The Argument For Why Counsel Have An Ethical Duty To Inform Clients About Litigation Finance

Do lawyers have a duty to inform clients about litigation finance?  You can find an argument in favor of answering the question in the affirmative here.

Can a lawyer pay a non-expert witness for time spent testifying at a deposition or a trial, preparing for such testimony, and other related costs?

Can a lawyer pay a non-expert witness for time spent testifying at a deposition or a trial, preparing for such testimony, and other related costs?   Brian Faughnan explains the answer here.

ABA adopts amendment to Model Rule 1.8(e) to allow financial assistance to pro bono clients -- UPDATED

Back in May I reported (here) that a proposal was going to be brought up at the annual ABA meeting to amend Model Rule 1.8(e) which would allow lawyers to provide financial assistance to pro bono litigation clients.  

The meeting ended recently and it is now official that the ABA's House of Delegates adopted what is now probably going to be known as the "humanitarian" exception to MR 1.8(e).   The vote,  was 378 to 16. 

UPDATE: You can read (or download) a copy of the approved language here.

A list of (and links to) all the resolutions approved by the ABA at the annual meeting is available here.

Thanks to Karen Rubin for the links!

NY City Bar Association proposes humanitarian exception to rule that bans financial assistance to clients; ABA also considers similar proposal; do they go far enough?

Just over a week ago, the New York City Bar Association proposed an "urgent amendment" to Rule 1.8(e) of the New York Rules of Professional Conduct to provide a “humanitarian exception” while the ABA is also considering a similar proposal.

As you may remember this is the rule that in most jurisdictions bans attorneys from providing financial assistance to clients involved in litigation. It is a rule that has been around forever, but as old as it is, it has also been criticized for not allowing much flexibility.  Some jurisdictions have adopted exceptions for deserving circumstances and in other jurisdictions courts have interpreted the rule to allow humanitarian help, even if the rule does not say that.

So, partly - probably mostly - in response to the health crisis brought about by the Covid-19 pandemic, the New York City Bar Association has made a formal proposal for an amendment to the rule.  You can read the full text of the proposal here.

As the proposal states, the proposed amendment would create a “humanitarian exception” to the current rule, which prohibits lawyers from providing financial assistance to litigation clients. 

This proposal was originally approved back in January 31, 2020 by the NY State Bar Association which then sent its recommendation to the Administrative Board of the Courts for consideration.  The NYCBA is merely now urging the Courts to act quickly to approve the humanitarian exception.

It should be noted that the request makes clear that the need for the humanitarian exception is not limited to the current pandemic.

. . . .Even before the current crisis, lawyers representing indigent clients pro bono have sought to provide financial assistance to clients in order to help them with basic necessities such as food, clothing, and access to healthcare.

      Under the current version of the ethics rules, a lawyer or law office could face disciplinary action for engaging in many of the activities described above.  But that should not be the case.  The humanitarian exception before the Courts is consistent with lawyers’ ethical and moral obligations to “seek improvement of the law; and to promote access to the legal system and the administration of justice.”  Especially now, lawyers should not be limited in their ability to provide assistance to clients who are struggling to make ends meet.

The proposal ends by suggesting that, as an alternative, if the Courts require more time to study the humanitarian exception and decide whether to fully amend Rule 1.8(e), the Courts should consider taking immediate short-term action, such as issuing a temporary order adopting the humanitarian exception until such a time as New York is no longer in a state of emergency that would expressly allow lawyers to provide financial assistance to indigent clients they are representing pro bono if the client has been financially impacted by the COVID-19 pandemic.

I understand the public policy behind rules that ban lawyers from providing financial assistance to clients but I agree that a humanitarian exception is a good idea.  In fact, I have argued that the rule should be amended rather than interpreted judicially to say something it does not say.  The proposal in NY takes the correct approach and it should be approved.

For comments on the issue go to The Law for Lawyers Today, Ethical Grounds, and Louisiana Legal Ethics.

Meanwhile, the ABA's Standing Committees on Ethics and Professional Responsibility and on Legal Aid and Indigent Defense have drafted a proposal to have the ABA House of Delegates approve a similar provision for the Model Rules.  The new exception would allow lawyers providing pro-bono services to provide financial assistance to clients under certain circumstances.  You can read the proposal here.

