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litigation funding, accident funding and lawsuit funding

Ethics and Accident Funding

Ethics and Accident Funding:

Accident funding has caused a debate among states on how to deal with the ethics of these kinds of arrangements. In some states they are still catching up and on regulating this new field.. Consequently, there are several  ethical issues a lawyer must deal with when the client requests litigation funding. First, a lawyer should discuss openly the pros and cons of this type of funding with the client. As a result, this discussion can be broken up into five different categories. A smart lawyer will discuss these issues with his client upon the signing of the retainer agreement.

5 Ethical Considerations:

The first category involves conflicts  between the accident funding company and the lawyer or client. Secondly, there are  issues of attorney-client privilege and matters of confidentiality. Next is to consdier is when a party or the attorney potentially is going to lose control over the proceedings. The fourth consideration involves issues of champerty and maintenance. A fifth ethical consideration involves fee sharing arrangements with those who are not attorneys. A final consideration is whether the attorney can even suggest to the client the idea of litigation funding for the litigation. It seems like it is very hard to even  refer clients to accident funding companies.

Waivers & Warnings in Litigation Funding:

State bar associations have opinions that permit the referral of a client to accident funding companies by their own attorney. For example, the American Bar Association notes that in some states the attorneys cannot disclose information to third parties without the clients consent. Additionaly, lawyers should warn the clients about the waiver of attorney-client privilege when these funders become involved. That waiver is part of obtaining a waiver of confidentiality noted above.

Lawyers Getting Referral Fees:

Noteworthy is that lawyers cannot have an ownership interest in the accident funding company. Additionaly, lawyers cannot receive referral fees upon the referral of their clients to these litigation funding companies. However, very often the client finds the legal funding company. As a result,  they ask the lawyer to cooperate with the funding company. This invloves requests for and exchange of information. Very Often enough attorneys might know of a client’s particular financial difficulties and might want to refer them to a particular funding company. They must first get these waivers and provide warnings to the client about engaging in such transactions.

Is Accident Funding in the Clients Interest:

The ABA notes that state opinions point out that the lawyer first determine if a litigation funding arrangement is in the client’s best interest. Any attorney has a prime fiduciary responsibility towards the client. In New York State, Under the rules of professional conduct the law requires that the lawyer provide candid advice in regards to whether any accident funding arrangement is in the client’s best interest. This kind of advice involves the cost and benefits of engaging in a third party funding arrangement.

Client Considerations:

Very often the client may not take into consideration the length of time a typical litigation may take. Depending on the venue and/or the defendant a lawsuit can often take 4 or even 5 years. In some busy states or against a municipality for a lawsuit to even take 6 or 7 years!.  Hence, the client may enjoy the quick  cash but this might be the only money they will get out of the case.  Consequently, it is the lawyers first obligation to protect his client and his clients best shot at success in their lawsuit.

Are The Fees Too High?:

Most noteworthy is the potent criticism that a litigation funding company charges high fees .The fees are  excessively high even compared to credit cards, bank loans or loans from a family member.  Conversely, if a client has access to credit card or a bank loans one should consider those sources for financing. Another comparative cost is the rate of one particular funding company versus other legal funding companies.  Almost all legal funding companies charge fees just to administer or process the pre settlement advance. They add that fee to the advance amount but make the client pay interest on both the fees and principal.  That’s gouging in our opinion.

Fees, cont’d.

Those and other companies may slickly advertise that the interest for an advance is 3.00% interest. What they don’t explain up front is that this is a monthly compounded fee adding up to 70% a year. Very often these companies wil charge  a closing fee and a processing fee.  You would think that these litigation funding companies are working night and day working for you.Lastly, the attorney should consider that the involvement of any third-party funding will deduct from the client’s net recovery. These options must be considered when thinking about third party funding with a client.

Why Redwood Funding Group:

Redwood Funding Group was founded by accident lawyers whose goal was to create a company that addressed the major problems of other funding companies. As a result, 1) there are no fees in any form at any time. Moreover,  2)  there is no compounding of our interest rate.  Furthermore, 3) Our interest rate is fixed. Finally, 4) We don’t overcharge for wire transfers or Federal Express. We charge only 15% of the original principal advance for each 6 month interval that you have our money. Finally, we provide a guaranteed repayment schedule upfront so that you can compare our rates with other companies. Therfore, once you consider redwood Funding Group you will not be going anywhere else!


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