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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 11 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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<img style="max-width: 100%;height: auto;max-width: 100%;height: auto" loading="lazy" class="alignright size-medium wp-image-1287" src="https://www.thelawforlawyerstoday.com/wp-content/uploads/sites/754/2014/12/Money-and-gavel-200x300.jpg" alt="" width="200" height="300">Has your client ever suggested paying&nbsp;for your services&nbsp;via donations from a <a href="https://www.kickstarter.com/">Kickstarter</a> campaign, or a <a href="https://www.gofundme.com/?utm_source=bing&amp;utm_medium=cpc&amp;utm_campaign=GoFundMe_US_EN_Exact__Search&amp;utm_content=Gofundme__rebuild_q2_2018&amp;utm_term=gofundme_e_c&amp;msclkid=181ee5fbefb41f86ad90b9b37991fd64">GoFundMe</a> page?&nbsp; The District of Columbia Bar <a href="https://filehost.thompsonhine.com/uploads/DC-Legal-Ethics-Opinion_375_850a.pdf" target="_blank" rel="noopener noreferrer">recently considered</a> such donation-based crowdfunding, and greenlighted the basic concept &mdash;&nbsp;but noted that&nbsp;the ethical implications vary depending on the lawyer&rsquo;s level of involvement in the crowdfunding effort.
Other people&rsquo;s money
Not many opinions have yet addressed the ethics of third-party funding of legal services using&nbsp;social media &mdash; but the phenomenon appears widespread.&nbsp; A search for the term &ldquo;legal&rdquo; on&nbsp;the GoFundMe site, for instance, brings up thousands of results from all over the country, many&nbsp;referring to&nbsp;&ldquo;legal defense fund,&rdquo; or &ldquo;legal fund.&rdquo;
The D.C. opinion deals only with &ldquo;donation-based funding,&rdquo; and not &ldquo;equity-based funding,&rdquo; in which an investor contributes funds in exchange for a stake in the potential recovery.&nbsp; (We&rsquo;ve discussed&nbsp;equity-based third-party funding <a href="https://www.thelawforlawyerstoday.com/2018/09/4058/">here</a>, <a href="https://www.thelawforlawyerstoday.com/2018/04/3854/">here</a> and <a href="https://www.thelawforlawyerstoday.com/2017/06/3347/">here</a>.)
The opinion notes&nbsp;that the term &ldquo;crowdfunding&rdquo; and the use of social media to raise money for&nbsp;legal fees&nbsp; may be relatively new, but &ldquo;payment by third parties for another&rsquo;s legal representation is not&rdquo; new.&nbsp; So it&rsquo;s no stretch to conclude that the Rules of Professional Conduct &ldquo;apply to a lawyer&rsquo;s receipt and disposition of all funds received in connection with a client representation, regardless of their source.&rdquo;
Client-directed crowdfunding
When&nbsp;the lawyer is not involved in the actual fundraising, but simply receives the funds raised by the client&rsquo;s social media efforts, the opinion finds nothing unethical &mdash;&nbsp;but&nbsp;notes the following potential issues:
<ul>
<li>be aware of any increased risk of fraud, money laundering or other criminal activity in connection with the exchange of crowdfund-generated fees, and take reasonable precautions to avoid unwittingly engaging in or assisting&nbsp;illegal conduct;</li>
<li>consider counseling the client about avoiding the disclosure of&nbsp;confidential information to third parties as part of the fundraising effort &mdash; whether on-line or in person;</li>
<li>discuss with the client whether the use of crowdfunding is the best choice, as <a href="https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_2_1_advisor/">Model Rule 2.1</a> permits advice that refers not only to law but to &ldquo;moral, economic social&rdquo; and other factors that may be relevant.</li>
</ul>
Crowdfunding by lawyers
The D.C. bar also outlined the ethics obligations where a lawyer steps in and &ldquo;assists&rdquo; in,&nbsp;&nbsp;&ldquo;undertakes or exerts control&rdquo; over the crowdfunding effort &mdash; and not surprisingly, these obligations&nbsp;are the ones that also apply generally, namely:
<ul>
<li>getting informed consent before accepting compensation from third parties for the client&rsquo;s legal fees,&nbsp;&nbsp;not letting the donors interfere with the lawyer&rsquo;s legal judgment, and protecting the confidentiality of the information relating to the representation (<a href="https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_8_current_clients_specific_rules/">Model Rule 1.8(f)</a>);</li>
<li>memorializing the crowdfunding arrangement through&nbsp;a fee agreement with the client, preferably in writing &mdash; including eliminating confusion about issues like &ldquo;who gets any excess crowdfunds?&rdquo; and &ldquo;who is responsible for paying fees if crowdfunding falls short?&rdquo;;</li>
<li>treating crowdfunds collected by the lawyer as advance fees, placing them in trust as required by&nbsp;<a href="http://www.dcbar.org/bar-resources/legal-ethics/former-rules/rule1-15.cfm">D.C. Rule 1.15</a>, and drawing on them only as earned;</li>
<li>returning unearned crowdfunds to the client at the conclusion of a representation,&nbsp;recognizing&nbsp;that unlike a contingent fee, the lawyer has not incurred any risk of non-payment, and therefore it would &ldquo;be unethical ...&nbsp;to claim unearned crowdfunds&rdquo; after the matter is over.</li>
</ul>
Fee-splitting issues?
In contrast to the donation-based crowdfunding the D.C. opinion discusses, investment-based third-party funding can&nbsp;arguably raise the&nbsp;issue&nbsp;of splitting fees with non-lawyers.&nbsp; That might be so&nbsp;even under <a href="http://www.dcbar.org/bar-resources/legal-ethics/amended-rules/rule5-04.cfm">D.C.&rsquo;s version of Model Rule 5.4</a>, which permits some forms of fee-splitting &mdash; but only with &ldquo;nonlawyer professionals [who] work with lawyers in the delivery of legal services,&rdquo;&nbsp;such as&nbsp;&ldquo;psychologists or psychiatric social workers&nbsp;[who] work with family law practitioners.&rdquo;&nbsp; See id. cmt. [7].
<a href="https://works.bepress.com/alberto_bernabe/">Prof. Alberto Bernabe</a>, at John Marshall Law School, has a 2016 article on the fee-splitting issue,&nbsp;linked <a href="https://drive.google.com/file/d/0B_e2ysf5cfS6QnV3Tl9HaXhhVW8/view">here</a>, and a post on the D.C. ethics opinion over at the <a href="http://bernabepr.blogspot.com/2018/12/dc-ethics-committee-new-opinion-on.html">Professional Responsibility Blog.</a>

core/freeform

Ethics

Legal Ethics, Professional Responsibility and the Business of Law

“Fees a crowd?”  D.C. bar issues opinion on ethics of crowdfunding