Pre-Settlement Advances – Third-Party Litigation Funding for Clients

In today’s ever popular market of litigation funding, most of the funding companies offer pre-settlement funding for clients with pending lawsuits. Most of those companies offer pre-settlement funding on personal injury claims only. Recently, a few firms are offering pre-settlement funding on commercial situations. That has produced a lot more opportunities for plaintiffs in complicate litigation like intellectual character litigation to get the financing they need. Intellectual character lawsuits are very expensive to continue. Why should a client consider a pre-settlement improvement? Due to the legal course of action, it could take years for a case to settle and, in commercial situations, the costs involved with maintaining litigation are too high for most attorneys to cover. The New York City Bar Association recently released a new formal Opinion regarding third party litigation financing, a/k/a pre-settlement funding.

The Opinion states that it is not unethical for an attorney to represent a client that enters into an agreement with a third party lender. However, when clients go into into such agreements attorneys must be aware of the ethical issues that may arise as a consequence such as:

1) the legality of the agreement – an attorney should advise the client and refrain from entering into an unlawful transaction,

2) the attorney as an advisor – an attorney should advise the client to consider the costs and benefits of litigation funding, in addition to possible alternatives,

3) conflicts of interest – an attorney may refer a client to a litigation funding company but cannot accept a referral fee from the company if the fee compromises the attorneys ethical obligations,

4) privilege and confidentiality – an attorney cannot disclose secret information to a funding company unless the attorney receives the client’s consent and should not disclose any more information that is necessary in their own judgment, and

5) the control over the legal proceeding – an attorney may not allow the funding company to influence their specialized judgment in calculating the time of litigation.

Litigation funding is on the rise and can be a valuable method for plaintiffs during the pendency of their case. Most litigation funding companies will initially require some basic case information in order to consider a client’s request for an improvement. If anything beyond that information is required, the attorney is contacted. If the transaction is approved a contract will be sent to the attorneys office for review and identifying characteristics. The terms of the transaction are outlined in the agreement and all fees are disclosed. The client can decide at that point whether or not they wish to proceed with the improvement.

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