Trending Now

Select Ethical Issues Present in Litigation Funding

Select Ethical Issues Present in Litigation Funding

The following article was contributed by John J. Hanley, Partner at Rimon Law Litigation financing is on the rise in the United States and provides some claimants a valuable means for paying the costs of pursuing a legal claim. Lawyer involvement in litigation financing transactions raises many ethical issues for a lawyer such as competence, duty of loyalty, the potential waiver of privilege and interference by a third party, to name a few. Competence The first rule for lawyers under the New York Rules of Professional Conduct (the “NY RPC”) is competence.[1]  Lawyers and law firms should tread carefully when considering undertaking client engagements in a subject area in which they do not have the requisite knowledge and skill to provide competent representation of their clients. Official Comment 1 to Rule 1.1 provides in part that factors relevant to determining whether a lawyer has the requisite knowledge and skill in a matter include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the filed in question, and the preparation the lawyer is able to give the matter.[2] This does not mean that lawyers cannot deal with matters in which they are initially unfamiliar.  Indeed, the American Bar Association points out in comments to Rule 1.1 that “[a] lawyer need not necessarily have special training or prior experience to handle legal problems of a type with which the lawyer is unfamiliar. The analysis of precedent  . . . and legal drafting are required in all legal problems. Perhaps the most fundamental legal skill consists of determining what kind of legal problems a situation may involve, a skill that necessarily transcends any particular specialized knowledge. A lawyer can provide adequate representation in a wholly novel field through necessary study.”[3] According to the New York City Bar Report to the President by the New York City Bar Association Working Group on Litigation Funding: “[a] lawyer whose client seeks third party funding should determine at the outset whether he or she has the transactional experience and sophistication required to negotiate a beneficial agreement with the funder or whether a specialist in the field should be involved.”[4] Competence in litigation finance includes familiarity with various litigation financing structures and privileges against disclosure, among others.[5]  For example, the structure may involve different types of collateral, different means of financing legal fees and expenses, the manner in which funding is disbursed and the return structure of the financing.  A lawyer concentrating her or his practice on litigation funding may also be better able to determine “market” terms of the financing. Duty of Loyalty and the Lawyer’s Financial Interests Of course, the lawyer is the client’s fiduciary and agent who owes his or her client undivided loyalty and is forbidden from putting her interest above that of the client. The New York State Bar Association, Committee on Professional Ethics reminds lawyers that their financial interests must not interfere with the representation of the client.[6] Ordinarily, there is nothing adverse to a client about a lawyer getting paid for legal services[7] but in a litigation funding transaction the lawyer could have a personal interest in respect of the transaction. For example, the litigation funding agreement may facilitate payment of a portion of the lawyer’s fees or ensure certain expenses borne by the lawyer will be repaid.[8] The American Bar Association posits that if a lawyer has a relationship with a litigation funder that creates a financial interest for the lawyer . . . it may interfere with the lawyer’s obligation to provide impartial, unbiased advice to the client (the “ABA Report”)[9]. The ABA Report goes on to say that a lawyer with a long-term history of working with a particular funder may have an interest in keeping the funder content which would create a conflict even in the absence of an explicit agreement. The NY RPC, specifically Rule 1.7(a)(2), like the Model Rules of Professional Conduct, prohibits a lawyer from representing a client if “there is significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, property or other interest.” Additionally, Rule 5.4 of the NY RPC, and its analogous provisions in other jurisdictions, requires that a lawyer maintain independence[10].  Consequently, such lawyer, representing a client in a matter for which litigation funding is sought, in general may be able to represent the client with respect to the litigation funding agreement but should disclose the lawyer’s relationship with the funder and receive the client’s informed written consent. Communication and Confidentiality Rule 1.4 of the NYRP Conduct requires a lawyer to communicate promptly, and provide complete information, to the client regarding the matter, and to reasonably consult with the client about the means to achieve the client’s objectives.[11] Reputable litigation funders are usually careful to provide in the litigation finance documents that the funder will not be involved in discussions between the lawyer and client regarding the matter, and that the funder will not direct or control the litigation. In certain circumstances an inexperienced lawyer may consider involving the funder in discussions about case strategy, but caution is in order. If a party other than client and the attorney is involved in communications involving legal issues or the case, the attorney-client privilege and confidentiality of communications is likely breached and the attorney may be guilty of legal malpractice. Indeed, Rule 1.6 of the NYRPC requires that a lawyer not knowingly reveal confidential information, or use that information to the disadvantage of the client or advantage of the lawyer or a third person, subject to certain exceptions.[12] Conclusion An attorney who represents a client in a matter that is to be funded pursuant to a litigation funding agreement should consider the ethical implications discussed in this Insight, among others, before representing the client in the funding agreement. Counsel would avoid all of the ethical considerations that may arise by referring the client to an outside attorney experienced in litigation finance.
[1] N.Y. Rules of Prof’l Conduct R.1.1.  The California Rules of Professional conduct and the American Bar Association Model Rules of Professional Conduct (“MRPC”) also make this the number one rule.  Indeed, all fifty states and the District of Columbia have adopted legal ethics rules based at least in part on the MRPC. [2] N.Y. Rules of Prof’l Conduct R.1.1, Comment [1]. [3] Available here ABA Comment to Rule 1.1 [4] Report to the President by the New York City Bar Association Working Group on Litigation Funding (February 28, 2020). [5] Others includes, without limitation champerty, maintenance, barratry, usury and required disclosures. [6] N.Y. Comm. on Prof’l Ethics, Formal Op. 769 (November 4, 2003). [7] The State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2020-204. [8] Id. At 3. [9] American Bar Association, Informational Report to the House of Delegates Commission on Ethics 20/20. [10] N.Y. Rules of Prof’l Conduct R.5.4. [11] N.Y. Rules of Prof’l Conduct R.1.4(a). [12] N.Y. Rules of Prof’l Conduct R.1.6(a). See also the American Bar Association’s Model Rule 1.6.
Secure Your Funding Sidebar

