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Control, Champerty & Fees in Legal Funding

Control and Champerty:

The American Bar Association requires an attorney to use care in all contracts. This applies also to control and champerty in legal funding.  Specifically, all contracts follow the rules of the American Bar Association. This includes, rule 5.4c’s prohibition against compromising the lawyers independent  judgement. It also applies to the clients right to control the proceedings. An accident funding contract can cause confusion as to who  owns the claim and control over the litigation. The interests of the client and the  attorney can conflict with the interest of the lawsuit funding company. Additionally, litigation funding companies may be interested in controlling litigation to protect their interest. Consequently, this  creates tension between the third party investor and  the decisions of the lawyer.

Florida and Control:

Conflict exists when the accident funding company expects to participate in case decisions and in selecting the attorney. In Florida, in the case of Fresh Del Monte Produce, the funder hd considerable power. They control the selection of the attorneys and the hiring of experts.  Moreover, they had the right to approve attorney billing and the ability to veto any settlement agreements. That would be considered  total control over every aspect of a litigation.

Disclaimer and Control:

Third-party accident funding companies use disclaimers to avoid involvement in the decision making process. Noteworthy, this applies to car accident  litigation fundings.  Therefore, some states have issued ethics opinions regarding a lawyers conduct in these situations. South Carolina requires a lawyer to inform a third-party funder that the client controls all aspects of the litigation.

Florida & New York:

In Florida, in an advisory opinion, they require attorneys to maintain and express independence from third-party funding companies. Florida attorneys also avoid participating in accident funding agreements for these reasons. Specifically, the New York State Rules of Professional Conduct 1.8 F2 &2.1 and 5.4C, follow the ABA model rules. The rules mandates lawyers to effectively insist that the funders expressly agree not to interfere in the litigation. Restricting lawsuit funding includes a desire to discourage excessive, unnecessary and speculative  funding, as opposed to seeking appropriate redress for wrongs.

Champerty Concern:

Legal funding issues include control and champerty. Litigation funding companies under Common Law would be forbidden to advance money under the doctrines of maintenance and champerty. The United States Supreme Court has  spoken on this issue. “Maintenance is helping another prosecute a suit,  champerty is maintaining suit in return for a financial interest in the outcome”.  By definition, maintenance and champerty prohibit third-party litigation funding.  Today a minority of states have abandoned champerty restrictions. On the other hand, a majority of states still retain several degrees of prohibition.

Minnesota and Common Law:

Minnesota still recognizes champerty prohibitions and funding restrictions. The Court of Appeals in Johnson v. Wright, 682 NW2nd 671 (Minn Ct of Appeals 2004) reviewed common law history of champerty and lawsuit funding. They ruled ”that an agreement in which a party had no interest otherwise and he is in no way related to the party of interest is void and against public policy

Delaware And Champerty:

Finally, many states have no desire to upgrade or modernize these laws. In Delaware an agreement is champertous when a party has legal no interest  cause of action. Delaware law requires that a court dismiss a case where the evidence discloses that a cause of action tainted with champerty.

New York and Champerty:

Conversely, is New York State. New York does not abandoning the doctrine entirely.  However, New York is lenient in regards towards its application. When dealing with suspected cases,  New York courts are reluctant to find an action as champertous.

Other States and Champerty:

Arizona, California, Connecticut, New Jersey, New Hampshire, New Mexico and Texas courts have held  against prohibiting champerty.  Finally, Massachusetts and South Carolina have abandoned champerty altogether . In  Saladini vs. Righellis, the Massachusetts Supreme Court declined to void an agreement despite explicitly stating that it was champertous. The court stated ” We are no longer persuaded that the champerty doctrine is needed to protect against the evils of speculation in lawsuits or the financial overreaching of a party. There are now other devices to accomplish those ends”.  Notably, South Carolina, in Osprey v. Cabana, the Supreme Court abandoned it altogether. That Court stated “we abolished champerty as a defense because we believe it is no longer required as it developed in medieval times.”

Fee Splitting in Litigation:

Conflicts exist in pre settlement funding in regards to fee sharing with those who are not attorneys. Certain exceptions, A lawyer cannot share his legal fee with one who is not an attorney. See,  American Bar Association Commission on ethics 20.20 note following Model Rule 5.4a And New York State’s rule on professional conduct. See also, New York State rules on professional conduct 5.4. These prohibitions are intended to protect the lawyers Pendants and professional judgement.

Continued:

However, in some cases in some states, an opposite conclusion has been drawn. Ohio in Core Funding v.McDonald’s,  #L-05-1291/2006 wl 8432833 is one of those states. They stated that it is not inappropriate for a lender to take a security interest.  Attorneys accounts receivables Suzie extent permitted by commercial law. One author, named Douglas Richmond in a book called Other People’s Money, Ethics of Litigation Funding has entirely rejected the argument.  That litigation funding involves fee-splitting with non-attorneys.

Redwood Funding Group:

Redwood Funding Group directly address issues of control, champerty and fees head on. Redwood Funding Group will have no control in the handling of the litigation from day one to settlement or trial. One look at the fixed rate of Redwood Funding Group will put one at ease in terms of issues of champerty as well. No fees in any form and no compound interest in any form. We have one fixed rate of 15% for each six month interval makes the issue of champerty almost nonexistent. Control and champerty? Not. with Redwood Funding Group.

 

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