City Bar Working Group Supports Modifications to New York Rules of Professional Conduct to Accommodate Litigation Funding

The Litigation Funding Working Group of the New York City Bar Association has released a report reflecting its year-long study of litigation funding. The comprehensive Report addresses: (i) the ethics rules regarding litigation funding of lawyers and law firms and potential amendments to Rule 5.4 of the New York Rules of Professional Conduct, (ii) current practices in litigation funding and guidelines for attorneys on these issues, (iii) issues of disclosure regarding litigation funding, and (iv) litigation funding in the consumer arena. 

The Working Group was formed by City Bar President Roger Juan Maldonado following the City Bar Professional Ethics Committee’s Formal Ethics Opinion 2018-5. That opinion concluded that a financing agreement with a litigation funder, a non-lawyer, under which the lawyer’s future payments to the funder are contingent on the lawyer’s receipt of legal fees or on the amount of legal fees received in one or more specific matters violates Rule 5.4’s prohibition on fee sharing with non-lawyers. The mission of the Working Group was to study the issues and practices surrounding litigation funding, including the ethics rules relating to Ethics Opinion 2018-5; contemporary practices and developments in litigation funding in both New York and other jurisdictions; disclosure of litigation funding agreements; and litigation funding for consumers.  

The Working Group reached several conclusions and recommendations. With regard to ethics rules, the Working Group found that it would serve the professional community and the public to revise Rule 5.4 of the New York Rules of Professional Conduct so that lawyers have less restricted access to funding. “After analyzing the issues from a diverse array of perspectives, the Working Group believes that the New York Rules of Professional Conduct should be modified to accommodate the reality of litigation funding,” the Report states. “The consensus of the Working Group is that lawyers and the clients they serve will benefit if lawyers have less restricted access to funding.” 

Written as a “Report to the President,” the Report offers two alternative proposals for a revised Rule 5.4, which governs if, when and how attorneys may share fees with non-lawyers. “Our aim in presenting both proposals is to further the debate and provide some inspiration to the relevant Committees of the City Bar and to those in the judiciary or legislature who may endeavor to undertake a change in the Rules or the law,” the Report states.   

The 90-page Report includes background on the history and legal landscape of litigation funding, as well as guidelines for lawyers to be better informed and prepared to protect their clients’ interests and ensure compliance with professional obligations when utilizing litigation funding.  In addition, after a comprehensive review of disclosure in federal and state courts, the Working Group recommends that there should not be a mandatory disclosure requirement with respect to the funding of commercial litigation at this time, but that the details of funding arrangements may be discoverable in certain circumstances. Finally, the Working Group reviewed the consumer litigation funding industry and in the Report offers its views on changes that could be made to improve the consumer funding bill introduced in New York during the spring 2019 legislative session.  

The Working Group will hold a forum to discuss its findings at the City Bar on March 12. The forum will be moderated by the Working Group Co-Chairs, Debra L. Raskin and Lynn K. Neuner, and will include Working Group members as the panelists: Professor Bruce Green, David Perla, (former) Judge Katherine Forrest, John McCarthy, Margaret Dale and Jordan Goldstein. The Working Group is comprised of a range of interested professionals, including private practitioners, ethics professors and specialists, litigation funding executives, a former federal judge, in-house counsel, ADR specialists and representatives from several of the City Bar’s standing committees. A full list of the Working Group members can be found here.

The Report can be read here: http://bit.ly/2wbO8oz

About the Association

The mission of the New York City Bar Association, which was founded in 1870 and has 24,000 members, is to equip and mobilize the legal profession to practice with excellence, promote reform of the law, and uphold the rule of law and access to justice in support of a fair society and the public interest in our community, our nation, and throughout the world. www.nycbar.org