With litigation financing becoming more common in civil cases, you’ll likely face new ethical questions that weren’t on your radar a few years ago. Whether you’re representing a plaintiff or considering a third-party funding partnership, these arrangements can raise red flags around your professional responsibilities, especially when it comes to client confidentiality, conflicts of interest, and maintaining independence.
This guide walks you through the ethical issues tied to litigation financing, including what you need to disclose, how to protect privilege, and how to stay compliant with rules that differ depending on where you practice. If you’re a lawyer navigating this evolving space, here’s what you should know.
Key Takeaways
- Ethics rules around litigation funding vary by state, but most focus on attorney independence, conflicts, and protecting client confidentiality.
- If you're careful, sharing documents with funders can jeopardize attorney-client privilege or work product protections.
- You need written client consent, strong confidentiality agreements, and clear control boundaries to avoid ethical issues.
- Lawyers must always retain complete control of the litigation strategy, regardless of the funder’s financial interest in the outcome.
- Disclosure requirements can vary, so check your jurisdiction’s rules on what needs to be shared with courts and opposing parties.
FAQs
Do ethics rules address litigation funding?
Yes, most states apply existing rules of professional conduct and ethics opinions. These often reference Model Rule 1.8(f), which governs third-party payment arrangements.
Is litigation funding legal in all states?
Yes, but regulation and ethical guidance differ. Some states have specific rules, while others interpret broader standards to cover litigation funding scenarios.
What ethical opinions address litigation funding?
States like New York, California, and Florida have issued formal ethics opinions. Always check your local bar association for guidance tailored to your jurisdiction.
How Do Ethics Rules Address Litigation Funding?
Ethical rules around litigation financing aren’t always consistent. Some jurisdictions spell things out clearly, while others rely on general conduct standards or ethics opinions. But the themes are the same across the board: protect your client, stay independent, and be transparent.
At the heart of these rules is Model Rule 1.8(f), which says you can’t accept payment from a third party unless your client gives informed consent, the arrangement doesn’t interfere with your professional judgment, and client confidentiality is protected. Most litigation funding issues fall into one or more of those categories.
What Every Lawyer Should Know About Ethics in Litigation Funding
When you work with a litigation funder, you’re adding a financial stakeholder to your case. That doesn’t mean they get to run the show. As an attorney, it’s still your job to safeguard the client’s interests, which comes with some serious ethical responsibilities.
Client Confidentiality Protection
You’ll likely need to share some case documents or insights with the funder, especially during the evaluation phase. To stay protected, use strong confidentiality agreements and limit the scope of what’s shared. When possible, work within the common interest doctrine to maintain privilege.
Conflict Identification Mechanisms
Before signing any funding deal, check for potential conflicts. Is the funder involved in other litigation against your client? Do their goals align with your strategy? Disclose and document everything early.
Independence Preservation Requirements
Your professional independence is non-negotiable. Even if a funder wants to push for a quick settlement or has opinions about trial strategy, they can’t interfere. Spell this out in the funding agreement.
Disclosure Obligation Scope
Depending on your jurisdiction, you may be required to disclose funding arrangements to the court or even to opposing counsel. Understand what needs to be disclosed and when, and make sure your client knows what to expect.
What Confidentiality Issues Arise With Litigation Funders?
Working with a third-party funder means sharing sensitive case information. If you're not careful, you could unintentionally waive protections like attorney-client privilege or expose your litigation strategy. Here's how to avoid that.
Attorney-Client Privilege Waiver
In some jurisdictions, giving a funder access to privileged material could count as a waiver unless the common interest doctrine applies. Always use NDAs and structure communications carefully to preserve confidentiality.
Work Product Protection
Sharing work product, like legal theories or mental impressions, can also be risky. Courts are more likely to uphold protections if documents are shared under strict agreements that show the information isn’t for public or strategic use.
Confidential Information Exposure
Funders typically don’t need access to your entire case file. Share only what’s necessary for them to evaluate the funding request, nothing more.
Regulatory Compliance Requirements
Some courts or jurisdictions require disclosure of funding relationships. Know what’s expected in your area and comply with any rules about notifying the court or opposing parties.
How Do Jurisdictional Rules Affect Litigation Funding Ethics?
Not every state views litigation funding the same way. For example:
- New York has formal ethics opinions supporting litigation funding, provided there’s no interference with an attorney's judgment.
- California allows litigation financing but emphasizes full client consent and strict confidentiality.
- Other states interpret Model Rule 1.8(f) more broadly and may lack direct guidance.
Always check with your local bar association or ethics board to stay compliant. A practice that’s acceptable in one state could raise red flags in another.
Ethical Best Practices for Attorneys Using Litigation Funding
You can use litigation funding without compromising your ethics, but only if you put strong protocols in place. Here’s how to stay on solid ground:
Information Sharing Protocols
Set clear rules for what information you share, how you share it, and who sees it. Use NDAs and common interest agreements when possible.
Funding Agreement Review
Look out for clauses that give the funder too much influence over litigation strategy, settlements, or attorney-client communication. You must maintain full control.
Decision Authority Clarification
Make it clear in writing that all litigation decisions, including whether to settle or proceed to trial, are made by you and your client, not the funder.
Confidentiality Safeguards
Draft robust NDAs, ensure minimal and protected information exchange, and always get informed client consent before proceeding.
Conclusion
Litigation funding can open doors for clients who wouldn’t otherwise have access to justice, but it also creates new ethical challenges for you as their lawyer. From maintaining independence to protecting client confidentiality, you have to balance these relationships with your duties under professional conduct rules.
You can use third-party funding ethically and effectively by putting the right safeguards in place, understanding your jurisdiction’s rules, and keeping your client’s best interests at the center of every decision. It’s not just about staying compliant, it’s about earning trust from clients, funders, and the courts.
