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    Ethics: Securing Presettlement Living Expenses for Clients

    Lawyers may help clients secure presettlement funds for living expenses during litigation but must adhere to supreme court rules to guard against conflicts of interest, breaches of confidentiality, and exposure of client information to discovery.

    Dean Dietrich

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 79, No. 5, May 2006

    Securing Presettlement Living Expenses for Clients

    Lawyers may help clients secure presettlement funds for living expenses during litigation but must adhere to supreme court rules to guard against conflicts of interest, breaches of confidentiality, and exposure of client information to discovery.

    by Dean R. Dietrichmoney and 
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    Question

    I have seen recent advertisements about a service that funds living expenses for someone involved in a lawsuit. Can I refer my clients to this company?

    Answer

    These types of companies have been around for many years but are now becoming more prevalent across the country. Generally, these companies will provide money to a plaintiff for living expenses in exchange for an agreement to be paid from the proceeds of a lawsuit resulting from a settlement or jury award. Lawyers may be involved in referring clients to one of these companies provided the lawyer exercises precautions.

    First, supreme court rules prohibit lawyers from assisting a client in funding a lawsuit other than paying filing fees and other court-related expenses. Supreme Court Rule 20:1.8(e) and (j) provides as follows:

    "SCR 20:1.8 Conflict of interest: prohibited transactions ...

    "(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

    "(1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and

    "(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client. ...

    "(j) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:

    "(1) acquire a lien granted by law to secure the lawyer's fee or expenses; and

    "(2) contract with a client for a reasonable contingent fee in a civil case."

    Under these rules, a lawyer may not fund the living expenses of a client who is involved in a lawsuit for which the lawyer provides representation. Because of this limitation, a lawyer may not fund the living expenses of a client during the pendency of litigation. The lawyer may assist a client in obtaining funding from a financing organization but the lawyer must exercise caution in how the lawyer communicates with the financing organization.

    Dean DietrichDean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is chair of the State Bar Professional Ethics Committee.

    Conflicts of interest and confidentiality. The lawyer's principal concerns are conflicts of interest and confidentiality. Quite often, the financing organization will ask the lawyer to provide her synopsis and impressions regarding the likelihood of success in the litigation. The lawyer must obtain the client's consent to discuss the facts and circumstances surrounding the claim in order to provide the financing organization with a basis to provide funds. This communication involves the disclosure of client information protected under SCR 20:1.6 and requires a specific release from the client to allow the lawyer to discuss information about the lawsuit with the financing organization. The lawyer also must be careful not to disclose information to the company that would then be discoverable by the opposing party in the pending litigation. The lawyer must make sure that the information that is shared with the company does not place the lawyer in the position of being required to disclose confidential information to opposing counsel because the attorney-client privilege has been effectively waived.

    Even more troublesome for a lawyer representing a client who is in need of presettlement funding services are potential conflicts of interest. The lawyer must be careful that the interaction with the financing organization does not create a conflict of interest with the client's representation. If the lawyer is required to give an opinion regarding the likelihood of success in the litigation, the lawyer may be placed in a position of conflict between the duty of loyalty to the client and the duty of loyalty to the company that is asking for an opinion and relying on that opinion to determine whether to provide presettlement funds to the client. The lawyer's interests in not misrepresenting information to the financing organization may be contrary to the interests of the client who is in need of the funding to continue the litigation. Further, the lawyer's interest in receiving a contingent fee payment for the litigation may create a conflict between the lawyer's personal interest in continuing the litigation to earn the contingent fee and the client's interest in receiving funds for living expenses.

    A different type of conflict of interest arises when the lawyer is placed in a negotiation position between the client and the financing organization. This situation may arise when the client desires settlement at one level but the financing organization desires settlement at a different level to be assured of receiving sufficient funds through a settlement. Again, the client's interests may be in conflict with the financing organization's interests if there are divergent views of the settlement offer and the value in obtaining a settlement rather than proceeding to trial. The lawyer must determine exactly who has the ultimate authority on settlement proposals and then make sure that the lawyer is not placed in the difficult position of resolving conflicts between the client and the financing organization.

    In addition to balancing conflicts of interest, the attorney must be truthful in any discussions with the financing company regarding the likelihood of success in the litigation. The requirements of SCR 20:4.1 come into play because the attorney is required to be truthful when communicating with another party and may not withhold material facts or material information. The obligation to disclose all relevant information again creates an environment in which a conflict of interest may arise between the client's interests and the lawyer's duty to provide all relevant information to the financing organization.

    SCR 20:2.3 provides that a lawyer may provide information to a third party so that the third party can evaluate the client's claim if the client consents after consultation. The duty to provide this information may coincide with the client's wish that this information be provided to the financing organization, but the lawyer must always be aware of the potential conflicts that arise when information is provided for evaluation by a third party.

    Conclusion

    Lawyers must be cautious when working directly with their client to obtain presettlement funds for the client. The lawyer may not have any financial interest in such funding and must ensure that the lawyer does not have a conflict of interest when working with the client and the financing organization to secure cash for the client.




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