What does an Ohio lawyer have to do when a client takes a non-recourse litigation cash advance from a litigation-finance company?

Plain-English summary

The Board addressed the ethical considerations for Ohio lawyers whose clients enter the non-recourse civil litigation advance contracts regulated by R.C. 1349.55. It described alternative litigation finance (ALF) as the provision of capital by nontraditional sources to support litigation-related activities, with consumer non-recourse funding being one of three common types, and noted the growth of ALF providers and lawyers' limited familiarity with the ethical issues.

The Board concluded that lawyers may inform clients of the availability of such advances. If a client pursues one, the Board identified four sets of obligations. First, Rules 1.1, 1.4, and 2.1 require the lawyer to communicate with the client and provide competent, candid advice about the nature of the transaction and its terms. Second, Rule 1.4 requires the lawyer to ensure the ALF provider does not interfere with the lawyer's duty to exercise independent professional judgment.

Third, because of the confidentiality duty in Rule 1.6, the lawyer must not reveal information about the representation to the provider without the client's informed consent, which the lawyer may obtain only after explaining the risks of sharing information, including the potential waiver of attorney-client privilege. Fourth, under Rule 2.3 the lawyer must obtain the client's informed consent before providing the provider a case evaluation, because the evaluation may materially and adversely affect the client's interests.

In practice

The opinion holds that, under the Ohio Rules of Professional Conduct as they stood at the time of the opinion, a lawyer may tell a client about non-recourse litigation advances regulated by R.C. 1349.55, and that a client's use of one triggers defined duties: competent and candid advice about the transaction (Rules 1.1, 1.4, 2.1), preservation of the lawyer's independent judgment against provider interference (Rule 1.4), protection of confidential information absent informed consent given after a risk explanation that includes possible privilege waiver (Rule 1.6), and informed consent before furnishing the provider a case evaluation (Rule 2.3).

Common questions

Q: Can an Ohio lawyer tell a client about a litigation-funding company?

A: The opinion concluded yes; lawyers may inform clients of the non-recourse civil litigation advances offered by ALF providers and regulated by R.C. 1349.55.

Q: Can the lawyer share case information with the funder?

A: The opinion concluded that under Rule 1.6 the lawyer must not reveal information about the representation to the provider without the client's informed consent, obtained only after explaining the risks, including potential waiver of attorney-client privilege.

Q: Can the funder direct the litigation?

A: The opinion concluded that under Rule 1.4 the lawyer must ensure the ALF provider does not interfere with the lawyer's duty to exercise independent professional judgment.

Q: Does giving the funder a case evaluation require anything special?

A: The opinion concluded that under Rule 2.3 the lawyer must obtain the client's informed consent before providing a case evaluation, because it may materially and adversely affect the client's interests.

Background and rules framework

The opinion interprets Ohio Prof. Cond. R. 1.1 (competence), R. 1.4 (communication and independent judgment), R. 1.6 (confidentiality), R. 2.1 (candid advice), and R. 2.3 (evaluation for use by third persons) (Model Rules 1.1, 1.4, 1.6, 2.1, 2.3), in the context of non-recourse civil litigation advances regulated by R.C. 1349.55.

Citations and references

Rules of Professional Conduct:

• Ohio Prof. Cond. R. 1.1 (competence); R. 1.4 (communication) (Model Rules 1.1, 1.4)
• Ohio Prof. Cond. R. 1.6 (confidentiality) (Model Rule 1.6)
• Ohio Prof. Cond. R. 2.1 (candid advice); R. 2.3 (evaluation for use by third persons) (Model Rules 2.1, 2.3)

Statutes:

• R.C. 1349.55 (non-recourse civil litigation advance contracts)

See also

• Ohio BPC Op. 2009-006: Outsourcing Legal and Support Services

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op_12-003.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

BOARD OF COMMISSIONERS ON GRIEVANCES & DISCIPLINE
65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431
614.387.9370 888.664.8345
RICHARD A. DOVE FAX: 614.387.9379 MICHELLE A. HALL
SECRETARY www.supremecourt.ohio.gov SENIOR COUNSEL

                                  OPINION 2012-3
                              Issued December 7, 2012

                Non-recourse Civil Litigation Advance Contracts:
                         Guidance for Ohio Lawyers

