules of Professional Conduct (“MRPC”) also make it rule number one. Indeed, all fifty states and the District of Columbia have adopted legal ethics rules based at least in part on the MRPC.
[2] NY Rules of Prof’l Conduct R.1.1, Commentary [1].
[3] Available here ABA Commentary on Rule 1.1
[4] Report to the President of the New York City Bar Association Working Group on Litigation Funding (February 28, 2020).
[5] Others include, but are not limited to, champerty, maintenance, barratry, usury, and required disclosures.
[6] NY Comm. on professional ethics, op. formal. 769 (November 4, 2003).
[7] California State Bar Standing Committee on Professional Liability and Conduct Formal Opinion No. 2020-204.
[8] Username. At 3.
[9] American Bar Association, Information Report to the Ethics Committee of the House of Delegates 20/20.
[10] NY Rules of Professional Conduct R.5.4.
[11] NY Rules of Prof’l Conduct R.1.4 (a).
[12] NY Rules of Prof’l Conduct R.1.6 (a). See also American Bar Association Model Rule 1.6.

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About John Hanley