Philadelphia Bar Association Gives Guidance on Plaintiff Funding

Surgical Funding for Plaintiffs
May 6, 2014
2014 CAALA Annual Convention
September 4, 2014

Recently, the Philadelphia Bar Association Professional Guidance Committee issued an opinion, PA Eth. Op. 2013-8, reaffirming the Bar Association’s position that it is permissible for an attorney to arrange for third-party litigation financing for a client. However, the Guidance Committee cautioned that attorneys must be careful in how they approach such a transaction. Accordingly, the Guidance Committee determined that an agreement by two attorneys to provide financing to each other’s clients is unethical.

In the inquiry sent to the Guidance Committee, a personal injury attorney asked whether they could refer their clients to third party attorney in exchange for the third party attorney referring its clients back to the inquiring attorney. While attorneys in Pennsylvania are generally permitted to help a client obtain financial assistance from a third party to pay living expenses, under Pennsylvania Rule of Professional Conduct 1.8(e) (which mirrors the ABA’s Model Rules of Professional Conduct), they cannot personally provide such assistance to the client.

Despite there being no quid pro quo between the inquiring attorney and third party attorney, the Guidance Committee concluded that the transaction was unethical because it could affect the attorney’s ability to provide the client with competent and independent representation. In particular, the Guidance Committee stated that the apparent mutuality of the arrangement raised concerns regarding conflicts between the attorneys’ personal interests and those of the clients they represent. For instance, in the scenario posed by the inquiring attorney, a “referral fee” was received for each transaction. Further, neither attorney discussed the impact of signing the financing agreement with their client. In fact, after the Guidance Committee reviewed the financing agreement and it found that the agreement was internally inconsistent, unclear and confusing.

Thus, when assisting a client in obtaining financing, an attorney should consult their state’s rules of professional conduct and local Bar Association’s ethics opinions, as well as: (1) evaluate whether the transaction is in their client’s best interest; (2) fully disclose any advantages or disadvantages of entering into the transaction, including any financial ramifications; (3) be completely separate and independent from the financing entity; (4) maintain attorney-client privilege and client confidentiality; and (5) advise the client of any potential conflicts of interest, including if the attorney transacts business with a loan company on a regular basis. By following these guidelines the attorney can ensure their guidance will not interfere with their duty to provide a client with competent and independent representation.

Click for full opinion: PA Eth. Op. 2013-8 (Phila. Bar Assn. Prof. Guid. Comm.), 2014 WL 1677066 (2014).

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