Of course. This is a critical and rapidly evolving area of legal ethics. The intersection of attorney ethics and litigation finance (also called third-party litigation funding or TPLF) involves a complex web of professional responsibility rules that attorneys must navigate carefully.

Here’s a breakdown of the key ethical issues, the rules involved, and the current state of play.

Core Ethical Principles at Stake

The primary ethical concerns for an attorney whose client is using a litigation funder stem from the lawyer's core duties to the client and to the court. These are primarily governed by the American Bar Association's Model Rules of Professional Conduct (which most states have adopted in some form).

1. Professional Independence of Lawyer (Rule 5.4)

• The Rule: Generally prohibits a lawyer from sharing legal fees with a non-lawyer and from allowing a non-lawyer to direct or regulate the lawyer's professional judgment.


• The Conflict: A litigation funder, having invested a significant amount of money, will have a strong financial interest in the outcome. The ethical danger is that the funder will attempt to exert control over litigation decisions—such as whether to settle, for how much, or what legal strategies to pursue.


• Ethical Imperative: The attorney must ensure that all litigation decisions remain solely with the client, upon the attorney's advice. The funder cannot be given veto power over settlement, the ability to hire/fire counsel, or direct access to the legal strategy. The attorney must vigorously resist any such interference.

2. Confidentiality of Information (Rule 1.6)

• The Rule: A lawyer must not reveal information relating to the representation of a client without the client's informed consent.


• The Conflict: To secure funding, the client (and their lawyer) must share detailed, confidential information with the funder—case theories, strengths and weaknesses, damages models, etc. This is a necessary part of the funder's due diligence.


• Ethical Imperative: The attorney must ensure the client provides informed consent to this disclosure, preferably in writing. This involves explaining the risks, including that the information is no longer completely confidential and could potentially be subject to discovery by the opposing party. A robust Non-Disclosure Agreement (NDA) with the funder is essential to protect this information.

3. Avoidance of Conflicts of Interest (Rule 1.7 & 1.8)

• The Rule: A lawyer must not represent a client if there is a significant risk that the lawyer's responsibilities to another (the funder) will materially limit the representation.


• The Conflict: The attorney's duty is to the client alone. However, if the attorney has a past or ongoing relationship with a funder, or if the funder's financial interests (e.g., a desire for a quick, low return) conflict with the client's best interests (e.g., holding out for a larger verdict), a conflict arises.


• Ethical Imperative: The attorney must identify and explain any potential conflicts to the client. The attorney must ensure the funding agreement does not create a "tripartite relationship" where the lawyer owes duties to both the client and the funder.

4. Attorney-Client Privilege and Work Product Doctrine

• The Issue: Sharing attorney work product (e.g., memos, strategy emails) with a third party can waive these critical legal protections, making the documents discoverable by the opponent.


• Ethical Imperative: The key is to structure the disclosure under the "common interest" doctrine, which can preserve privilege when information is shared with a third party who has a common legal (not just commercial) interest in the outcome. This must be documented carefully, often within the NDA.

5. Fiduciary Duty and Control over the Litigation

• The Rule: The lawyer is a fiduciary for the client and must abide by the client's decisions concerning the objectives of the representation (Rule 1.2(a)).


• The Conflict: A funding agreement that gives the funder control over settlement or other key decisions effectively usurps the client's authority and the lawyer's fiduciary role.


• Ethical Imperative: The attorney has a duty to review the funding agreement with the client and advise on its terms. If the agreement gives the funder undue control, the attorney must counsel the client against it, as it compromises the attorney's ability to provide zealous representation.

Key Practical Steps for Ethical Compliance

To manage these risks, an attorney should:

• Secure Informed Client Consent in Writing: Document that the client understands the terms of the funding agreement, the risks of disclosing confidential information, and that the funder will have no control over the litigation.


• Scrutinize the Funding Agreement: Carefully review the terms to ensure they do not violate ethical rules. Look for clauses related to control, settlement, and the funder's recourse if the case is settled against its wishes.


• Use a Strong NDA: The non-disclosure agreement should explicitly state that disclosures are made for the purpose of securing funding and are protected by the common interest doctrine to preserve privilege.


• Maintain a "Firewall": Communicate directly and only with the client on all substantive legal matters. Keep the funder informed only as authorized by the client and without ceding decision-making power.


• Be Wary of "Champerty and Maintenance": While largely abolished in the U.S., some states still have old laws against frivolous litigation. Ensure the funding arrangement is not promoting a frivolous suit.

The Evolving Regulatory Landscape

The ethics of litigation finance are not static. Key developments include:

• ABA Formal Opinion 480 (2020): This was a landmark opinion that largely endorsed litigation finance, provided attorneys adhere to the ethical guardrails discussed above. It confirmed that disclosing information to a funder does not automatically waive privilege if done correctly.


• State Bar Ethics Opinions: Many state bars (e.g., New York, D.C., California) have issued their own opinions, largely aligning with the ABA's approach but with state-specific nuances.


• The Disclosure Debate: A major ongoing controversy is whether funding agreements must be disclosed to the opposing party or the court. Currently:


• There is no general duty to disclose in most U.S. jurisdictions.


• However, courts are increasingly ordering disclosure in specific situations, such as when assessing potential conflicts of interest in class action settlements or when there is a question about the court's diversity jurisdiction.


• The Federal Rules of Civil Procedure have been amended (Rule 26(b)(1)) to make funding agreements generally not discoverable, but a court can order disclosure for good cause.

Conclusion

Litigation finance is a powerful tool for increasing access to justice, but it is fraught with ethical pitfalls. For an attorney, the guiding principle is undivided loyalty to the client. By being proactive—securing informed consent, using robust NDAs, vigilantly protecting professional independence, and carefully vetting funding agreements—an attorney can ethically utilize litigation finance while fully complying with their professional obligations.