The Committee has been asked whether an attorney (the Inquirer
) may refer a contingent fee personal injury client to a finance company which may loan funds to the client based on the finance company's evaluation of the strength of the client's case, where the Inquirer's only connection to the transaction, other than the referral itself, is an agreement to pay the finance company out of the proceeds of a settlement or verdict, if any.
Under Rule 1.8(e) of the Rules of Professional Conduct, an attorney shall not provide financial assistance to a client in connection with pending or contemplated litigation, subject to certain exceptions which are not applicable to this inquiry. In addition, Rule 1.8(a) prohibits an attorney from entering into a business transaction with a client or acquiring a security or other pecuniary interest adverse to a client, and Rule 1.8(j) prohibits an attorney from acquiring a proprietary interest in a client's cause of action, both of which Rules are subject to certain exceptions not applicable here. Thus, an attorney generally may not loan funds directly to a client, nor may an attorney indirectly do so through a finance company in which such attorney has an interest.
If the Inquirer does not have an ownership or financial interest in the finance company and is not being paid any fee or other compensation by the finance company, it is the Committee's opinion that the referral itself does not violate Rules 1.8(a), (e) which states that an attorney should exercise independent professional judgment
in representing a client, which judgment could be affected by any significant relationship between the Inquirer and the finance company.
The Inquirer states in the inquiry that the finance company will evaluate the strength of the client's case. The Committee cautions the Inquirer to keep in mind the provisions of Rule 1.6, which prohibit an attorney from revealing information relating to the representation of the client without the client's consent after consultation. The Inquirer, therefore, must not disclose information regarding the client's case to the finance company, unless the client consents after consultation, as that term is defined in the Terminology section preceding the Rules of Professional Conduct. The Committee also suggests that the Inquirer consider whether the attorney/client privilege may be waived as a result of any such disclosure and whether the finance company's evaluation is discoverable in the client's case.
Finally, the Inquirer states in the inquiry that there will be an agreement to pay the finance company out of the proceeds of a settlement or verdict. If that agreement is in the form of an irrevocable written assignment directly from the client to the finance company, there should not be a problem under the Rules at the time of payment. See