Trending Now
Commercial Regulatory Issues Special Features

Select Ethical Issues Present in Litigation Funding

October 14, 2021

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.

Commercial

View All
Commercial

New Jersey Appellate Court Upholds Legal Bay Funding Agreement, Rejecting Statutory Challenges

A New Jersey appeals court has upheld the enforceability of a consumer legal funding agreement, ruling that state insurance and medical-lien statutes do not limit a privately negotiated contract between a funder and an injured plaintiff.

In Viglianti v. Blue, decided July 14, 2026, the Superior Court of New Jersey, Appellate Division, affirmed a trial court's order directing that $166,382.30 in settlement proceeds be paid to Legal Bay, LLC. The New Jersey-based funder had advanced $90,000 to cover spinal-fusion surgery and related care for Michael Viglianti, who had exhausted his personal injury protection coverage after a 2020 automobile accident. Under the agreement, Legal Bay would be repaid with interest only if Viglianti recovered in his underlying suit, which later settled for $250,000.

After the settlement, Viglianti argued the agreement was unenforceable because it conflicted with New Jersey's PIP medical fee schedules (N.J.S.A. 39:6A-12 and 39:6A-4.6) and a statute capping physician and dentist liens at 25% (N.J.S.A. 2A:44-39). The panel rejected each argument, reasoning that those provisions govern claims against tortfeasors and payments by insurers — not a private agreement voluntarily entered by a represented party. The court also emphasized that the agreement paid for medical care rather than the litigation itself.

The unpublished opinion noted its limited scope, declining to assess whether the return was fair, and observed that the Legislature is weighing bills (S. 2357 / A. 2159) that would regulate and cap litigation funding agreements.

Commercial

Court of Appeal Ruling Lets 5,800 Motorists Pursue Mass Car-Finance Claim

A UK Court of Appeal decision has cleared roughly 5,800 motorists to pursue their car-finance mis-selling claims together as a single mass action, a procedural milestone expected to shape consumer litigation across England and Wales.

As reported by Claims Media, the court ruled in Angel & Ors v Black Horse Ltd that the claimants may proceed against eight major lenders through an "omnibus claim" rather than filing individual lawsuits. The dispute centers on personal contract purchase and hire purchase agreements allegedly mis-sold between 2007 and 2024.

The ruling lands amid the Financial Conduct Authority's separate £9 billion redress scheme, which offers average payouts of around £830 but has been slowed by legal challenges and is unlikely to begin before 2027. By validating the omnibus format, the decision gives consumers an alternative route to potentially higher compensation outside the regulator's process.

Barings Law, which secured the judgment after litigating since 2020, has launched a "My Free PCP Claim" service that it says guarantees clients keep 100% of their damages by absorbing costs above the defendant's fee contribution — a model designed to avoid the roughly 30% deductions common in funded or contingency arrangements. "This ruling is a step towards securing true justice for millions of drivers who were mis-sold car finance over many years," said Barings Law chairman Robert Whitehead.

Commercial

Op-Ed Casts Litigation Funding Disclosure as a National-Security Imperative

A new opinion piece argues that the opacity surrounding third-party litigation funding has become a national-security vulnerability, urging Congress to force disclosure of who is bankrolling lawsuits against American energy, manufacturing, and infrastructure.

In an op-ed for the Washington Examiner, Robert Romano, executive director of Americans for Limited Government, contends that foreign adversaries such as China and Russia can exploit litigation as a form of economic warfare — financing challenges to pipelines, data centers, defense contractors, and domestic manufacturers without ever being identified. The public, he writes, simply has no way of knowing who holds a stake in such cases.

Romano cites a December 2025 Citizens Against Lawsuit Abuse report estimating that adversarial litigation could cost the U.S. economy $54 billion in lost output and more than 450,000 jobs. He points to two measures pending in Congress — the Protecting Our Courts from Foreign Manipulation Act (H.R. 2675) and the Litigation Transparency Act (H.R. 1109) — as vehicles for mandatory disclosure.

"Transparency won't determine who wins those cases," he writes, "but it will allow judges, litigants, policymakers, and the public to understand who has a financial or political stake." Framing the reform as an "America First" priority, Romano argues that restoring confidence in the courts requires exposing the financiers behind legal challenges to domestic economic development — a stance that adds momentum to the broader disclosure debate.