Can a New Hampshire lawyer represent a client whose legal fees are paid through donation-based crowdfunding, and what ethical duties apply?

Plain-English summary

The opinion addresses donation-based crowdfunding (DBC), in which small donations are solicited from many people to fund a specific person's legal matter, and donors get no control over the matter and no financial interest in its outcome. The Committee concludes that taking such a matter is not unethical per se, but encourages substantial caution because the ethical concerns grow as the lawyer becomes more involved in the fundraising. It distinguishes DBC from equity-based crowdfunding and other litigation finance, and refers to its prior guidance on non-recourse lawsuit financing (Opinion 2004-05/01).

On commencing the engagement, the opinion strongly encourages a written engagement letter addressing how funds are drawn down and what happens if donations exceed or fall short of costs, or if the representation ends. Because the money comes from someone other than the client, Rule 1.8(f) requires the client's informed consent, no interference with the lawyer's independent judgment, and protection of confidential information under Rule 1.6. The opinion revisits its earlier suggestion that such financing could itself be a "business transaction" under Rule 1.8(a); it now considers that language overbroad and clarifies that merely receiving fees from a client's third-party arrangement does not, by itself, create a Rule 1.8(a) business transaction, though deep involvement in the fundraising can. It also stresses the Rule 1.1 duty to understand how the platform works and Rules 8.4(b) and (c) on avoiding illegal conduct such as fraud or money laundering.

On counseling the client, the opinion emphasizes the duty to advise about privilege risks: a compelling public fundraising post can give an adversary valuable information, and communications with funders may be found unprivileged, raising the danger of subject-matter waiver. The lawyer must also discuss the impact of the fundraising on the matter, available alternatives, and tax consequences (the IRS may treat donations as taxable income). On communications with donors, statements must be truthful and must not create unjustified expectations (Rules 4.1 and 7.1); donors should be told whether funds are nonrefundable, how unearned funds will be handled, that they will not receive confidential information, and that they will not control the lawyer's work. Where a lawyer pays a platform a percentage, the advertising rules (Rules 7.1, 7.2) may apply. Finally, on raised funds, the opinion stresses that fees must be both reasonable and earned even under a flat fee (Rules 1.5(a), 1.15); unearned funds remain the client's property; a lawyer may not personally retain a windfall; funds raised by the lawyer for legal costs cannot be used as financial assistance to the client (Rule 1.8(e), noting New Hampshire did not adopt ABA Model Rule 1.8(e)(3)); and the lawyer should have a plan to stop fundraising once enough is raised.

In practice

The opinion holds that, under the New Hampshire rules as they stood when it issued, donation-based crowdfunding of a client's matter is permitted but carries layered duties. A lawyer should use a written engagement letter, obtain the client's informed consent to third-party payment under Rule 1.8(f), preserve the lawyer's independence and the client's confidentiality, and counsel the client on privilege, fundraising alternatives, and tax exposure. Communications to donors must be truthful and disclose the limits of their role; paying a platform can implicate the advertising rules. Fees must stay reasonable and earned, unearned funds belong to the client, and the lawyer cannot keep a windfall or use raised funds as prohibited financial assistance under Rule 1.8(e). The opinion also modifies Opinion 2004-05/01 to clarify that receiving fees from a client's third-party funding is not by itself a Rule 1.8(a) business transaction.

Common questions

Q: Can a New Hampshire lawyer take a case funded by a GoFundMe-style campaign?

A: Yes. The opinion concludes that representing a client in a matter funded through donation-based crowdfunding is not unethical per se, while encouraging substantial caution.

Q: Does the client have to consent to being funded by donors?

A: Yes. Because the money comes from someone other than the client, the opinion applies Rule 1.8(f): the client must give informed consent, the lawyer's independent judgment must not be compromised, and confidential information must be protected.

Q: What is the biggest risk to flag for the client?

A: Confidentiality and privilege. The opinion stresses that a compelling public fundraising post can hand an adversary information, that communications with funders may be deemed unprivileged, and that subject-matter waiver can render an entire topic non-privileged.

Q: What happens to money raised beyond the cost of the representation?

A: The opinion states fees must be reasonable and earned even under a flat fee, that unearned funds remain the client's property, and that a lawyer may not personally retain a windfall; excess may be donated to a non-profit or used for similar litigation if the engagement letter so provides.

Q: Do the advertising rules apply to a crowdfunding campaign?

A: They can. The opinion says a lawyer who compensates a platform that takes a percentage of funds raised should assume the lawyer is advertising, implicating Rules 7.1 and 7.2 and the limit on reasonable costs.

