Saturday, April 1, 2017

Ethics and Litigation Finance

Regarding this interesting issue, increasingly making news, comes a survey report sponsored by an entity in the financing space, in conjunction with the news site Above the Law, offering a good overview of several risk and ethics issues: "A Litigation Finance Ethics Primer" --
  • "Lake Whillans recently partnered with Above the Law and conducted a survey on litigation finance to learn details on who is using it, impressions of their experience, who isn’t using it and why."
  • " firms with the most experience using litigation finance were the very largest and very smallest firms surveyed: law firm size of 500+ lawyers (48.57%) and law firm size of 2-5 lawyers (58.54%). Litigators whose practice concerns the energy industry had the highest proportion of firsthand experience followed by the technology sector; finance/banking had the lowest. A resounding 85% of those with firsthand litigation finance experience would use it again."
  • "In general, a lawyer can (but it is not obligated to) raise the prospect of litigation funding to a client who may lack funds or wants to hedge litigation risk (the two most off-cited reasons to seek litigation finance per our survey).  As the American Bar Association’s Commission on Ethics 20/20 put it in its informational report on litigation finance, 'if it is legal for a client to enter into the transaction, there would appear to be no reason to prohibit lawyers from informing clients of' the existence of litigation finance companies or referring clients to particular litigation funders. The lawyer should disclose the potential conflict between her interest in having her fees paid and the client’s choice to use litigation funding, disclose any relationship with a funder, and obtain informed consent as necessary."
  • "The prohibition on champerty–which has been defined by the U.S. Supreme Court as “[helping another prosecute a suit] in return for a financial interest in the outcome”– is fading in the United States where it ever existed at all. Federal law never adopted the prohibition; neither did states such as California and Texas."
  • "Communications with a funder are not per se protected by the attorney-client privilege, since the financier, while often comprised of trained attorneys, is not acting as the client’s legal counsel. There is an unsettled question as to whether the common interest exception would nonetheless apply; courts that have considered it have split on this issue."
The full report is also available online here.

In related news, the Second Circuit just upheld the ban on private investments in law firms.

And for those reading to the end (always recommended), a fascinating historical tidbit: "A Texas-Sized Centennial for Vinson & Elkins" --
  • "Three years later, in 1924, Elkins made arguably a bigger contribution to the firm’s growth by starting a bank, Harrington said. Called the Guaranty Trust Company, it eventually became First City National Bank, one of the largest banks in Texas by the 1970s. As the bank chairman, Elkins offered his law partners access to credit, and gave his law firm a steady stream of clients — any of his bank clients would be referred to Vinson & Elkins for their legal needs."
  • "'I couldn’t say definitely if Elkins was the only lawyer to start a bank, but it is definitely unusual,' said William Henderson, a law professor at Indiana University. 'Of course, in the 20s, there wasn’t the public’s concern over conflict of interest like there is now.'"

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