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Attorney Not Liable to Burned Third Party Litigation Funder

By George Khoury, Esq. | Last updated on

While the world of litigation funding is often castigated into the realms of the seedy boardrooms of evil banking corporations, litigation funders are taking big risks, particularly given that third party litigation funders are prohibited from having any say in the actual litigation. Not every third party funded case is Peter Thiel paying for Hulk Hogan's litigation against Gawker.

Recently, there have been public concerns over litigation funders having dubious motives, beyond just maximizing investment profits, as well as some proposed legislation.

Can Attorneys Burn Litigation Funding Companies?

Some attorneys may be able to take a sigh of relief thanks to a recent appellate decision. In short, the appellate court in Illinois held that an attorney could not be held liable for a litigation funding company not getting paid back by a client after a settlement. Although the court opined that the attorney may have crossed ethical lines, it also found that the funding company had no rights to enforce against the law firm. Basically, the agreement was not between the attorney and funder, but rather between the client and funder.

Unfortunately, as the appellate decision suggests, if a client demands that you disburse funds to them rather than to a litigation funding company, you'll still be in a pickle. That's because you're more than likely to be duty bound to the train tracks thanks to those pesky ethical standards. Despite the conundrum of duties, one judge penned a special concurrence seemingly only to voice his "serious ethical concerns" with how the law firm handled the matter.

Generally, litigation funders want to talk to the attorney about the case before agreeing to fund the matter, and may even request paperwork verifying representation. Then, once funds are disbursed, they may request status updates as to whether the case is still active or settled. Attorneys need to be careful about what information they share, and how, and to whom, they share it with, when helping clients securing litigation funding.

Litigation Funding Is

Litigation funding is not an industry companies are fighting to break into, but it can be a low risk, high reward industry, despite the seemingly high risk of litigation. Often the loans to individual litigants are for relatively small sums, like $1,500, in seemingly simple and straightforward cases. Often, those loans are able to help clients who are hurting financially after an injury, loss of employment, or other tragedy, that may or may not be related to their legal matter.

Whereas it would be highly questionable under most, if not all, state ethical standards for an attorney to advance a client money against their case as security, or even to loan a client money, a third party funding company can actually bridge that gap.

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