Background and rules framework

The opinion interprets a cluster of New Hampshire rules: Rule 1.5 (fees, including the reasonable-and-earned requirement and written-agreement preference of Rule 1.5(b)), Rule 1.8 (specific conflicts, including 1.8(a) business transactions, 1.8(e) financial assistance, and 1.8(f) third-party payment), Rule 1.6 (confidentiality), Rule 1.15 (safekeeping property), Rules 1.1, 1.2, 1.3, 1.4, and 2.1 (competence, scope, diligence, communication, and advising the client), Rules 4.1 and 7.1 (truthfulness to others and about the lawyer's services), Rule 7.2 (advertising), Rule 5.4(c) (independence), and Rules 8.4(b) and (c) (misconduct). It builds on the Committee's prior Opinion 2004-05/01 on non-recourse lawsuit financing, which it modifies.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NH Rule 1.5(a), (b) (fees; reasonable and earned)
• MR 1.8 / NH Rule 1.8(a), (e), (f) (business transactions; financial assistance; third-party payment)
• MR 1.6 / NH Rule 1.6 (confidentiality of information)
• MR 1.15 / NH Rule 1.15 (safekeeping of property)
• MR 4.1, 7.1, 7.2 / NH Rules 4.1, 7.1, 7.2 (truthfulness; communications about services; advertising)
• MR 8.4 / NH Rule 8.4(b), (c) (misconduct)

Cases:

• Leader Techs., Inc. v. Facebook, Inc., 719 F. Supp. 2d 373 (D. Del. 2010), disclosure of documents shared with financing companies
• Abrams v. First Tenn. Bank Nat'l Ass'n, 2007 WL 320966 (E.D. Tenn. Jan. 30, 2007)

Other opinions cited:

• NH Ethics Committee Advisory Opinion 2004-05/01, Non-Recourse Lawsuit Financing
• DC Bar Ethics Opinion 375 (2018), crowdfunding
• ABA Formal Op. 463 (2013), money laundering
• Philadelphia Bar Association Professional Guidance Committee Opinion 2015-6

See also

• DC Bar Op. 375: Ethical Considerations of Crowdfunding
• Arizona Bar Op. EO-20-0003: Fee-Financing Arrangement

Source

• Landing page: https://www.nhbar.org/2021-22-02-crowdfunding-legal-fees
• Original PDF: https://nhba.s3.amazonaws.com/wp-content/uploads/2022/07/06144559/EO-2021-22-02-Crowdfunding-Legal-Fees-Opinion-FINAL-6-9-2022.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

NEW HAMPSHIRE BAR ASSOCIATION
Crowdfunding Legal Fees
Ethics Committee Opinion #2021-22/02

ABSTRACT:
Representing a client in a matter funded in whole or in part through donation-based
crowdfunding is not unethical per se. Lawyers are encouraged to exercise substantial caution
when undertaking a crowdfunded matter, however, as ethical concerns abound and increase as an
attorney’s involvement with the fundraising increases.
ANNOTATIONS:
Lawyers contemplating undertaking a crowdfunded matter are encouraged to exercise caution.

Lawyers are encouraged to employ a written engagement letter and must satisfy the client
consent and other duties arising where a third-party funds litigation. Lawyers should understand
a contemplated crowdfunding platform’s functionality, and alternatives, sufficiently to enable
them to reasonably counsel the client about the potential impact on the client’s matter, with
particular attention to privilege.

Lawyers should consider their duties to potential donors, including truthful disclosure.

Lawyers should consider how funds will make their way from the platform to the lawyer’s
operating account and how funds raised in excess of the cost of the representation will be
disposed of. Bear in mind that at the end of the day, fees and expenses must be “reasonable” and
“earned.”

                                        OPINION

Background:
This Opinion discusses the ethical concerns presented by donation-based crowdfunding, which
appears to be growing in popularity as a means of financing legal representation for those who
might not otherwise be able to afford it.
Through Internet-based crowdfunding, typically small amounts of money are raised from a large
number of people. Funds may be raised for virtually any legal purpose, using one of the many
platforms designed for that purpose. Crowdfunding platforms offer five basic types of incentives
that projects seeking funding may offer funders: debt, equity, royalty, and donation (with or
without “rewards”).
In the emerging scenario we consider here, legal services are funded though donation-based
crowdfunding (“DBC”). Contributions are solicited to fund a specific individual’s specific legal
matter. Donors acquire neither any control over the matter nor any direct financial interest in its
1
outcome. Solicitation of donations may take various forms and typically involves processing
donations through one of the many Internet platforms designed for that purpose. If contributors
are offered “rewards,” the rewards are limited in type and value as discussed below.
The DBC model is distinct from equity-based crowdfunding and other forms of alternative
litigation finance. Those funding sources raise some of the same ethical concerns as DBC; note
the Committee’s prior guidance concerning non-recourse litigation funding. New Hampshire
Ethics Committee Advisory Opinion #2004-05/01 Non-Recourse Lawsuit Financing.
DBC presents a variety of ethical concerns, concerns that increase as the attorney’s involvement
in the fundraising increases.
I. Commencing the Engagement

