Friday, October 28, 2011

ABA Commission has released new paper on alternative litigation finance

At its meeting in Denver, October 14-15, 2011, the ABA Commission on Ethics 20/20 decided to file its Draft White Paper on Alternative Litigation Finance as an Informational Report to the ABA House of Delegates. The Commission seeks to share this Draft White Paper with interested individuals and entities for their consideration prior to the filing deadline of December 2, 2011.  Go here to read the paper.

The Paper's executive summary states as follows:

     The general conclusion of this White Paper is that attorneys must approach transactions involving alternative litigation finance with care, mindful of several core professional obligations. An attorney must always exercise independent professional judgment on behalf of a client, and not be influenced by financial or other considerations. See MODEL RULES OF PROF’L CONDUCT R. 2.1 (2009) . . . Moreover, an attorney must not permit a third party to interfere with the exercise of independent professional judgment. Numerous specific provisions in the Model Rules, including conflicts of interest rules and rules governing third-party payments of fees, reinforce the importance of independent professional judgment. See MODEL RULE 1.7(a)(2) (representation materially limited by lawyer’s responsibilities to a third party or the lawyer’s own interests); MODEL RULE 1.8(e) (with limited exceptions, lawyers may not provide financial assistance to client); MODEL RULE 1.8(f) (lawyer must not accept compensation for representation from third party without informed consent of client and unless it will not interfere with independent professional judgment); MODEL RULE 1.8(i) (lawyers may not acquire proprietary interest in subject matter of representation); MODEL RULE 5.4(c) (lawyer may not permit fee payor to direct or regulate lawyer’s professional judgment).

     In addition, attorneys must be vigilant to prevent disclosure of information protected by Model Rule 1.6(a), and to use reasonable care to safeguard against waiver of the attorney-client privilege. Any infringement on rights that clients would otherwise have, resulting from the presence of alternative litigation finance, requires the informed consent of the client after full, candid disclosure of all of the associated risks and benefits.

     Finally, lawyers must fully explain the terms of funding transactions and ensure that clients are aware of the risks these transactions present. If they are not experienced in dealing with these funding transactions, lawyers who advise clients in connection with alternative litigation finance must become fully informed about the risks and benefits of these transactions, in order to provide competent advice to clients. Because this is a new and highly specialized area of finance, it may be necessary for a lawyer to undertake additional study or associate with experienced counsel when advising clients who are entering into these transactions.
For more information about the work of the Commission go here.

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