Litigation Advance

Litigation Advance and Contingency Fees

A litigation advance by a plaintiff's attorney is barred by the rules of professional conduct because of a possible conflict of interest. If, however, such legal funding pays for court costs, this is considered legitimate. In fact, attorneys and law firms routinely pay legal expenses as the case proceeds, and the client reimburses them when the case is concluded.

A personal injury lawsuit is almost always taken by an attorney on a contingency basis, that is, with 33-40% of any settlement going to the attorney. Supporters of lawsuit funding by third parties argue that when an attorney advances money for any reason in a lawsuit, this is, in fact, investing in that claim. They also state that a contingency fee is comparable to a litigation advance, and that neither scenario is significantly different from third parties funding a lawsuit up front.

Outside Funding Questions

Right now, a third party may step forward to assist a plaintiff in the very ways an attorney may not. Although candid observers view currently permissible attorney advances as not inherently different from third party funding, the fact remains that attorneys may not advance money to a plaintiff and third parties may. Isn't a contingency fee--an attorney's claim against a settlement or judgment--tantamount to having an interest in the plaintiff's case and an interest in the outcome?

Contingency fee arrangements are peculiar to the United States. They are illegal in most other countries; England has developed a conditional fee that has some elements in common with contingency fees. The rationale is that such fees constitute an investment in the lawsuit by the attorney. Here, personal injury cases are almost always funded through a contingency fee, but this is not viewed as violating champerty, the common law rule against any litigation advance by the attorney.