Scruples. Client Fees from Crowdfunding

• Author: Michael Downey
• Pages: 64-64

LITIGATION 64

Scruples

MICHAEL DOWNEY

The author is a legal ethics lawyer at Downey Law Group LLC in St. Louis, Missouri.

“OK, this is not one I expected,” Paradox said.

“What is it?” Ethox asked.

“We have been approached to represent a

client in a public interest lawsuit,” Paradox

said. “The prospective client asked if they

could crowd-fund to raise money for legal

fees,” Paradox said. “Are there any ethics

restrictions for crowdfunding payments for

legal fees?”

“It depends on the involvement the law-

yer has in raising the money,” Ethox an-

swered. “If the client does all the work to

crowd-fund without the lawyer’s involve-

ment—at most the lawyer only knows the

source of the funds is crowdfunding—then

there are no special legal ethical obligations.

“However, if the lawyer directs or is

significantly involved in obtaining money

through crowdfunding,” Ethox continued,

“then the arrangement must comply with all

the ethics rules, including those that usually

govern third-party payment of legal fees.”

“What are those rules?” Paradox asked.

“The most significant rule is ABA Model

Rule 1.8(f),” Ethox responded. “Under Rule

1.8(f ), the lawyer may accept compensation

from non-client payers as long as the client

consents, the payers do not interfere with

the lawyer’s professional judgment or the

lawyer-client relationship, and the client’s

confidences remain protected as required

by Rule 1.6.”

“Does the consent have to be in writing?”

Paradox questioned.

“Generally no,” Ethox responded. “As ex-

plained in paragraph 12 of the comments to

Rule 1.8, sometimes the lawyer discloses the

identity of the payer and the fact of third-

party payment.

“When the payer imposes greater restric

-

tions on the representation,” Ethox contin-

ued, “the lawyer may have a Rule 1.7(a)(2)

conflict. If there is a significant risk the

lawyer’s personal interest or obligations

to the payers may materially limit the law-

yer’s representation of the client, then the

lawyer will need to get the client’s consent

confirmed in writing.

Ethox offered an example. “A Rule 1.7(a)(2)

conflict that would likely need written con-

firmation of the client’s consent would be

when the payers are interested in changing

public or government policy action, and may

want the client to keep litigating when the

client receives a settlement offer with the

terms the client would like to accept.”

“I get it. But you also mentioned confiden-

tiality,” Paradox said. “Are there things the

client may not share when seeking funds?”

“Rule 1.6(a) permits the client to control

confidentiality and to disclose basically

whatever the client wants,” Ethox answered.

“But it is good to advise a client about disclo-

sures because the client’s voluntary disclo-

sures may waive the attorney-client privi

-

lege. Also, you need to make sure you get

consent for anything you say when trying

to solicit funds.”

“Right.” Paradox sounded reassured. “Any

other concerns?”

“Yes,” Ethox said. “You also need to be-

lieve you can still represent the client ethi-

cally. Rule 5.4 prohibits a lawyer from allow-

ing a third-party payer to interfere with the

lawyer’s professional judgment. That some-

one else is paying the fees is not supposed to

interfere with the lawyer-client relationship.

“There are two more issues to consider,”

Ethox said. “First, you will need to make

sure that all statements used to solicit funds

are truthful, to avoid violating Rules 4.1, 7.1,

and 8.4(c).”

“Easy enough,” Paradox reassured Ethox.

“Good. You also need to think through

how you will handle the money. This raises

several issues. You need to decide what will

happen if the client cannot raise adequate

funds—will we decline the representation or

seek to withdraw? Also, you and the client

need to determine when you will stop taking

funding, when you have received enough—

and whether excess funds will be refunded

on some basis, or donated to a charity, when

the representation ends.”

“Those are things I never would have con-

sidered,” Paradox answered. “This may be a

bit more complicated than I had thought.”

“Don’t worry,” Ethox said reassuringly. “I

would be happy to guide you through the

process. Also, there are some good legal eth-

ics opinions on these issues, including D.C.

Ethics Opinion 375 and Philadelphia Bar

Opinion 2015-6.” q

CLIENT FEES FROM

CROWDFUNDING