Financing litigation is the best way to get assistance during a lawsuit. Lawsuit funding is a plaintiff’s go-to option for personal injury cases. A plaintiff can get money to finance litigation and pay it back after the settlement. This money is used to pursue the case or keep up with the daily expenses. The contract or agreement is referred to as litigation financing or pre-settlement financing.  

However, every process has its dos and don’ts, and so does litigation funding. 

What is Litigation Financing? 

The process involves a third party ready to provide a plaintiff with the financial assistance needed to pursue a lawsuit. The money provided will serve as a rock to contest the plaintiff’s injuries before the arbitration or judicial forum. The plaintiff will offer a portion of the money made after recovery to the third party, who can be a company or firm. This payment is considered the return on investment for the third party.  

The agreement is made as a non-recourse, meaning the plaintiff is only allowed to pay back the money if there is an actual monetary settlement from the case. Therefore, if the case does not end in monetary relief, the third party gets nothing from the investment. For this reason, the agreement is not considered to be a loan. 

Dos and Don’ts 

Champerty laws and litigation funding 

The judiciary has laws governing the champerty, which are harshly carried out. The catch is maintaining a litigation process to get a cut from the settlement. The process was abolished back in the day but has recently been recognized by the judiciary.  

The law states that litigation funding is allowed while maintaining the client’s confidentiality. Therefore, the attorney must be ready to follow these rules when giving/receiving the loan to avoid disputes that may arise in the future. The attorney must remain loyal, competent, and non-judgemental during the process.  

Alternative for the attorney to loan funds to the client 

Lawsuit cost financing and the faster option is for the attorney to loan money to the client directly. This law is only applicable in some states like California. Rule 1.8.5(a) of the Rules of Professional Conduct states that an attorney cannot directly or indirectly fund a client’s litigation, or the attorney’s firm cannot pay the person or business expenses. However, Rule 1.8.5(b)(2) contradicts the previous rule by adding that if a lawyer or lawyer’s firm intends to do so, they can but with an informal agreement from the client. In summary, the loan provided by the attorney to the client should be reasonable and serviceable according to Rule 1.8.1. 

 

Competence in advising the plaintiff about the litigation-funding loan 

The attorney should have a deep understanding and ability to solicit the litigation funding before making it an option for the client. The pros and cons should be explained thoroughly to the plaintiff before applying for the funding as set by Rule of Professional Conduct 1.1(b). 

Also, the attorney will have to spend more time educating an ignorant client than a knowledgeable one. Also, the client’s expectations must be clarified at the outset because, in some cases, clients get agitated when they realize how much the loan is worth after the recovery.  

When the loan pays the attorney fees 

In most cases, the attorney gets paid from the recovery money, which is either agreed by the litigation-funding company or the litigation funding contract. So it is best to disclose the matter before representing the client.  

According to Rule 1.7(b), the lawyer is mandated to collect a written agreement from the client after the client has sought outside advice and understood the process. However, suppose the attorney has a relationship with the company financing the litigation. In that case, the process will abide by Rule 1.8.1 of the Rules of Professional Conduct since it’s now considered a business transaction. 

Attorney’s duty to exert professional judgment 

According to Rule of Professional Conduct 2.1, an attorney shall provide professional judgment and advice to the client. The lawyer is to remain loyal to the client during the representation. Thus, a lawyer cannot represent a client without meeting certain requirements, which are confirmed by written consent from the client under Rules of Professional Conduct 1.7 and 1.9. 

Rule 1.7(b) states that a lawyer shouldn’t represent a client if there is a significant risk that will limit the lawyer’s ability to perform a good judgment or has a relationship with the third party or self-interest. Even with the client’s agreement, the lawyer cannot continue representation, except if the lawyer agrees to work competently. 

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The lender tries to dictate the course of litigation. 

However, there are cases where the lender may dictate the litigation process, which causes a risk to the attorney’s professional judgment. Or, if the client concludes that the loan will pay the attorney fees, the lender may influence the process, undermining the authority of the client and the attorney’s professional judgment. In such cases, the attorney can request written consent to provide compensation from the lender. 

Conclusion  

The process of financing litigation is overwhelming, with strict dos and don’ts to meet the required code of conduct. There are different ways to get finance at a reasonable cost. The funding is essential and can be seen as a way to level the play for the plaintiff. 

However, the process is still being criticized, and many wonder if litigation financing will remain. An attorney should remember to collect written consent from a client in very needed cases to avoid disputes. 

A full-time content marketer, Vicky Rathore specializes in content marketing. His recent industry trends research has primarily focused on the content marketing industry. He has worked in a number of industries prior to transitioning to content marketing. When Vicky is not working, he enjoys working out, trying new foods, and spending time with his dog. When vacations come around, he enjoys traveling.