Engagement Letters. The Committee strongly encourages the use of written engagement letters
in matters involving DBC. Cf. NHRPC Rule 1.5(b) (written agreement preferable but not
required). The engagement letter should be clear regarding the terms under which the funds will
be drawn down. NHRPC Rule 1.5(b). It should also be clear how lawyer and client will proceed
not just if donations exceed costs (whether due to natural conclusion, settlement, or the client’s
decision not to pursue the matter) but also if costs exceed donations, or because for whatever
reason the attorney-client relationship terminates. Subject to NHRPC Rule 1.6, plans for these
contingencies ought to be disclosed to donors if necessary to make the pitch truthful. NHRPC
Rules 1.1, 1.3, 2.1., 4.1 and 7.1.
Duties Where Receiving Funds From Other Than the Client. Compensation may be accepted
from a source other than the client only when the following conditions set forth in NHRPC 1.8(f)
are satisfied: “(1) the client gives informed consent; (2) there is no interference with the lawyer's
independence of professional judgment or with the client-lawyer relationship; and (3)
information relating to representation of a client is protected as required by Rule 1.6.” NHRPC
1.8(f).
Potential Business Transaction. A lawyer should always be alert to the possibility that their
contemplated conduct might constitute a “business transaction” with a client, triggering the
disclosure and documentation requirements set forth in NHRPC Rule 1.8(a). Where a lawyer
entangles themself deeply with a client’s DBC fundraising, at some point it becomes reasonable
to assume that those disclosure and documentation requirements must be satisfied.
We do not believe, however, that the mere fact that a lawyer expects to receive fees and costs
from an arrangement a client enters into with a third party, alone, even if the resulting financing
were a condition of, and built into, the lawyer’s fee agreement with the client as a means to pay
for the representation, would give rise to a “business transaction” between lawyer and client. To
the extent our prior guidance suggested as much, we now believe that language to have been
overbroad. We previously reasoned, in the context of non-recourse financing:
to the extent that a lawyer knows or has reason to know he/she will obtain some
form of benefit, such as payment of fees and costs, through the client’s

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      participation in non-recourse lawsuit financing, such an arrangement could well
      constitute a “business transaction” between the lawyer and client.

NH Opinion 2004-05/1. In a footnote we added:
This would be especially true if participation in non-recourse lawsuit financing
was a condition of and built into the lawyer’s fee agreement as a means to pay for
the litigation.
Id., FN 5. We believe that opinion’s determination that the disclosure and documentation
requirements of Rule 1.8(a) might be implicated was based on the attorney’s intensive
involvement in a commercial transaction, rather than by the attorney’s mere receipt of funds
arising from an arrangement between client and a third party. Thus, we overstated the likelihood
that non-recourse lawsuit financing, and by implication, DBC, would per se give rise to a
“business transaction” as contemplated by NHRPC Rule 1.8(a). To that extent, we modify the
language of the prior opinion.
Understand How the Platform Works. Even if the lawyer does not intend to be involved with the
client’s use of a crowdfunding platform, the lawyer cannot adequately meet their obligations to
counsel the client, discussed below, unless the lawyer understands the basic functionality of the
platform, including how it treats funds raised on behalf of the client. A lawyer who intends to be
directly involved with use of a platform must bear in mind their obligation to understand the
risks and advantages associated with technology they use in their practice. NHRPC Rule 1.1.
Legal Duties. Lawyers must take reasonable steps to identify their legal obligations and to avoid
entangling themselves in illegal conduct. 1 NHRPC Rules 8.4(b) and (c). For example, in addition
to potential fraud and money-laundering, a lawyer may also have an obligation to identify the
source of overseas funding. Bear in mind the scope of an attorney’s duties and the limits of the
safe harbor set forth in NHRPC Rule 1.2 (d) and (e).
II. Counseling the Client

Duty to Consult with Client Generally. Nothing in the manner funds are raised excuses any of an
attorney’s obligations to their client. This includes, for example, the duty to consult with the
client and abide by their decisions. NHRPC 1.2 and 1.4.