SYLLABUS: Ohio lawyers may inform clients of the non-recourse civil litigation
advances that are offered by alternative litigation finance (ALF) providers and
regulated by R.C. 1349.55. If a client pursues such an advance, the lawyer must
recognize the following ethical obligations the transaction creates:

 1. Prof.Cond.R. 1.1, 1.4, and 2.1 require the lawyer to communicate with the
    client and provide competent, candid advice about the nature of the
    transaction and its terms.
 2. Under Prof.Cond.R. 1.4, the lawyer must ensure that the ALF provider
    does not interfere with the lawyer’s duty to exercise independent
    professional judgment.
 3. Due to the confidentiality provisions of Prof.Cond.R. 1.6, the lawyer shall
    not reveal information about the representation to the ALF provider
    without securing the client’s informed consent. The lawyer may only
    obtain informed consent after explaining to the client the risks of sharing
    information with an ALF provider, including the potential waiver of
    attorney-client privilege.
 4. The lawyer must also obtain the client’s informed consent before
    providing a case evaluation to an ALF provider pursuant to Prof.Cond.R.
    2.3 as the evaluation may materially and adversely affect the client’s
    interests.

QUESTION PRESENTED: What are the ethical considerations for Ohio lawyers
with clients entering into the non-recourse civil litigation advance contracts
regulated by R.C. 1349.55?
Op. 2012-3 2

APPLICABLE RULES: Rules 1.1, 1.4, 1.6, 2.1, and 2.3 of the Ohio Rules of
Professional Conduct

OPINION:

Background

    Alternative litigation finance (ALF) is the ‚provision of capital (money) by

nontraditional sources to civil plaintiffs, defendants, or their lawyers to support
litigation-related activities.‛ Garber, Alternative Litigation Financing in the United
States: Issues, Knowns, and Unknowns, RAND Inst. for Civil Justice Law, Fin., and
Capital Mkts. Program, (2010) 1. In the United States, there are generally three
types of ALF: non-recourse funding provided to individual plaintiffs (consumer
legal funding), loans to plaintiffs’ law firms, and investments in commercial
litigation. Id. The American Legal Finance Association (ALFA), a trade group
for ALF providers, has a membership of approximately 30 companies.1 There
may be as many as 80 other ALF providers operating in the U.S.2 Because of the
increasing proliferation of ALF and lawyers’ deficient knowledge of the ethical
issues associated with ALF transactions, the American Bar Association (ABA)
Commission on Ethics 20/20 recently formed a working group to study ALF in
the context of the lawyer-client relationship. The working group submitted its
report to the ABA House of Delegates in February 2012, and the report is a
comprehensive guide for lawyers on the ethical areas of concern with all types of
ALF. See ABA Commission on Ethics 20/20, Informational Report to the House
of Delegates (February 2012).3 This Advisory Opinion is limited to non-recourse
civil litigation advance contracts between consumers and ALF providers, and
will offer guidance to Ohio lawyers whose clients are considering, or have
already entered into, such contracts. This Opinion is neither an endorsement nor
a condemnation of ALF.

  ‚Non-recourse civil litigation advance contract‛ is the statutory term for

consumer legal funding in Ohio. R.C. 1349.55. Through these contracts, ALF
providers advance funds to individuals who have pending civil (usually
personal injury) claims, and the individual agrees to pay the provider the

1
American Legal Finance Assn., Member Providers,
http://www.americanlegalfin.com/OfficersAndMembers.asp (accessed Sept. 24, 2012).
2 Garber at 10, note 14.

3 Available at:

http://www.americanbar.org/content/dam/aba/administrative/ethics_2020/20111212_ethics_20_20_alf_white
_paper_final_hod_informational_report.authcheckdam.pdf (accessed Sept. 25, 2012).
Op. 2012-3 3

amount advanced plus additional financing fees. When viewed as a percentage
of the amount advanced, these fees are substantially higher than the interest rates
on credit cards and bank loans. Payment becomes due when the individual
recovers funds in the civil case, and the fees usually increase as the length of time
to recovery increases. As the advance is a non-recourse transaction, the
individual is only required to repay the advance and remit the contractual fees if
he or she receives proceeds in the underlying civil case. A typical condition of
the advance is that the individual is represented by a lawyer on a contingency-
fee basis.4

Rancman v. Interim Settlement Funding Corp.

