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Third Party Litigation Financing Raises Ethical Issues In The NYC Bar Association

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The New York City Bar Association has issued a formal opinion about nonrecourse litigation financing, where a third party pays a client’s attorney fees and gets compensated if a favorable settlement or verdict is returned. This practice, which is not unethical, can put an attorney in the middle of a tug-o-war between the interests of clients and that of the lender.

Lawyers are unable to disclose privileged information to a third party, unless the client consents. A third-party lender will want to see case information before deciding to extend a loan. In this case, the attorney must make sure the client is aware of the consequences of disclosing that information, including that it may subject the information to discovery.

According to the opinion, another issue in third party involvement is that though lenders often say they will not interfere in the case, “their financial interest in the outcome of the case may, as a practical matter, make it difficult for them to refrain from seeking to influence how the case will be handled by litigation counsel.” This can cause “tension” that the lawyer will have to “navigate”.

Seth M. Schwartz, chair of the association’s professional ethics committee, said that an attorney must “be careful of not pulling his punches” and he must remain “free to give legal advice without concern that it might impact his pocketbook.”

According to the formal opinion, an attorney can stay within the bounds of legal ethics by always making decision that are in the best interest of the client, and by being ‘candid’ about relying on third party lenders, as well as discussing possibility of bank loans and other means of financing. disclaimer: This article: Third Party Litigation Financing Raises Ethical Issues In The NYC Bar Association was posted on Friday, June 17th, 2011 at 7:12 pm at and is filed under Uncategorized.

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