When the U.S. District Court for the Northern District of California became the first federal court in the nation to set down transparency requirements for litigation funding, it focused on a particular segment of the industry: class actions. The major funders such as Burford Capital and Bentham IMF reacted with a shrug, saying that class actions are a small or nonexistent part of their business.
It invites the question: why have some litigation financiers steered clear of what plaintiffs lawyers have long recognized is a lucrative area of the legal profession? The answer involves a bedrock rule of American legal ethics, and points to the careful and sometimes divergent ways that litigation funders keep on the right side of its mandate that attorneys not share fees with nonlawyers.
- The gravamen: Litigation funders are tiptoeing around a legal ethics rule that prohibits lawyers from sharing their fees with non-lawyers. But they don’t always take a consistent approach.
- Why it matters: The fee-splitting rule is limiting the types of cases that some funders will back and the way they structure their deals. Some say it’s not meant to apply to litigation finance firms, while others see it as helping safeguard attorney independence.
