Ethical Considerations in Litigation Financing

Third-Party Funding: Growth, Regulations and Court Decisions

The world of litigation financing has taken the legal industry by storm. Those savvy to the market have recognized a steady uptick in the number of law firms using third-party funding to help offset litigation costs, get more clients and provide better representation across the board. Litigation financing is helping law firms big and small to serve more clients, bring more cases to court and compete in an otherwise overcrowded market. As the year roars ahead it is imperative to look at any ethical considerations behind this type of lending and potential for regulation in the future.

Business is Booming

As we last reported, litigation financing has seen impressive growth over the past five years, and most expect the industry to continue its rise. Many feel that the legal sector was yearning for this kind of help as the cost to litigate continues to skyrocket. Luckily, the world of litigation financing is relatively recession-proof as it does not rely on other markets to thrive so a looming decline in the overall economy will not stop this steam engine.

Litigation financing is no longer in its infancy. As it matures, so does the willingness of law firms to use it as a resource. Growing familiarity has helped the third-party funders to become a household name among plaintiff firms, those representing victims of mass torts and commercial litigants. Next year holds the potential for litigation financers to back defense firms as well and groups or aggregated portfolios.

To Disclose or Not to Disclose

Some have called for more transparency on the part of plaintiffs (and perhaps defense-side litigation in the future) that use third-party funding to back their cases. It is unclear exactly how litigation funding is impacting lawsuits, other than evening the playing field for those who were previously unable to bring their case to court. Currently, the US Chamber of Institute for Legal Reform (ILR) and others submitted a revision to the Federal Rules of Civil Procedure. The change would require "disclosure of funding arrangements in which parties have a contingent financial interest to the court and litigants." While the revision was not adopted by the Committee on Rules of Practice and Procedure of the Administrative Office of the United States Courts, a subcommittee was formed to discuss whether there should be a formal rule established requiring disclosure.

In 2017, at the request of the ILR, the Northern District of California amended a standing order to require the disclosure of funding in class action lawsuits and Wisconsin requires all parties to disclose litigation financing. Other states and regulatory bodies have yet to make a decision about disclosure requirements.

Keeping it Under Control

Another concern is whether third-party funders could exert any control over the litigation based on their financial backing. Most attorneys would not sacrifice control over any part of the litigation for financial assistance, so while it is essential to consider the potential for corruption, it is also well-recognized that the legal industry is hesitant to allow any interference with lawsuits or their clients. Attorneys, at their core, work hard to protect the rights of their clients and represent them with integrity and due diligence. Calls for regulation have many wondering if the litigation financing industry will take the reins and create a self-regulating body to ensure that any players operating in bad faith are immediately reprimanded.

As we move into the year ahead, and the market continues to ripen for litigation funding, we anticipate new companies entering the arena, new issues arising from calls for transparency and further ethical considerations to be tackled by regulatory bodies including the ability to fee-split with non-attorneys and the problems with backing portfolios in lieu of individual cases.

Ready to Learn More?

Litigation financing has helped many law firms to provide representation to more clients, acquire a competitive edge and grow their firms. If you are ready to explore the benefits of third-party funding contact Amicus Capital Group today. We offer law firm loans, settlement advances, law firm management consulting and a number of other options for your legal practice. Let us help you acquire more cases and provide cost-effective solutions for your clients. Call our offices toll-free today at (877) 926-4287.

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