Law Firms Must Beware Risks In Nontraditional Financing (Law360)
Law360, June 5, 2020
Law Firms Must Beware Risks In Nontraditional Financing
In 2018, the New York City Bar Association, or NYCBA, issued Formal Opinion 2018-5 in which it held that portfolio funding violates Rule 5.4 of the New York Rules of Professional Conduct. Rule 5.4 bars attorneys from sharing fees with nonattorneys and is designed to protect an attorney’s independent judgment. In reaching this decision, the NYCBA noted first that this was not an ordinary litigation financing transaction in which the client was assigning part of his interest in a recovery to the funder. Such agreements do not implicate the fee-splitting prohibition of Rule 5.4. Rather, the portfolio financing arrangement under review was between the law firm and a funder and was an allocation of the law firm’s contingent interest in the case recoveries.
