Legal Funding

Written by Patricia Tunstall
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Legal Funding by Attorneys

Legal funding as an investment by a plaintiff's attorney in a case is prohibited by codes of professional conduct of the states, which are based on the American Bar Association's codes. Attorneys and law firms, when hired on a contingency basis, will pay expenses associated with the lawsuit, such as court costs or expert witnesses. These expenses may not, however, be contingent on the outcome of the case, meaning, the plaintiff most likely will have to repay these expenses to the attorneys.

The only money involved in a case that the attorney can make dependent on the outcome is the contingency fee that the client pays for attorney services. This is usually anywhere from 33% to 40% of whatever settlement or judgment derives from a successful lawsuit. Enter the proliferating companies that provide third-party legal funding to plaintiffs who cannot afford to continue their lawsuit.

Third-Party Advances

Third parties are able to do what attorneys may not do--invest in the plaintiff's claim. These groups are not subject to the codes of ethics that apply to attorneys involved in a client's lawsuit. They may, though, violate the English common law rule against champerty, which forbids the sale of any interest in the outcome of plaintiff's lawsuit.

This rule, however, has been severely restricted in modern times, and eliminated entirely in several jurisdictions. The trend is definitely toward permitting third parties to treat plaintiff's claim as an asset that can be bought and viewed as an investment through legal funding. Ohio notwithstanding, the concept of a legal marketplace for litigation financing is gaining popularity.

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