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It is my understanding that many bar associations have

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ethical rules prohibiting an attorney...
It is my understanding that many bar associations have ethical rules prohibiting an attorney from loaning money to his client. While an attorney or firm working on contingency is, in effect, loaning money by paying the legal expenses of the litigation, they are not directly loaning the client money. Third party litigation financing is shaking all of the "rules" up. My question: Could an attorney working on a contingency basis, personally invest in the financing of his own client's case through an investment fund?
Submitted: 1 year ago.Category: Business Law
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Business Lawyer: Law Educator, Esq., Attorney replied 1 year ago
Law Educator, Esq.
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Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
The states have laws, called the Rules of Professional Conduct, which specifically prohibit an attorney giving anything of value to their client. The attorney working on a contingency is NOT giving a loan, they are extending credit to be paid to the attorney at the completion of the case.
The attorney working on the case would be violating the rules of professional conduct if they give money to any third party who then provides money to the attorney's client, since that would be an indirect loan to the client in violation of the rules of professional conduct.
Also, law in Texas regarding Champerty, which is what litigation funding is called, is that the courts do not allow an attorney to take any financial interest in the suit that they are representing by paying maintenance for funding the litigation. The contingency fee is different in that it represents a fair value for the amount of actual work and time spent on the case, where champerty and maintenance provides a return to the investor based on the outcome of the litigation and while it may be seen as splitting hairs, it is different as seen by the Texas legislature and courts.
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