Commercial

View All

Loopa Finance Joins ELFA Amid European Expansion Push

By John Freund |

Litigation funder Loopa Finance has officially joined the European Litigation Funders Association (ELFA), marking a significant step in its ongoing expansion across continental Europe. Founded in Latin America and recently rebranded from Qanlex, Loopa offers a suite of funding models—from full legal cost coverage to hybrid arrangements—designed to help corporates and law firms unlock capital, manage litigation risk, and accelerate cash flow.

The announcement on Loopa Finance's website underscores the company's commitment to transparency and ethical funding practices. Loopa will be represented within ELFA by Ignacio Delgado Larena-Avellaneda, an investment manager at Loopa and part of its European leadership team.

In a statement, General Counsel Europe Ignacio Delgado emphasized the firm’s belief that “justice should not depend on available capital,” describing the ELFA membership as a reflection of Loopa’s approach to combining legal acumen, financial rigor, and technology.

Founded in 2022, ELFA has rapidly positioned itself as the primary self-regulatory body for commercial litigation funding in Europe. With a Code of Conduct and increasing engagement with regulators, ELFA provides a platform for collaboration among leading funders committed to professional standards. Charles Demoulin, ELFA Director and CIO at Deminor, welcomed Loopa’s addition as bringing “a valuable intercontinental dimension” and praised the firm’s technological innovation and cross-border strategy.

Loopa’s move comes amid growing connectivity between the Latin American and European legal funding markets. For industry watchers, the announcement signals both Loopa’s rising profile and the growing importance of regulatory alignment and cross-border credibility for funders operating in multiple jurisdictions.

Burford Covers Antitrust in Legal Funding

By John Freund |

Burford Capital has contributed a chapter to Concurrences Competition Law Review focused on how legal finance is accelerating corporate opt-out antitrust claims.

The piece—authored by Charles Griffin and Alyx Pattison—frames the cost and complexity of high-stakes competition litigation as a persistent deterrent for in-house teams, then walks through financing structures (fees & expenses financing, monetizations) that convert legal assets into budgetable corporate tools. Burford also cites fresh survey work from 2025 indicating that cost, risk and timing remain the chief barriers for corporates contemplating affirmative recoveries.

The chapter’s themes include: the rise of corporate opt-outs, the appeal of portfolio approaches, and case studies on unlocking capital from pending claims to support broader corporate objectives. While the article is thought-leadership rather than a deal announcement, it lands amid a surge in private enforcement activity and a more sophisticated debate over governance around funder influence, disclosure and control rights.

The upshot for the market: if corporate opt-outs continue to professionalize—and if boards start treating claims more like assets—expect a deeper bench of financing structures (including hybrid monetizations) and more direct engagement between funders and CFOs. That could widen the funnel of antitrust recoveries in both the U.S. and EU, even as regulators and courts refine the rules of the road.

Almaden Arbitration Backed by $9.5m Funding

By John Freund |

Almaden Minerals has locked in the procedural calendar for its CPTPP arbitration against Mexico and reiterated that the case is supported by up to $9.5 million in non-recourse litigation funding. The Vancouver-based miner is seeking more than $1.06 billion in damages tied to the cancellation of mineral concessions for the Ixtaca project and related regulatory actions. Hearings are penciled in for December 14–18, 2026 in Washington, D.C., after Mexico’s counter-memorial deadline of November 24, 2025 and subsequent briefing milestones.

An announcement via GlobeNewswire confirms the non-recourse funding arrangement—first disclosed in 2024—remains in place with a “leading legal finance counterparty.” The company says the financing enables it to prosecute the ICSID claim without burdening its balance sheet while pursuing a negotiated settlement in parallel. The update follows the tribunal’s rejection of Mexico’s bifurcation request earlier this summer, a step that keeps merits issues moving on a consolidated track.

For the funding market, the case exemplifies how non-recourse capital continues to bridge resource-intensive investor-state disputes, where damages models are sensitive to commodity prices and sovereign-risk dynamics. The disclosed budget level—$9.5 million—sits squarely within the range seen for multi-year ISDS matters and underscores the need for careful duration underwriting, including fee/expense waterfalls that can accommodate extended calendars.

Should metals pricing remain supportive and the tribunal ultimately accept Almaden’s valuation theory, the claim could deliver a meaningful multiple on invested capital. More broadly, the update highlights steady demand for funding in the ISDS channel—even as governments scrutinize mining concessions and environmental permitting—suggesting that cross-border resource disputes will remain a durable pipeline for commercial funders and specialty arbitrations desks alike.