Writing for the New York Law Journal, Professor Anthony Sebok and Hinshaw & Culbertson partner Anthony Davis convincingly argue that the New York City Bar ethics committee should withdraw Opinion 2018-5, regarding “litigation funders’ contingent interest in legal fees”. The ethics committee, which lacks regulatory authority in New York, issued its unprompted advisory opinion at the end of July. The opinion, which breaks from substantial caselaw precedent and the overwhelming opinion of legal scholars and ethicists, asserts that any non-recourse financing arrangement between a law firm and a professional legal funder, like Burford, constitutes a violation of Rule 5.4(a) of the New York Rules of Professional Conduct, which prohibits fee-sharing between lawyers and nonlawyers.
Professor Sebok and Mr. Davis point out that Rule 5.4(a) is meant to ensure professional independence of lawyers. Thus, it is unclear why traditional recourse loans provided to law firms by financial institutions aren’t also found by the opinion to violate Rule 5.4(a), even though most of these recourse arrangements give creditors broad control over law firms’ legal budgets, and therefore control of those firms’ litigation practices generally. They argue that “Opinion 2018-5 would, if taken literally, threaten much of the financing that many in the profession take for granted today.” Professor Sebok and Mr. Davis also describe the various ways in which the opinion deviate from settled caselaw:
“Critically, courts have interpreted Rule 5.4(a) without resorting to the committee’s radical conclusions, and the committee should have listened to what caselaw says about the relationship between contingent financing and legal ethics… the opinion fails to acknowledge the many cases, in addition to the three it cites, which reflect the degree to which courts accept the very practices that the committee deems unethical. In a case like Brandes v. North Shore University Hospital, 856 N.Y.S.2d 496 (Sup. Ct. 2008), what is remarkable is how unremarkable the court regarded the fact that the lawyer secured his loan with an unearned contingent fee.”
