Litigation Finance Ethics: Paying Interest

Abstract

Over the last two decades, a shift in legal ethics has given rise to an expanding industry that specializes in lending money for the purpose of financing litigation. Plaintiffs and their attorneys now have a number of possible financing options that can provide the resources necessary to pursue their claims more fully. However, financing comes at a cost, and the question of who pays the cost implicates several ethical issues for attorneys. This article analyzes the propriety of attorneys borrowing funds for financing litigation and passing the funding expenses – origination costs and loan interest – through to their clients. It begins by tracing the evolution of the relevant legal ethics rules over the past century and reviewing the requirements that jurisdictions have imposed on attorneys seeking to pass litigation finance costs through, continues with an analysis of the leading case on point, and concludes with a review of a recent case that illustrates the obstacles that attorneys can encounter when seeking to pass litigation financing costs through to clients.

Keywords: Litigation Financing, Legal Ethics

JEL Classification: K10