Note that neither proposal would allow a lawyer to provide financial assistance to a client if the legal services are being provided for a fee.  This means that a lawyer representing a client in financial need on a contingency fee would not be allowed to provide financial assistance.  If the client charged a contingency fee is in as much need as the one who is not charged a fee, why not allow the exception to apply?

A different view on the justice gap and ABA Opinion 484

My most recent post was about ABA Opinion 484, which attempts to contribute to the effort to help close the access-to-justice gap.

Today, over at the ABA Journal, Jason Tashea offers a different perspective on the issue.  You should read his full post, but here is the gist of it:

Time and again, the proposed solutions to close the gap—whether loans, technology, professional rule changes, process and business model improvements—are missing the larger point. The access-to-justice gap doesn’t exist because of absence of loans or the lack of technology or the intractable billable hour. It exists—and continues to grow—because the cost of life in America has increased dramatically while wages for most Americans have been stagnant or even falling for decades.

ABA Opinion 484: can a lawyer refer a client to a financing company in which the lawyer owns a financial interest?

At the end of November, the ABA Committee on Professional Responsibility issued Formal Opinion 484 on whether a lawyer may refer a client to a fee financing companies in which the lawyer owns a financial interest.  I have not read the opinion in full, so I can't comment on it at this time.  Here is the summary:

Lawyers may refer clients to fee financing companies or brokers in which the lawyers have no ownership or other financial interests provided they comply with Model Rules 1.2(c), 1.4(b), 1.5(a) and (b), 1.6, 1.7(a)(2), and 1.9(a). If a lawyer were to acquire an ownership or other financial interest in a finance company or brokerage and thereafter refer clients to that entity to finance the lawyer’s fees, the lawyer would be entering into a business transaction with a client, or obtaining a security or pecuniary interest adverse to the client, or both. In that instance, the lawyer would also be required to comply with Model Rule 1.8(a).

Prosecutors investigate firms that offer to pay cash to plaintiffs

According to a story in the New York Times, published March 19, federal prosecutors are investigating finance companies that provide cash advances to plaintiffs in personal injury and other lawsuits. 

Because lawyers are banned from providing financial assistance to clients involved in litigation, it is not uncommon for plaintiffs who need money quickly to either settle their claims for less than their value or to seek help from these companies which offer cash in exchange for repayment out of a future judgment plus interest.  And it is that interest that raises concerns because it is often extremely high. 

Again, due to the fact that lawyers can't help clients financially, it is also not uncommon for lawyers to suggest to their clients to go to the financing companies for help.  In fact, many of the cash-advance firms rely on lawyers to send them financially unsophisticated clients who are waiting to collect on legal settlements. And this is also under investigation. 

According to the story, federal prosecutors in Manhattan are seeking information about the business relationships between the cash-advance firms and the trial lawyers who sometimes refer their clients to the firms, apparently looking into whether there were formal financial arrangements between the parties, which could be construed as illegal kickbacks.

Those who defend the financing industry argue that it provides a crucial service, allowing customers to afford basic expenses and to hold out for potentially more attractive settlements instead of automatically accepting defendants’ initial offers. 

This is true but it does not necessarily justify the high interests which appear to be abusive.  But the industry responds to this argument by saying that the high interests charged are justified because the recovery of the financial advances are not guaranteed.  If the plaintiff does not recover a judgment in their favor, or if it is too low, the company does not recover its investment.

In response, a few states have imposed ceilings on the interest rates on settlement advances, which might be a good way to achieve an acceptable compromise.  State legislators in New York have introduced similar legislation.

Is it ethical for a firm to pay Uber to provide transportation for clients

Over at My Shingle (a blog I recommend, by the way), Carolyn Elefant discusses whether it is ethical for a law firm to pay a client's transportation costs via Uber.  Does paying for a taxi (or a rental car) for a client constitute a violation of the rule that bars attorneys from providing financial assistance to clients?  (This is assuming the client is involved in litigation because the rule does not apply if the attorney-client relationship relates to transactional matters.)  If so, why would using Uber be different?   Carolyn argues Uber is different.  You can read her comment here.