  Consideration of non-recourse civil litigation advance contracts in Ohio

must begin with Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121,
2003-Ohio-2721, 789 N.E.2d 217. Rancman was a personal injury plaintiff who
contracted with two ALF providers for non-recourse advances secured by her
pending civil claim. The providers advanced $6,000 and $1,000 to Rancman, who
ultimately settled her case for $100,000. Rancman refused to honor the
repayment terms of her contracts with the ALF providers and instead repaid the
advances at eight percent interest.5 She then sued the funding providers,
requesting rescission of the contracts and a declaratory judgment that the
providers’ sales practices were ‚unfair, deceptive, and unconscionable.‛ Id. at ¶
5.

    The trial court in Rancman determined that the two advances from the

ALF providers constituted usurious loans that violated R.C. Chapter 1321, Ohio’s
Small Loan Act. Id. The court of appeals found the loans to be void under R.C.
1321.02 because the ALF providers had not acquired the statutorily-required
licenses for lenders. Id. At trial and before the court of appeals, the ALF
providers argued that the advances to Rancman were investments, not loans. Id.6

4For a detailed explanation of consumer legal funding transactions, see Garber at 9-13. The summary
provided herein is based upon this material.
5 The $6,000 advance was provided in exchange for the first $16,800 recovered if the case was disposed in 12

months, $22,200 if disposed in 18 months, and $27,600 if disposed in 24 months. The $1,000 advance was
secured by the next $2,800 Rancman received. If Rancman lost the case, the contracts did not require
repayment of the $7,000 advance.
6 The standard position of ALF providers is that non-recourse civil litigation advances are investments, not

loans. A Colorado trial court, however, recently determined that the advances are loans subject to state
consumer protection laws. See Oasis Legal Fin. Group v. Suthers, Dist. Ct., City and Cty. Of Denver, Colo.
10CV8380 (Sept. 28, 2011).
Op. 2012-3 4

    The Supreme Court of Ohio never reached the question of whether

Rancman’s civil litigation advances were loans or investments. Instead, the
Court analyzed the funding contracts under the common law doctrines of
champerty and maintenance. Id. at ¶ 9-19. The Court defined maintenance as
‚assistance to a litigant in pursuing or defending a lawsuit provided by someone
who does not have a bona fide interest in the case‛ and champerty as ‚a form of
maintenance in which a nonparty undertakes to further another’s interest in a
suit in exchange for a part of the litigated matter if a favorable result ensues.‛ Id.
at ¶ 10. Finding that the ‚ancient practices of champerty and maintenance have
been vilified in Ohio since the early years of our statehood,‛ the Court
condemned Rancman’s funding contracts on several grounds. Id. at ¶ 11. The
Court was critical of the ALF providers’ attempt to profit from Rancman’s case
and their purchased interests in the litigation. The Court also denounced the
disincentive to settle caused by the funding contracts and characterized civil
litigation advances as speculative investments in lawsuits. Id. at ¶ 14-18.
Champertors and maintainers were historically lawyers, and the Court
recognized that the Code of Professional Responsibility (now the Rules of
Professional Conduct) regulates the advance of expenses to clients and
acquisition of proprietary interests in litigation. Id. at ¶12, citing former DR 5-103
(now Prof.Cond.R. 1.8). Nevertheless, the Court found that the ethics rules did
not eliminate champerty and maintenance from the common law. Id. The Court
ultimately held that ‚*e+xcept as otherwise permitted by legislative enactment or
the Code of Professional Responsibility, a contract making the repayment of
funds advanced to a party to a pending case contingent upon the outcome of that
case is void as champerty and maintenance.‛ Id. at ¶ 19.

