Can a personal injury lawyer also represent the client in a deal with a litigation funding company that advances cash for a share of the recovery, and charge a separate fee for that work?

Plain-English summary

The committee was asked whether a lawyer representing a personal injury client on contingency may also represent the client in a transaction with a litigation financing company that advances cash for a portion of any eventual recovery, and whether the lawyer may charge a separate fee for that work. The committee revisits the subject it last addressed in N.Y. State 666.

The committee declines to opine on whether such financing transactions are legal, noting they implicate New York's rules against maintenance and champerty (Judiciary Law sections 488-489), the bar on transferring personal-injury claims (General Obligations Law section 13-101), the distinction between transferring a claim and assigning its proceeds, and out-of-state authority (the Ohio Supreme Court held such arrangements void as champerty in Rancman). If the transaction is illegal, it would be unethical for the lawyer to recommend or assist it (DR 1-102(A)(3); DR 7-102(A)(7)-(8)). If it is legal, the lawyer may assist, subject to caveats.

The caveats: the lawyer may not own any interest in the financing institution and may not accept compensation from it (DR 5-101(A), DR 5-104(A), DR 1-106, DR 5-107(A)(2)), and may not let the funder affect the lawyer's independent professional judgment (EC 5-1). The lawyer may also have a personal interest creating a DR 5-101(A) conflict, for example wanting the financing to ensure repayment of advanced expenses, or wanting referral relationships with funders, or conversely viewing the deal as adverse to the lawyer's interests; where such circumstances exist, the lawyer needs disclosure and consent under DR 5-101(A). Because the funder will want information about the claim, the lawyer must protect confidences (DR 4-101(B), (C)(1)) and should warn the client that disclosing privileged information to the funder may waive the attorney-client privilege and expose it to discovery. The lawyer should also consider whether an updated engagement letter is required and, under EC 7-8, advise the client of the costs, benefits, and alternatives, given that such financing can carry very high interest rates.

On the fee, assuming the original contingent-fee agreement covered only the underlying personal injury matter, the financing work is a new and different matter for which the lawyer may charge a separate fee, so long as it is not excessive (DR 2-106(A), (B)) and the total does not exceed the Appellate Division's maximum-fee rules for personal injury cases.

In practice

Under the New York Code as it stood at the time, the opinion holds that the threshold question, legality of the financing, is one of law the lawyer must resolve, because assisting an illegal transaction is unethical. Assuming legality, the committee permits the dual representation and a separate fee, but fences it with independence safeguards: no ownership of or payment from the funder, a personal-interest conflict analysis under DR 5-101(A) with disclosure and consent where the lawyer's own stake could affect judgment, and careful handling of confidences disclosed to the funder, including a warning about privilege waiver. The separate fee must be non-excessive and must keep the total within the personal-injury fee caps.

Common questions

Q: Can the personal injury lawyer also handle the client's litigation-funding deal?

A: Yes, if the financing transaction is legal. The committee permits the lawyer to assist, subject to caveats, but does not opine on whether the transaction itself is legal.

Q: Can the lawyer own a stake in or take a fee from the funding company?

A: No. The committee holds the lawyer may not own an interest in the funder and may not accept compensation from it, citing DR 5-101(A), DR 5-104(A), DR 1-106, and DR 5-107(A)(2).

Q: What about confidentiality when the funder wants case information?

A: The lawyer must protect confidences under DR 4-101 and should warn the client that disclosing privileged information to the funder may waive the attorney-client privilege and make it discoverable by an adversary.

Q: Can the lawyer charge a separate fee for the financing work?

A: Yes, if the original contingent fee covered only the underlying matter. The financing work is a new matter for which a separate, non-excessive fee is permissible, provided the total stays within the Appellate Division's personal-injury fee limits.

Background and rules framework

The opinion applies New York's former Code of Professional Responsibility. DR 5-103(B) addresses advancing litigation costs, DR 5-104(A) and DR 1-106 address business transactions and lawyer-owned nonlegal services, and DR 5-107(A)(2) bars accepting compensation from a third party for the representation without informed consent (the subjects of Model Rule 1.8, including 1.8(f)). DR 5-101(A) governs personal-interest conflicts (Model Rule 1.7). DR 4-101 governs confidentiality (Model Rule 1.6). DR 2-106 governs reasonable fees (Model Rule 1.5). The committee layers these onto the unresolved legal question of maintenance and champerty.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (business transactions; third-party compensation; lawyer's financial interest); NY DR 5-103(B), DR 5-104(A), DR 5-107(A)(2), DR 1-106
• MR 1.7 (personal-interest conflicts); NY DR 5-101(A)
• MR 1.6 (confidentiality); NY DR 4-101(B), (C)(1)
• MR 1.5 (reasonable fees); NY DR 2-106(A), (B)

Statutes:

• N.Y. Judiciary Law sections 488-489: maintenance and the buying of claims to sue on them
• N.Y. General Obligations Law sections 13-101 and 13-103: transfer of personal-injury claims and of money judgments

Cases:

• Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217 (Ohio 2003), litigation-funding arrangement void as champerty under Ohio law
• Elliott Assoc. v. Banco de la Nacion, 194 F.3d 363 (2d Cir. 1999), scope of Judiciary Law section 489
• Leon v. Martinez, 84 N.Y.2d 83 (1994), assignment of settlement proceeds

Other opinions cited:

• N.Y. State 666 (1994): a lawyer may refer a client to a litigation funder if not paying the funds, owning no interest, and taking no referral fee
• N.Y. State 752 (2002): limits on a lawyer providing legal and nonlegal services in the same transaction
• Florida Op. 00-3 (2002): cautions about advance-funding companies

See also

• NY State Bar Op. 1051: Taking a contingent fee from a litigation-funding advance
• NY State Bar Op. 1196: Referring a client to a sibling-owned litigation funder
• NY State Bar Op. 1206: Referring clients to a spouse-owned litigation financing company
• NY State Bar Op. 808: Security interest in litigation proceeds for fees

Source

• Landing page: https://nysba.org/ethics-opinion-769/