This paper addresses third-party provision of funds to plaintiff’s attorneys to cover litigation expenses in return for a repayment of principal plus a return on principal (“Third-Party Lawyer Funding”). A large number of state ethics commissions have opined that Model Rule of Professional Responsibility 5.4 and its State counterparts prohibit Third Party Lawyer Funding as a form of fee-splitting. I argue that 5.4 should be read to allow Third-Party Lawyer Funding.
The main rationale of commissions and others that have disapproved Third-Party Lawyer Funding is that the non-lawyer sharing the fee will be tempted to interfere with the lawyer’s independent decision-making. This concern about control and interference is misplaced. First, it is reasonable to presume that funders select lawyers to fund based on an assessment that the lawyers are skilled. Second, a funder can contractually commit not to interfere with the lawyers’ independent professional judgment. Third, third-party lawyer funding allows lawyers to expend the resources they think are likely to produce the best results for their clients and hence increases independent professional judgment. Fourth, such funding can help ameliorate the potential conflicts of interest that commentators have long identified as a concern with contingency fee arrangements.