Legis Purple Paper Series – Topic 1

Best Practices in Litigation Finance Transactions

The following request by a lawyer to a “litigation funder” is now commonplace:
My client has a very valuable claim, but doesn’t want to pay me by the hour. Will you buy part of his anticipated recoveries so he can pay me my regular hourly rates?  I’m authorized to get the deal closed.

It is common sense: lawyers put themselves at unnecessary risk when placing litigation finance for their clients. The conflicts-of-interest and other ethics dangers are obvious, and sound business practice should not be overlooked.  Can the lawyer expertly handle the ALF project?  Is it cost-efficient for the lawyer to focus on a complex funding transaction rather than the underlying litigation?  Shouldn’t lawyers, particularly specialists at major law firms, “stick to their knitting”?

The American Bar Association has studied the ethics implications and made its views clear.  Its report on the subject makes suggestions that are actually quite simple: hire an independent expert to take over the role of sourcing, placing, structuring and/or documenting the ALF investment.

Drawing heavily from the ABA Report, Legis has developed a set of Best Practices for Law Firms Seeking ALF–-practical guidelines for firms facing ALF needs or opportunities.  The Best Practices are supported by a Legis Purple Paper, the first in a series, entitled Treasure Chest or Pandora’s Box: Best Practices for Law Firms Seeking ALF.

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