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The benefits of such financing include the ability of law firms to obtain remedies for injured plaintiffs by undertaking expensive litigation that, without outside funding, their insufficient resources would prevent them from doing so. Additionally, the loans serve to balance the playing field between cash-strapped plaintiffs’ firms and wealthy corporate defendants who can easily afford six and seven-figure fees in defending those lawsuits.
In the situation at hand, it is likely that the investor will want regular status reports. Counsel will need to carefully consider such questions as how much disclosure is in the underlying client’s interest, whether attorney-client privilege may be waived in whole or in part by any disclosure to a non-client and whether the work product doctrine may allow broader disclosure than attorney-client privilege while still protecting confidentiality.
Critics of these arrangements argue that the pressure of high interest rates on the loans may incentivize law firms to prematurely accept low settlement offers and repay the loans as quickly as possible, thus depriving their clients of a maximum monetary recovery. The ABA Model Rules of Professional Conduct prohibit interference with an attorney’s independence of judgment. The Rules forbid a third party who pays the attorney’s fee from directing or regulating the lawyer’s professional judgment and further provide that a lawyer’s primary ethical obligation is to zealously protect and pursue a client’s legitimate interests.
The best way to protect plaintiff-side counsel is to start from the beginning — with appropriately drafted engagement and non-engagement letters. One way to help keep the client and non-client third party threads from entanglement is have separate letters for the client and the non-client third party. Whether one or two letters are sent, however, both the client and the third-party payor/investor/non-client must be told in writing who is, and who is not, a client and what counsel’s responsibilities will be to each. These essential documents should be fully discussed at the beginning of representation and then re-evaluated during the course of representation to ensure that all questions and concerns are fully addressed. Similarly, it may be necessary to remind both the client and the third party of their respective roles as the case proceeds.
— Yvonne Tamayo, Willamette law professor, Civil Procedure, Federal Courts, Professional Responsibility
One final word of caution. Most lawyers know that the potential client with unrealistic expectations is generally to be avoided. The same is true for non-client third parties. — Judith A. Parker JD’06, associate at Hinshaw & Culbertson LLP
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