CBA_April 13Report - page 6

April 2013 CBA REPORT
cover article
for information about the case. This may
be a form requesting information about
the injuries, the insurer, the medical
bills, previous guarantees of funds and
subrogation interests, likely settlement
figures, etc. The lawyer supplies the re-
quested information to the lender; if the
case and the client are good prospects,
the lender advances the money. When
the case is settled, the payoff is deducted
from the proceeds of settlement and paid
to the lender.
The monthly interest rate ranges from
two to five percent. The payoff, if the case
settles at the one year point may typically
be anywhere from one and two thirds to
twice the amount of the original loan.
The Ethics -
What DoYou Have To Do?
BCGD Opinion 2012-3 was issued in
December 2012, in response to a request
for guidance from an attorney.
Here is what
the lawyer has to
do–according to
the opinion, and in
condensed form–if
your client decides
he wants a lawsuit
loan. (The bold is the
language of the opinion; what follows is
my opinion.)
1. Communicate with the client and
provide competent, candid advice about
the nature of the transaction and its
This means at a minimum telling
the client the “
annualized rate of return”
(required by statute to be disclosed
on the loan agreement). As a practical
matter, it probably also means telling
him that no one can say with certainty
when the insurance company will make
an offer sufficient to pay off the loan. If
the payoff may preclude the client from
a substantial recovery, that ought to be
disclosed as well. The lawyer also has a
duty to advise the client to consider other
sources of financing–which could include
medpay or (if applicable) PIP, family or
a second mortgage.
The BCGD opinion goes into consid-
erable detail relative to the lawyer’s duty
to suggest and explore alternative financ-
ing options, implying that the duty may
be affirmative in some cases.
2. Ensure that the ALF provider
does not interfere with the lawyer’s duty
to exercise independent judgment.
How could the lender interfere with
an attorney’s professional judgment?
One possible source of interference, not
mentioned in the opinion, could be the
lender’s listing the attorney as being
willing to work with the lender on the
lender’s website–an effective referral
R.C. 1349.55 (B)(3) requires the loan
agreement to contain a disclaimer stating
that the lender does not have a right to
make decisions about the underlying
civil case, and that such decisions belong
to the consumer and the lawyer.
Another form of interference could
be the lender pressuring the attorney to
settle the case “early” in order to ensure
the repayment of the loan. Any attempt
by the lender to interfere with counsel’s
judgment “may require the lawyer to
withdraw from the representation,” and
the client should be informed of this
(BCGD Opinion 2012-3, p. 9).
Finally, “Where the lawyer represents
the client in negotiations with the ALF
supplier, where the terms of the agree-
ment may affect the rights the lawyer
and client have, vis-a-vis one another
in the proceeds of any recovery, such a
case likely involves the lawyer acquiring
a ‘pecuniary interest adverse to a client’
triggering the requirements of Prof.
Cond. R. 1.8(a)” (BCGD Opinion
2012-3, p. 9). Prof. Cond. R. 1.8(a)
governs business transactions and other
shared property interests with clients,
and essentially requires the lawyer to
“read the riot act” to the client by advis-
ing the client in writing of the lawyer’s
own self interest in the transaction and
of the desirability of seeking other coun-
sel. Presumably, this discussion refers to
“floating fee” agreements with the lender
which would modify the allocation of
the attorney fee, the payoff and the net
3. …Not reveal information about
the representation to the ALF provider
without securing the client’s “informed
“Informed Consent” is defined at
Prof. Cond. R. 1.0(d) as:
“ the agreement by a person to a pro-
posed course of conduct after the lawyer
has communicated adequate information
and explanation about the material risks
of and reasonably available alternatives to
the proposed course of conduct.”
A condition of the loan is the client’s
executed waiver of confidentiality, so the
lender can evaluate the likelihood of get-
ting his money back. The lawyer needs
to inform the client (1) that the lawyer
will be disclosing confidential informa-
tion about his case to the lender at the
lender’s request, (2) whatever limits there
are on the information that the lender
can request under the waiver,
(3) that the lawyer may be required to
supply information
to the lender that
may interfere with
the client’s ability
to obtain further
financing and
(4) that once the
lawyer has provided
the information to the lender, the assur-
ance that that information will not fall
into the wrong hands – e.g. other lenders,
employers, or even the insurance com-
pany for the tortfeasor – is limited.
To the extent you, as an attorney,
undertake to respond to provide infor-
mation to the lender in order to obtain
your client’s loan, you may be exposing
yourself to criminal or civil liability, as
well as to the ethical obligation “to tell
the truth.”
4. Obtain the client’s informed con-
sent before providing a case evaluation
to an ALF provider pursuant to Prof.
Cond. R. 2.3
The lender may require, as a con-
dition to issuing a loan or increasing
the loan amount, an evaluation by the
attorney. This obviously will require a
written waiver by the client, and is sub-
ject to the “informed consent” provisions
discussed in the last section. Obviously,
this discussion will be pretty similar to
the conversation described in section 3
Another form of interference could be the lender
pressuring the attorney to settle the case “early”
in order to ensure the repayment of the loan.
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