Can a lawyer help a client obtain third-party litigation financing during a case without violating the ethics rules?

Plain-English summary

A lawyer won a verdict now on appeal for a client in ill health who needs money for medical and living expenses. A finance company offers to advance funds now (for example, $50,000) in exchange for a larger sum (for example, up to $75,000) payable only from the verdict or settlement, with no payment owed if nothing is recovered. The lawyer is not a party, receives no proceeds, owes nothing to the funder, and at most acknowledges the client's lien. The committee is asked whether the lawyer may permit and assist the arrangement, and whether the nonrecourse structure (or a nonrecourse loan instead of a purchase) changes the answer.

The opinion concludes the lawyer's assistance is not a per se violation, and that the loan-versus-purchase distinction does not matter because the structures are functionally identical. It explains that Rule 1.8(e) bars a lawyer from directly providing financial assistance to a litigation client (beyond advancing court costs and expenses), but does not bar the lawyer from helping the client obtain financing from a third party (citing ISBA Op. 92-9). Rule 1.8(f) contemplates third-party payment so long as the client consents, the lawyer's independent judgment is not compromised, and confidentiality is protected.

The opinion then maps the duties the lawyer must observe: competence about litigation financing (Rule 1.1); exercising independent professional judgment and candid advice (Rule 2.1), including counseling on cost and possible usury; consulting the client about limits on the lawyer's conduct (Rule 1.4(a)(5)); the option to limit the scope of representation (Rule 1.2(c)); and above all confidentiality. Any information the lawyer gives the funder during due diligence is governed by Rule 1.6 and requires informed consent (Rule 1.0(e)), because it may waive privilege or work-product protection; evaluations for the funder are also governed by Rule 2.3 and the truthfulness duty of Rule 4.1(a). Critically, the lawyer must not let the funder direct or regulate professional judgment (Rule 5.4(c)) and must abide by the client's settlement decisions (Rule 1.2(a), 1.4(b)). The committee concludes the representation is permissible provided the lawyer heeds these rules.

In practice

Under this opinion, a lawyer may help a client obtain litigation financing and continue representing the client who has such financing; the opinion holds this is not unethical per se and that the nonrecourse-loan and purchase structures are treated the same. It holds the lawyer must stay competent on financing issues (Rule 1.1), exercise independent judgment and give candid advice including on cost (Rule 2.1), and may limit the representation's scope by informed consent (Rule 1.2(c)). On confidentiality, it holds any disclosure to the funder requires the client's informed consent under Rule 1.6 because it risks waiving privilege, and that the lawyer must not let the funder direct strategy or settlement (Rules 5.4(c), 1.2(a)). The opinion does not opine on the legality of litigation-funding agreements, which it treats as beyond its scope.

Common questions

Q: Can I help my client get litigation funding while their case is pending?

A: Yes. The opinion concludes assisting a client in obtaining third-party financing is not unethical per se and is distinct from the Rule 1.8(e) bar on a lawyer directly financing a client.

Q: Does it matter whether the funding is a nonrecourse loan or a purchase of part of the recovery?

A: No. The opinion concludes the two structures are functionally identical, so the answer does not change.

Q: Can I update the funder on the case as the contract requires?

A: Only with the client's informed consent. The opinion concludes disclosures to the funder are governed by Rule 1.6 and may waive privilege, and the lawyer must not let the funder direct strategy or settlement under Rule 5.4(c).

Background and rules framework

The opinion interprets Illinois Rule of Professional Conduct 1.8(e) and 1.8(f) (financial assistance to clients and third-party compensation), Rule 2.1 (independent judgment), Rule 1.6 (confidentiality), Rule 5.4(c) (no third-party control of judgment), and supporting Rules 1.1, 1.2, 1.4, 2.3, and 4.1(a). These correspond to Model Rules 1.8, 2.1, 1.6, and 5.4.

Citations and references

Rules:

• Illinois RPC 1.8(e), (f) (MR 1.8): financial assistance and third-party compensation
• Illinois RPC 2.1 (MR 2.1): independent professional judgment
• Illinois RPC 1.6; 1.0(e) (MR 1.6, 1.0): confidentiality and informed consent
• Illinois RPC 5.4(c) (MR 5.4): no third-party direction of professional judgment
• Illinois RPC 1.1, 1.2(a), (c), 1.4, 2.3, 4.1(a): supporting duties

Other opinions cited:

• ISBA Op. 92-9 (1993): assisting a client in obtaining a loan
• NYC Bar Formal Op. 2011-2 (third-party litigation financing); ABA Commission on Ethics 20/20 Report (2011)

See also

• NY State Bar Op. 1108: Referring Clients to Third-Party Fee Financing
• NY State Bar Op. 553: Attorney Loan to a Client
• ISBA Ethics Op. 12-19: Use of Advance Payment Retainers in Family Law Matters

Source

• Landing page: https://www.isba.org/ethics/opinions/1902