Ezel / Ethics Opinions / NYSBA
NYSBA November 2, 2020

Can a law firm refer its clients to a litigation financing company owned by the spouse of a lawyer who is Of Counsel to the firm?

Short answer: No. The opinion concludes that because the Of Counsel lawyer could not personally advance litigation funding to clients under Rule 1.8(e), he cannot refer clients to his spouse's financing company, and Rule 1.10(a) imputes that conflict to the whole firm.

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This page answers the general question as of 2020. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.

Currency note: this opinion is from 2020
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
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Plain-English summary

A two-partner firm also lists a former partner, who holds no equity, as both "retired" and "of counsel"; the firm's website profiles him under "Our Attorneys" and says he maintains a role with the firm in an Of Counsel capacity. The firm wants to refer clients who need financial help to the former partner's wife, who is the sole owner of a litigation financing company. The former partner would have no involvement in or ownership of the financing, and the firm would neither participate in nor own any part of it.

The opinion concludes the referral is barred. It relies on N.Y. State 855 (2011), which held that a lawyer may not refer a client to a litigation financing company owned by the lawyer's spouse to advance funds based on the prospective recovery if the lawyer would personally be barred from providing that assistance. The committee restates the reasoning of N.Y. State 855 that a lawyer could not personally form such a company to advance funds, because Rule 1.8(e) bars the lawyer from advancing funds to clients as loans. Because the Of Counsel lawyer could not personally provide the financing, he may not refer clients to his wife's company.

The committee then applies Rule 1.10(a), under which a lawyer's Rule 1.8 conflicts are imputed to all other lawyers associated in the firm. The factual wrinkle, that the lawyer is "retired" and Of Counsel rather than an active partner, does not change the outcome: under Rule 7.5(a)(4) an "Of Counsel" designation reflects a continuing relationship, and prior opinions (N.Y. State 793 (2006)) treat Of Counsel as meaning the lawyer is available to the firm on a regular and continuing basis. Because the former partner remains associated with the firm, his conflict is imputed to the other lawyers, so the firm may not make the referral.

In practice

Under this opinion, when a lawyer is associated with a firm (including as Of Counsel) and could not personally advance litigation funding to clients under Rule 1.8(e), the firm may not route the same clients to a financing company owned by that lawyer's spouse. The opinion holds that, under the New York rules as they stood at the time, the Rule 1.8(e) bar that attaches to the individual lawyer is imputed to the firm under Rule 1.10(a), and an Of Counsel designation counts as an ongoing association for imputation purposes.

Common questions

Q: Can a firm refer clients to a litigation funder owned by an Of Counsel lawyer's spouse?

A: No. Per the opinion, because the Of Counsel lawyer could not personally advance such funding under Rule 1.8(e), he cannot refer clients to his spouse's company, and Rule 1.10(a) imputes that bar to the firm.

Q: Does it matter that the lawyer is "retired" and holds no equity?

A: No. Per the opinion, an Of Counsel designation reflects a continuing relationship with the firm under Rule 7.5(a)(4), so the lawyer remains "associated" with the firm and his conflict is still imputed.

Q: What rule actually prohibits the underlying financing?

A: Per the opinion, Rule 1.8(e) bars a lawyer from advancing funds to a client as a loan, which is why the lawyer could not personally provide litigation financing.

Background and rules framework

The opinion interprets New York Rule 1.8(e) (financial assistance to a client in connection with litigation), Rule 1.8(i) (proprietary interest in litigation), Rule 1.10(a) (imputation of conflicts within a firm), and Rule 7.5(a) (Of Counsel designation). These correspond to ABA Model Rules 1.8, 1.10, and 7.5.

Citations and references

Rules of Professional Conduct:

  • New York Rules of Professional Conduct 1.8(e), 1.8(i), 1.10(a), 7.5(a)(4)
  • ABA Model Rules 1.8, 1.10, 7.5 (analogues)

Other opinions cited:

  • N.Y. State 855 (2011): referrals to a spouse-owned litigation financing company
  • N.Y. State 1196 (2020): financial assistance to clients
  • N.Y. State 1145 (2018): financial assistance to clients
  • N.Y. State 793 (2006): meaning of an Of Counsel relationship

See also

Source

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