Wisconsin 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. Dietrich
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 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.
Wisconsin Lawyer