NYSBA 2011-03-14

Can a lawyer refer litigation clients to a litigation financing company owned by the lawyer's spouse?

Short answer: No, not to provide financial assistance the lawyer is personally barred from giving. Rule 1.8(e) bars a lawyer from advancing or guaranteeing living-expense funds to a litigation client, and that bar cannot be evaded by routing the loan through a spouse's company; doing so would violate Rule 1.8(e) 'through the acts of another' under Rule 8.4(a).

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NYSBA Ethics Opinion 855: Referring Clients to a Spouse's Litigation Funder

Short answer: A lawyer conducting litigation for a client may not refer that client to a litigation financing company owned by the lawyer's spouse to provide financial assistance the lawyer is personally barred from giving under Rule 1.8(e).

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

View original opinion

Plain-English summary

A personal injury firm's clients sometimes cannot cover living or litigation expenses and turn to litigation financing companies. The inquirer's spouse wanted to start such a company, and the inquirer wanted to refer firm clients to it. The committee holds the lawyer may not do so where the funding is assistance the lawyer is personally forbidden to provide.

Rule 1.8(e) bars a lawyer, while representing a client in contemplated or pending litigation, from advancing or guaranteeing financial assistance, with narrow exceptions for court costs and litigation expenses. The committee explains the lawyer could not personally make or guarantee living-expense loans to clients, and (per Comment [10] and Simon's treatise) this is a non-consentable personal-interest conflict that client consent cannot cure. A lawyer also could not evade the bar by taking a proprietary interest in the client's case, which Rule 1.8(i) separately prohibits.

There is a legitimate route: under N.Y. State 666 (1994) and 769 (2003), a lawyer may refer a client to an independent financing company in which the lawyer has no interest, with repayment contingent on the recovery. The question here is whether a spouse's company changes that. The committee says yes. Following a line of opinions treating the lawyer's and spouse's financial interests as unified (N.Y. State 738 (2001), 493 (1978), 340 (1974), 291 (1973), 244 (1972)), it holds that a lawyer may not refer a litigation client to a financing company owned by the lawyer's spouse to the extent the lawyer personally would be barred from providing the assistance. Such a referral would usually also violate Rule 8.4(a) by accomplishing a Rule 1.8(e) violation "through the acts of another," using the spouse as a front for improper financial assistance.

In practice

Under the New York rule as it stood at the time of the opinion, a lawyer conducting a client's litigation may refer the client to a litigation funder only if the lawyer has no interest in it; the opinion holds that a spouse's ownership is treated as the lawyer's own interest, so referring the client to the spouse's funder to advance living-expense funds the lawyer could not advance is barred and would also violate Rule 8.4(a). The opinion is limited to assistance the lawyer is personally prohibited from providing under Rule 1.8(e); a referral to a truly independent funder remains permissible.

Common questions

Q: Can a lawyer personally advance living expenses to a litigation client?

A: No. The opinion holds Rule 1.8(e) bars a lawyer from advancing or guaranteeing financial assistance (beyond court costs and litigation expenses) to a client in contemplated or pending litigation, and that this is a non-consentable conflict.

Q: Can the lawyer route the funding through a company the spouse owns?

A: No. The opinion treats a spouse's financial interest as the lawyer's own, so a referral to the spouse's funder to provide barred assistance violates Rule 1.8(e) and, "through the acts of another," Rule 8.4(a).

Q: Is any referral to a litigation funder allowed?

A: Yes. The opinion reaffirms N.Y. State 666 and 769 that a lawyer may refer a client to an independent financing company in which the lawyer has no interest.

Background and rules framework

The opinion applies Rule 1.8(e) (no advancing or guaranteeing financial assistance to a litigation client, with narrow exceptions), Rule 1.8(i) (no acquiring a proprietary interest in the client's cause of action), and Rule 8.4(a) (no violating the Rules through the acts of another). These correspond to Model Rules 1.8(e), 1.8(i), and 8.4(a). The spouse-interest analysis rests on a long line of New York opinions treating the lawyer's and spouse's financial interests as unified.

Citations and references

Rules of Professional Conduct:

New York Rule 1.8(e) (financial assistance to a litigation client); Model Rule 1.8(e)
New York Rule 1.8(i) (no proprietary interest in the cause of action); Model Rule 1.8(i)
New York Rule 8.4(a) (no violation through the acts of another); Model Rule 8.4(a)

Other opinions cited:

N.Y. State 666 (1994) and 769 (2003): permissible referral to an independent litigation funder
N.Y. State 738 (2001), 493 (1978), 340 (1974), 291 (1973), 244 (1972): unified lawyer-spouse financial interests

Source

Landing page: https://nysba.org/ethics-opinion-855/