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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-3865" src="https://www.thelawforlawyerstoday.com/wp-content/uploads/sites/754/2018/04/Litigation-funding-300x264.jpg" alt="" width="300" height="264">Early last year, the federal Northern District of California became the first court to require &mdash; by <a href="http://filehost.thompsonhine.com/uploads/standing_order_all_judges_1.17.2017_(1)_3eaa.pdf">rule</a> &mdash; that&nbsp;a party receiving outside litigation funding&nbsp;must disclose the arrangement.&nbsp; As we <a href="https://www.thelawforlawyerstoday.com/2017/02/for-the-first-time-a-court-adopts-rule-requiring-litigation-funders-to-be-disclosed-but-only-in-class-actions/">described</a>, the rule is limited to class actions; it had been favored by the U.S. Chamber of Commerce, which views it as promoting needed transparency.
Now comes the first statute on the subject, Act 235, which&nbsp;<a href="https://walker.wi.gov/press-releases/governor-walker-signs-bills-improving-family-access-high-quality-child-care-creating">passed&nbsp;in a narrow vote</a> by the Wisconsin state legislature, and was signed into law on April 3.
&ldquo;Forward&rdquo; for the Badger State?
The U.S. Chamber&rsquo;s Institute for Legal Reform had lobbied in support of the Wisconsin bill, and <a href="http://www.instituteforlegalreform.com/resource/wisconsin-forward-state-enacts-groundbreaking-litigation-funding-transparency-law">said</a> on its website that its passage lived up to the state&rsquo;s motto &mdash; &ldquo;Forward&rdquo; &mdash;&nbsp;by &ldquo;bring[ing] litigation funding out of the shadows.&rdquo;
The <a href="https://docs.legis.wisconsin.gov/2017/related/acts/235">statute</a> requires a party to disclose &ldquo;any agreement under which any person ... has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment or otherwise.&rdquo;&nbsp; It exempts lawyer-client contingency fee agreements, and only applies to actions&nbsp;filed in Wisconsin state courts.
Burford Capital, one of the largest of the U.S. commercial litigation funders, downplayed the significance of the Wisconsin&nbsp;law.&nbsp; As <a href="http://www.abajournal.com/news/article/wisconsin_law_requires_all_litigation_funding_arrangements_to_be_disclosed">reported</a> by the ABA Journal, Burford&rsquo;s chief marketing officer said that&nbsp;the statute overreached in applying to&nbsp;commercial litigation finance as well as consumer finance, and&nbsp;predicted a backlash from businesses.&nbsp; Proponents of funding also point to a possible Pandora&rsquo;s box of discovery disputes that will be opened with increasing regulation.
But you can&rsquo;t invest in your cake and eat it, too...
Whether the new Wisconsin statute will be the first of many remains to be seen.&nbsp; Another unknown, as we&rsquo;ve discussed <a href="https://www.thelawforlawyerstoday.com/2017/02/for-the-first-time-a-court-adopts-rule-requiring-litigation-funders-to-be-disclosed-but-only-in-class-actions/">before</a>,&nbsp;is how courts will deal with the doctrines of champerty and maintenance that have historically placed limits on the ability of third parties to fund suits.
But in another litigation-funding development, the New York State Bar Association last month decided that neither a lawyer nor the lawyer&rsquo;s firm can represent a client in an action funded by a litigation finance company in which the lawyer is an investor.
In <a href="https://nysba.org/ethics-opinion-1145/#" target="_blank" rel="noopener noreferrer">Opinion 1145</a>, the NYSBA&rsquo;s ethics committee said that doing so raised an unwaivable conflict of interest that couldn&rsquo;t be remedied by the client&rsquo;s informed consent.&nbsp; New York&rsquo;s version of <a href="https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_8_current_clients_specific_rules.html">Model Rule 1.8(e)</a> bars a lawyer from providing &ldquo;financial assistance to a client in connection with pending or contemplated litigation,&rdquo; subject to limited exceptions for advances covering court costs and expenses, and indigent clients.&nbsp; The committee said that even though the lawyer wouldn&rsquo;t be the only investor in the funding company, the &ldquo;reality [is] that money from the [lawyer] would be paid as financial assistance to the ... client.&rdquo;
And representing a client funded through the company the lawyer invests in would also violate New York&rsquo;s version of <a href="https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_8_current_clients_specific_rules.html">Model Rule 1.8(i)</a>, which prohibits acquiring a &ldquo;proprietary interest&rdquo; in a client&rsquo;s claim, the committee ruled.&nbsp; By providing money to the client in exchange for a percentage of the prospective recovery, the funding company would acquire such an interest, and the lawyer would also do so, as a part owner of the company.
There is no provision for waiving these prohibitions, said the committee, and they are imputed to the investing lawyer&rsquo;s whole firm.
Still trending
Third-party funding remains a hot topic, and we predict that there will be further developments, on all fronts &mdash;&nbsp;legislative,&nbsp;case-law, and&nbsp;regulatory.&nbsp;&nbsp;(The U.S. Chamber is one of more than two dozen&nbsp;organizations that&nbsp;last summer <a href="https://www.thelawforlawyerstoday.com/tag/alternative-litigation-funding/">asked the federal courts&rsquo; Rules Committee to consider amending the Rules of Civil Procedure</a> to require disclosure of third-party funding arrangements.)&nbsp; &nbsp;We&rsquo;ll continue to keep you posted, so check back often.

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Ethics

Legal Ethics, Professional Responsibility and the Business of Law

Litigation funding spotlighted in WI disclosure statute, NY ethics opinion