Opinion #193: Loans: Non-recourse litigation expense loans to an attorney
Issued by the Professional Ethics Commission
Date Issued: December 10, 2007
Bar Counsel has requested an opinion on the ethics of an attorney participating in litigation expense funding for individual cases on a non-recourse loan basis that is offered by a number of litigation finance companies.
As an example, a Company offers wholly non-recourse loan advances to attorneys representing clients subject to a contingency fee arrangement. Under this arrangement, the Company will undertake the financial risk in a personal injury case by providing the attorney an advance on that case to cover litigation costs. If the case is unsuccessful, the attorney owes the Company nothing. If the case succeeds, either by way of settlement or judgment, the Company is entitled to be repaid its loan along with very substantial interest. The Company represents that it does not "share" in the attorney's legal fees. The Company may or may not require a lien on the attorney's fees in the case.
In Opinion #191 we addressed ethical issues that attorneys must consider when asked to assist their clients in obtaining personal injury lawsuit loans. The question currently posed by Bar Counsel addresses personal injury lawsuit loans offered to attorneys rather than their clients. While these attorney loans may be offered as recourse as well as non-recourse, the current question relates only to non-recourse loans. Accordingly, this opinion is limited to loans in that context.
We conclude that an attorney may not enter into a non-recourse loan under the circumstances presented in Bar Counsel's question. Irrespective of how the finance company may characterize its agreement, the nature and structure of such an arrangement involves the sharing of legal fees with a non-lawyer. Repayment to the finance company is tied directly to the recovery of legal fees by the attorney in the particular case. The attorney must repay the finance company only if the attorney is successful and recovers a fee. Further, the interest charged upon repayment involves a premium based upon the risk incurred by the finance company in sharing in the prospects of success or failure of the particular litigation in which the company is thereby participating.
Maine Bar Rule 3.12(a) prohibits a lawyer from sharing legal fees with a non-lawyer except in limited circumstances not relevant here. The underlying rationale for the rule is that any fee sharing arrangement creates an unacceptable risk that the professional independence of the lawyer will be influenced by the non-lawyer who has an interest in the attorney's fee. We agree with Utah Bar Association Opinion 97-11 (1997), to the effect that payment on a non-recourse loan to finance litigation in a contingency fee case, where the lawyer is obligated to repay the loan only if a fee results in the case, constitutes sharing legal fees with a non-lawyer in violation of the rule.