Duty to Counsel Client re: Privilege. In particular, an attorney must consider and counsel the
client about the risks of disclosing information. As a practical matter, the success of a
crowdfunding appeal often turns on how compelling the client’s story is. A crowdfunding
website post seeking donations, like any other public social media, can provide an adversary with

1
For further discussion of potential attorney exposure under ethics rules and substantive law
where clients engage in money laundering or use criminal proceeds to fund legal services, see
DC Bar - Ethics Opinion 375 (2018); ABA Formal Op. 463 (2013); “Houston, We Have a
Problem: Clients Who Engage in Unlawful Conduct During Your Representation,” Winter /
Spring 2015 Edition of the ABA White Collar Crime Committee Newsletter, pages 1 and 9-11.

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valuable information. Communications with funders may later be deemed to be unprivileged, an
issue which has arisen in third-party funded matters in other jurisdictions. 2 Bear in mind the
treacherous doctrine of subject matter waiver under which an entire topic can be rendered non-
privileged. If confidentiality may already have been compromised, consider what damage control
can be implemented.
Duty to Counsel Client re: Relevant Considerations: Even if the lawyer plans to have no
involvement in a client’s fundraising, the lawyer has a duty to discuss with their client the
potential impacts of the fundraising on the contemplated litigation, including available
alternatives, the pros and cons of such financing, the ramifications on a potential recovery and
any other material considerations. NHRPC Rule 1.3. See New Hampshire Ethics Committee
Advisory Opinion #2004-05/01. The lawyer’s duty to counsel the client extends to potential legal
consequences of soliciting donations which the client might not otherwise anticipate. NHRPC
Rules 1.1, 1.4(b) and 2.1. Where a lawyer is more deeply involved with the client’s engagement
with the DBC platform, the lawyer may have a duty to familiarize themself with the platform’s
terms of service and to advise the client about potentially significant terms, e.g., waiving jury
trial rights or agreeing to binding arbitration.
Tax Issues: The IRS may deem funds raised through DBC to be income taxable to the client.
The lawyer should advise their client to seek appropriate guidance. The risk of a client neglecting
this issue may be heightened due to some crowdfunding platforms reportedly structuring
disbursements to avoid triggering the platforms’ IRS reporting obligations.
III. Communications with Potential Donors

Disclosure Duties. Communications between the attorney and potential donors must be truthful
and must not raise “an unjustified expectation about results the lawyer can achieve.” See NHRPC
Rules 4.1 (truthfulness in statements to others) and 7.1 (communications concerning a lawyer’s
services). Donors should be informed where their funds will be nonrefundable, how any
unearned donated funds will be distributed at the conclusion to the matter, that donors will not
receive confidential information about the client's matter, and that donors will not have any
opportunity to exert control over the lawyer's work. Depending on the circumstances, the
attorney may be obligated to make such disclosures, see NHRPC Rules 4.1 and 7.1, or may be
obligated to advise the client to make the disclosures. See NHRPC Rules 1.1, 1.3 and 2.1.
The Ethics of Attorney Advertising May Apply: Some online DBC platforms collect payment
processing fees and receive a percentage of the funds raised if a campaign is successful. A
lawyer compensating a third party to raise funds for a specific case would be wise to assume that

2
See, e.g., Leader Techns., Inc. v. Facebook, Inc., 719 F. Supp. 2d 373 (D. Del. 2010)
(compelling disclosure of documents shared with financing companies during discussions about
potential financing); see also Abrams v. First Tenn. Bank Nat'l Ass'n, No. 3:03-cv-428, 2007 WL
320966, at *1 (E.D. Tenn. Jan. 30, 2007); see also Nate Raymond, Litigation Funders Face
Discovery Woes, NAT'L L.J., Feb. 21, 2011 (reporting that in at least one case, the initial
conversations between a funding company and the client were not protected from disclosure by
the attorney-client privilege).
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the lawyer is engaged in advertising. In addition to the usual ethical concerns raised by attorney
advertising, see in particular NHRPC Rules 7.1 and 7.2 and the comments thereto, and usual
practices (such as disclosing the name, office address and jurisdictions of admission of at least
one involved attorney) consider that any compensation the platform receives (or retains) must
not exceed the “reasonable costs” permitted under Rule 7.2(b)(1). Consider any relevant
disclaimers, e.g., that a donation neither establishes an attorney-client relationship, nor entitles a
donor to an equity interest or to any control over the matter.
Beware of “Perks” and “Rewards.” With respect to “perks” and “rewards” for donors, the coin
of the crowdfunding realm, lawyers must tread cautiously. For example, there is no clear ethical
bar to a lawyer committing to providing periodic updates to donors concerning the matter,
provided communications are client-approved, and contain no confidential information. The
thoughtful lawyer may be cautious however, about the risk of suggesting that donors will have
any influence over the lawyer’s prosecution of the matter.
IV. Treatment of Raised Funds

