Panel rules on ‘advance funding’ advice July 15, 2001 Gary Blankenship Senior Editor Regular News Panel rules on ‘advance funding’ advice Senior Editor Lawyers can tell their personal injury clients about “advance funding” options, but shouldn’t become involved in evaluating such proposals or provide a letter of protection to such a lender, according to the Professional Ethics Committee. The PEC, meeting June 22 at the Bar’s Annual Meeting, approved Proposed Advisory Opinion 00-3, which it has been debating for more than a year. The approval came only after a vigorous discussion and by a close 17-14 vote. The opinion addresses questions about advance funding third parties that offer nonrecourse loans or buy part of an anticipated judgment which is unsecured except for the hoped-for case proceeds which were not addressed in earlier opinions. Lawyers may not, the committee said, have an ownership interest in the lending company or receive a referral fee. The final opinion can be appealed to the Bar Board of Governors, and will be posted on the Bar’s website at www.FLABAR.org. The opinion will also be published as an official notice in the August 15 News. The committee noted that its earlier rulings remain unchanged. Those hold that Bar rules prohibit attorneys from directly lending money to clients, or doing indirectly what they cannot do directly. Also, in a 1992 opinion, the committee held that lawyers could not routinely refer clients to a company and then actively participate in the loan transactions. The Supreme Court upheld that position when a petition was presented to it for a rule change. Not addressed in earlier opinions, the committee said, was how an attorney could try to get help for a financially strapped client without becoming involved in the loan and whether the attorney could honor a letter of protection to a loan company. Noting that most other states which have considered the issue allow attorneys at least to tell clients about the existence of such loans, the committee wrote, “This committee can conceive of only limited circumstances under which it would be appropriate for an attorney to provide clients with information about finance companies that offer non-recourse advance funding or other financial assistance in exchange for an assignment of interest in the case.” The committee concluded: • An attorney can tell clients about the existence of such loans and provide the names of companies, but not discuss the costs of such loans or that those costs might outweigh the benefits. The committee also expressed concern from earlier opinions that clients who get those loans may lose incentive to cooperate with completing a case. • An attorney should not recommend clients’ matters to finance companies, nor contact finance companies on clients’ behalf. • An attorney must not allow finance companies obtaining an interest in the judgment to direct or become involved in the case, or affect the attorney’s independent judgment. • The attorney may not have an ownership interest in the loan company. And since referrals are prohibited, the attorney also may not receive any compensation from the loan company in exchange for making a referral. • The attorney may provide information to loan companies about the case only with a written request from the client, but in any case may not provide the company with an opinion about the value or worth of a case. “Before providing the company with such information, the attorney must consult with the client about the effects of the disclosure, including whether any privileges may be waived if the information is disclosed to the finance company, and obtain the client’s informed consent,” the opinion said. • The attorney, at the client’s request, may honor a finance company’s letter of protection or the client’s irrevocable assignment of part of the recovery to the company, but the attorney may not provide a letter of protection to the company and signed by the attorney “because to do so would become a part of the loan process.” “In conclusion, an attorney may, in appropriate circumstances, provide a client with information about companies which offer non-recourse advance funding and other financial assistance in exchange for an interest in the proceeds of the client’s case,” the opinion said. “The attorney may provide factual information about the case to the finance company with the informed consent of the client. Although the attorney may honor the finance company’s letter of protection signed by the client, the attorney may not issue a letter of protection to the finance company.” Much of the committee’s debate centered on what if any help a lawyer could give a client interested in an advance funding loan. Steve Rothenberg, representing Al Cone, an attorney who runs a funding company and one of the lawyers requesting an opinion from the committee, said the proposed opinion was too restrictive. He said it was wrong to say the loans would help only in “limited” circumstances and that lawyers should be able to issue letters of protection, saying it would make the loan more secure and would lead to lower interest rates for the client. “We believe the letter of protection is very important. We think there is no distinction between the letter of protection the lawyer gives a doctor and the lawyer gives the funding company,” he said. “It’s the property of the client and if the client says give the letter of protection, the lawyer should have the right to give the letter of protection.” But committee members disagreed. “The deal is with the client,” said committee member Emmet Abdoney. “There’s an ethics opinion that says if the letter of protection isn’t honored, then the lawyer is in trouble. That’s a concern we had. I would rather throw it back on you and you take care of yourself.. . . We can see that we get dragged in probably a little farther than we want to.” Committee member Don Beverly agreed, saying letters of protections for doctors are a completely different matter than guaranteeing a loan for an advance funding company. “I think we are going to create a situation and sort of fictitiously characterize it as like a letter of protection. That’s not giving on point protection to members of The Florida Bar,” he said. Beverly also said lawyers giving lenders information about litigation create problems, such as in cases where a client desperately needs money, but the lawyer might think there is a poor chance of any recovery. Other committee members saw a variety of problems. Some said financially strapped clients are frequently forced to settle for a pittance because they need the money, and advance funding could help. But others, noting lending rates can vary from two to 15 percent a month, said the loans will subject clients to predatory practices. Likewise, some committee members said it was important for lawyers to give their clients advice about loans and warn them if a loan isn’t in their best interest or the best deal available. But others said that would impermissibly involve lawyers in the loan. The committee first rejected a motion to adopt a draft prepared by a subcommittee but to drop language that prohibited the attorney from issuing a letter of protection. The committee then voted 17-14, with two abstentions, to approve the subcommittee’s draft, but omitted sentences that would allow the lawyer to give limited advice. One stricken line said the lawyer should discuss with the client whether the costs of the advance funding outweighed benefits. The other deleted section said the lawyer should discuss the benefits and drawbacks of the loan and also advise whether it was legal under applicable statutes.