NY Bar Restricts Law Firm Financing

On 30th July, the Professional Ethics Committee of the New York City Bar Association issued a formal opinion that found that Rule 5.4(a) of the New York Rules of Professional Conduct does not permit a lawyer to enter into a financing arrangement with a litigation funder (or any non-lawyer) where the lawyer’s payments to the funder are contingent on the receipt of legal fees or on the amount of legal fees received by the lawyer in one or more specific matters. According to the Committee, this type of financing arrangement would violate the prohibition in Rule 5.4 against a lawyer or law firm sharing legal fees with a non-lawyer (also known as the “fee-splitting” rules). Noting the lengthy history of the Rule, the Committee referred to a previous NYCBA opinion to describe the purpose of the rule, which is to protect the professional independence and judgment of lawyers and to remove incentives for non-lawyers to engage in other objectionable conduct.

More on this development can be found here.