Disbursement of Funds. The functionality of the platform utilized will determine how raised
funds may be disbursed and how unutilized funds may be returned to donors or otherwise
disposed of. For example, funds may be received by the client and disbursed to the attorney as
billed, held by the crowdfunding platform and disbursed to the lawyer upon invoice, or deposited
in the attorney’s client trust account as raised, to be drawn down as earned by the attorney.
Fees and Expenses Must be “Reasonable” and “Earned.” Whether paid upon invoice or drawn
down from the attorney’s trust account, fees must be both “reasonable” and “earned,” even if the
retainer sets forth a flat-fee agreement. NHRPC Rules 1.5(a) and 1.15. 3 Any such funds not
reasonably earned by the conclusion of the matter remain the property of the client, unless
otherwise set forth in the client engagement letter, if not also the solicitation to donors. While we
see no obstacle to excess funds being donated to a non-profit or allocated to fund similar
litigation involving another client, it would be unethical for an attorney to personally retain a
windfall that is not both “reasonable” and “earned” in a non-contingent matter. NHRPC Rule
1.5(a).
Funds Raised by a Lawyer for Legal Costs Cannot be used for the Client’s Assistance: A lawyer
who becomes so materially involved in the fund-raising process as to be raising funds on behalf
of the client must bear in mind the prohibition on providing financial assistance set forth in Rule
1.8(e). Note that New Hampshire chose not to adopt the ABA’s Model Rule 1.8(e)(3) permitting
lawyers to offer such assistance to indigent clients.
Donations Exceeding Reasonable Costs: The solicitation of donations in excess of reasonably
anticipated costs could raise various ethical concerns. See, e.g., NHRPC Rules 4.1 (Truthfulness

3
See Practical Suggestions for Flat Fees or Minimum Fees in Criminal Cases, Ethics Committee
Practical Ethics Article, presented to the Board of Governors January 17, 2008 (available at:
https://www.nhbar.org/resources/ethics/ethics-corner-practical-ethics-articles/2008-01)

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in Statement to Others), 8.4(c) (which prohibits a lawyer from engaging in dishonest or deceitful
conduct) and 1.5(a) (which prohibits a lawyer from seeking an unreasonable fee). Ethics authorities
in other jurisdictions 4 have identified the risk that a lawyer might be perceived as seeking an
unreasonable fee due to the potential to raise funds in excess of the costs of the representation and
a perception that the client might exercise less rigorous oversight over the lawyer’s billings than if
the funds were the client’s own. The lawyer should ensure that a plan is in place to terminate
fundraising when sufficient funds have been raised.
NH RULES OF PROFESSIONAL CONDUCT:
Rule 1.1 (Competence)
Rule 1.2(a), (d) and (e) (Scope of Representation)
Rule 1.3 (Diligence and Zeal)
Rule 1.4 (a) and (b) (Communication)
Rule 1.5(a) (Fees)
Rule 1.6 (a) (Confidentiality of Information)
Rule 1.8 (a), (e) and (f) (Conflicts of Interest: Specific Rules)
Rule 1.15 (Safekeeping of Property)
Rule 2.1 (Advisor)
Rule 4.1 (Truthfulness in Statements to Others)
Rule 5.4 (c) (Professional Independence of a Lawyer)
Rule 7.1 (Communications Concerning a Lawyer’s Services)
Rule 7.2(b) (Advertising)
Rule 8.4(b) and (c) (Misconduct)

NH ETHICS COMMITTEE OPINIONS AND ARTICLES:
“Non-Recourse Lawsuit Financing,” Ethics Committee Advisory Opinion #2004-05/01 (2005)

SUBJECTS:
Crowdsourcing
Crowdfunding
Donation-based funding of legal services

4
See, e.g., “Ethical Considerations of Crowdfunding,” DC Bar - Ethics Opinion 375 (November
2018); Philadelphia Bar Association Professional Guidance Committee Opinion 2015-6
(2015); and Palmer, Mark, “Is Crowdfunding Legal Services Ethically Permissible?” Web blog
post, 2Civility, Illinois Supreme Court Commission on Professionalism; January 21, 2019
(updated August 16, 2020).
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• By the NHBA Ethics Committee
This opinion was submitted for publication to the NHBA Board of Governors at its
June 17, 2022 meeting.