Best Practices in Litigation Finance Transactions

Purple Paper Excerpt

ALF Project Management Generally

The lawyer prosecuting the claim for which investment is sought should consider involving another lawyer and/or financial advisor to negotiate the terms of the ALF investment proposal and transaction; third party should be engaged by the client where local ethics rules suggest or require that the client be advised by “independent counsel”.

The lawyer must consider the impact of laws and regulations (from broker-dealer to champerty laws) other than legal professional ethics on the anticipated role of the lawyer or firm in the ALF-placement project.

Managing Threshold and Later-Arising Conflicts of Interest

Consider implementing a policy to explain to the client alternatives to ALF, including contingent fees, and the relative risks of ALF vs. those alternatives.

Any matter requiring informed consent by the client should be described in a private, attorney-client privileged writing signed by the client.

Referrals to ALF Suppliers

The lawyer asked to source ALF for a claim should not limit his search to a single ALF supplier.

In identifying and reviewing available ALF candidates, a basic internet search is insufficient due diligence.

Managing the Transaction with an ALF Supplier

The structure of a proposed ALF transaction should be reviewed to ensure it does not give rise to (i) fee-splitting; (ii) an acquisition of an interest in the client’s claim, or (iii) circumstances where the client’s and the lawyer’s rights are not  aligned.

Administration of ALF Relationships

A lawyer receiving payment from a third-party investor must carefully review the impact on his independent professional judgment; appropriate client informed consent should be obtained in writing.

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  • What the ABA recommends to lawyers dealing with ALF Suppliers
  • How to structure a firm-wide internal ALF management and compliance system
  • Ethics, economic, and common-sense do’s and dont’s for lawyers dealing with ALF Suppliers

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