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Litigation Pre-Settlement Funding Ethics Opinion Summaries

Arizona

If a lawyer obtains client consent and certain other conditions are met, a lawyer may set up a line of credit with a third-party lender to advance a client’s court costs and litigation expenses and pass on the line of credit’s interest charges to the client as a client cost. [ER 1.8(e)]

Florida

Formal Advisory Opinion No. 86-2, State Bar of Florida (April 15, 1986), asks whether “[l]awyers may charge a lawful rate of interest on liquidated fees and costs either as provided in advance by written agreement or upon reasonable notice.” The committee’s answer, in its entirety, states, “The Committee finds no basis for distinguishing between fees and costs advanced for the purpose of charging interest. Accordingly, the Committee concludes that the Code of Professional Responsibility does not prohibit in advance by written agreement or, in the absence of a written agreement, upon reasonable notice. It is the Committee’s view that 60 days would constitute reasonable notice.”

Georgia

Formal Advisory Opinion No. 92-1, State Bar of Georgia (January 14, 1992), describes a system for payment of certain costs and expenses in contingency-fee cases where the law firm sets up a draw account with a bank, secured by a note from individual firm lawyers. When a client makes a payment toward expenses incurred on the case, the law firm credits the client’s account, and if the case is settled or verdict paid, the firm pays off the client’s share of the money advanced on the loan. If no verdict or settlement is obtained, the lawyers are contractually obligated to repay the loan, although the client remains ultimately liable to the lawyer, not the bank, to reimburse such expenses. The opinion raises two issues: whether the bank loan to the lawyer compromises the attorney -client relationship and whether it is ethical to charge clients interest. As to the first issue, the opinion concludes there is no ethical impropriety provided the lawyers “make sure that the bank understands that its contractual arrangement can in no way affect or compromise the lawyer’s obligations to his or her individual clients.” The opinion similarly concludes on the second issue, “[I]t is permissible to charge interest on such advances only if (i) the client is notified in the contingent fee contract of the maximum rate of interest the lawyer will or may charge on such advances; and (ii) the written statement given to the client upon conclusion of the matter reflects the interest charged on expenses advanced in the matter.”

Illinois

Opinion No. 92-9, Illinois State Bar Ass’n (January 22, 1993), posits a different factual arrangement. The question was whether the lawyer may ethically help clients obtain financing. Under the proposed arrangement, the lawyer pays an initial fee of $500 for which he is given the right to submit loan applications from clients. If the loan is approved, the client becomes solely responsible on the loan, but the attorney receives the loan proceeds less a 10% fee. The opinion concluded that an “attorney may ethically assist clients in obtaining loans for payment of attorney fees, providing the attorney protects the client’s confidences and meets his fiduciary obligation of complete disclosure.”

Missouri

Informal Opinion No. 970066, Missouri Bar Association (August 20, 2001), asks, “If an Attorney borrows money in order to fund the litigation expenses in a case, may an attorney pass the interest on the loan through to the client?” In a terse answer, the Opinion concludes the “Code of Professional Responsibility does not prohibit an attorney from charging a lawful rate of interest on liquidated fees and costs, either as provided in advance by written agreement or, in the absence of a written agreement, upon reasonable notice.”

New Jersey

120 N.J.L.J. 252, N. J. Advisory Comm. on Professional Ethics (July 30, 1987), discusses whether “it is appropriate for the firm to advance disbursements” in a contingency fee case. The financing arrangements are virtually identical to those described in the Utah inquiry. Consistent with its counterparts, the Committee found “nothing unethical or contrary to the letter of the rules of the Court, or Rules of Professional Conduct in the proposed provision.”

Ohio

Opinion 2001-3, The Supreme Court of Ohio, Board of Commissioners (June 7, 2001), addresses “the ethical propriety of a law firm borrowing money, using the funds to advance costs and expenses of litigation in a personal injury matter accepted on a contingent fee basis, and then passing the interest fees and costs of the loan to the client as expenses of litigation.” Again, the financing arrangements are virtually identical to those described in the Utah inquiry. The Ohio Board found: “[T]here is no rule prohibiting a lawyer from obtaining a loan from a third party institution for use in advancing the expenses of litigation provided the loan is not secured by the client’s settlement or judgment. However, the client should be informed.”

Texas

Tex. Comm. on Professional Ethics, Op. 465, V. 54 Tex. B.J. 76 (1991), discusses two issues: whether an attorney may “ethically own an interest in a lending institution which loans money to personal injury clients of the attorney,” and whether the attorney “may borrow money from a lending institution for case expenses . . . and ethically charge, or pass on, to the client, as part of the expense, the outofpocket [sic] interest or finance charges of the lending institution.” The Committee found “an attorney may properly own an interest in a lending institution which loans money to personal injury clients of the attorney,” and that “an attorney may properly borrow money from a lending institution for case expenses for a personal injury client, and charge, or pass on, to the client the actual out-of-pocket interest or finance charges of the lending institution.”

Tennessee

Advisory Ethics Opinion 98-A-659, Board of Professional Responsibility of the Supreme Court of Tennessee (July 9, 1989), draws a similar conclusion from similar facts described in the Utah inquiry. The Board concludes “a lawyer may advance or guarantee certain expenses” by means of “a lending company or recommending such services to clients.”

Litigation Funding - Attorney Ethics

Excalibur Funding Programs carefully observes applicable laws and ethics opinions regarding litigation funding. Following is a list of links to opinions relevant to Attorney Funding. We also list below summaries of the opinions.

Arizona Ethics Opinion 01-07
California Ethics Opinion 499
Florida Ethics Opinion 86-2
Georgia Ethics Opinion 92-1
Illinois Ethics Opinion 92-9
Kentucky Ethics Opinion E-420
Louisiana Ethics Opinion C-0414
Maine Ethics Opinion 177
Maryland Ethics Opinion 94-24
Missouri Ethics Opinion 970066
New Jersey Ethics Opinion 603
New York Ethics Opinion 754
New York City Ethics Opinion 1997-1
Ohio Ethics Opinion 2001-3
Tennessee Ethics Opinion 98-A-659
Texas Ethics Opinion 465
Utah Ethics Opinion 97-11, Ethics Opinion 02-01
Virginia Ethics Opinion 1595

Litigation Funding