Office of the General Counsel
| Jurisdiction | United States,Federal |
| Citation | Vol. 26 No. 3 Pg. 0040 |
| Pages | 0040 |
| Publication year | 2020 |
Neither a Borrower Nor a Lender Be
BY PAULA FREDERICK
"How am I doing?" your client repeats your polite greeting angrily. "I can't pay the rent! Since you can't loan me the rent money, I went to one of those loan companies you see on TV. They want you to call them so they can complete my application."
"I don't know," you say. "I really don't want to get involved with your loan application."
"Well, like it or not, you're involved!" the client responds. "They won't give me the money until you tell them I've got a good case."
What are a lawyer's obligations when a client seeks third-party litigation funding to pay living expenses?
In August 2020, the American Bar Association approved Best Practices for Third-Party Litigation Funding (Best Practices).[1] The document provides guidance for lawyers whose clients get nonrecourse loans to be repaid from the recovery in a litigation matter.[2]
In the personal injury context, litigation funding contracts are between the client/plaintiff and a finance company; the lawyer is not a signatory, although the funding company will ask the lawyer to verify information about the
case before deciding whether to fund the loan.
Litigation funding has expanded greatly in recent years. The guidance provided in the Best Practices document can help lawyers steer clear of trouble.
First, the guidance recommends that the loan agreement be in writing. Duh. ... The writing should explain the non-recourse nature of the loan—in other words, that repayment is only due if the client prevails in the underlying case. It should specify who is responsible for repaying the loan, from what funds and exactly when repayment is due. It should also cover whether the agreement can be terminated early, and what happens to money paid before termination.
Second, to avoid violating Rule 1.6 on confidentiality, the lawyer needs the client's informed consent to provide the funding company with information about the case. The lawyer should weigh whether providing information might waive privilege, and the guidance recommends limiting the information provided to that which is available in public records.
The lawyer should ensure that the agreement does not give control of the case to the funding company—only the client can decide whether and for what amount to settle. The client has to remain in control of “all key...
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