Legislative Response to Rancman

    After the Rancman decision in June 2003, Ohio was purportedly the only

state that disallowed non-recourse civil litigation advances. 76 Ohio Report No.
186, Gongwer News Service, Inc. (Sept. 19, 2007) (proponent testimony of Gary
Chodes, chief executive officer of Oasis Legal Finance, on H.B. 248, 127 th General
Assembly). Contemporaneous with Rancman, though, regulators were
instituting ALF reforms. For example, in June 2004 and February 2005, the New
York State Office of the Attorney General reached settlements with ten ALF
providers in which the providers agreed to implement new business practices to
protect consumers. The agreed changes included mandatory disclosure
statements regarding the transaction, a five-day cancellation period, translation
of contract terms for non-English speaking consumers, and a notarized
Op. 2012-3 5

acknowledgment by the consumer’s lawyer. New York State Office of the
Attorney General, Feb. 28, 2005 Press Release, http://www.ag.ny.gov/press-
release/personal-injury-cash-advance-firms-agree-reforms (accessed Aug. 27,
2012). Using the New York settlement terms as a guide, the Ohio General
Assembly passed legislation governing non-recourse civil litigation advance
contracts in 2008. See 77 Ohio Report No. 83, Gongwer News Service, Inc. (Apr.
29, 2008). The result is R.C. 1349.55, entitled ‚Non-recourse civil litigation
advance contracts.‛ As of June 2012, Ohio, Nebraska, and Maine are the only
states that have enacted consumer protection laws concerning civil litigation
advances. O’Brien, Baker: Lawsuit Financing Debate Likely to Continue in State
Legislatures, http://www.legalnewsline.com/spotlight/236576-baker-lawsuit-
financing-debate-likely-to-continue-in-state-legislatures (accessed Sept. 24, 2012).

   R.C. 1349.55(A)(1) defines a ‚non-recourse civil litigation advance‛ as a

‚transaction in which a company makes a cash payment to a consumer who has
a pending civil claim or action in exchange for the right to receive an amount out
of the proceeds of any realized settlement, judgment, award, or verdict the
consumer may receive in the civil lawsuit.‛ R.C. 1349.55(B) sets forth a number
of required components of contracts for non-recourse civil litigation advances
including disclosures of the amount of the advance, fees, the amount to be
repaid, and the annual rate of return, a five-day cancellation provision,
translation of the contract terms, and a statement that the ALF provider agrees it
does not have decision-making authority in the underlying civil case. R.C.
1349.55(B)(6) further mandates that the contract contain a written
acknowledgment by the consumer’s lawyer indicating that the lawyer reviewed
the contract and determined that all costs and fees were disclosed, and verifying
the lawyer is being paid on a contingency fee basis pursuant to a written
agreement, will distribute case proceeds from the lawyer’s trust account or a
settlement fund, and is following the consumer’s written instructions concerning
the advance.

   The legislative history reveals that the Ohio General Assembly created

R.C. 1349.55 to address the Supreme Court’s holding in Rancman, make non-
recourse civil litigation advance contracts legal, and provide consumer
protection to customers of ALF providers. Legislative Serv. Comm. Fiscal Note
and Local Impact Statement, H.B. 248, 127th General Assembly; 77 Ohio Report
No. 83, Gongwer News Service, Inc. (Apr. 29, 2008). Representative Louis
Blessing, the sponsor of the bill that enacted R.C. 1349.55, testified that
‚*a+llowing legal finance providers to operate in Ohio under regulations that
Op. 2012-3 6

protect the consumer will give plaintiffs in Ohio lawsuits needed financial
relief.‛ Id. Given that the Court in Rancman stated that non-recourse civil
litigation advances could be legalized by ‚legislative enactment,‛ this Advisory
Opinion assumes that R.C. 1349.55 accomplished this purpose. The Court,
however, has not considered a legal challenge to R.C. 1349.55 since its
enactment.7 If the Court struck down R.C. 1349.55 and the legality of non-
recourse civil litigation advances was again called into question, the guidance
provided in this Opinion may no longer be applicable.

Civil Litigation Advances and the Ohio Rules of Professional Conduct

    A lawyer has asked the Board to identify the ethical obligations for

lawyers whose clients enter into non-recourse civil litigation advance contracts
pursuant to R.C. 1349.55. Under the Ohio Rules of Professional Conduct, four of
a lawyer’s general duties are of particular importance in a client relationship
during which the client seeks a civil litigation advance: candid advice and
communication, independent professional judgment, competence, and
confidentiality. Some ALF transactions may create conflict of interest problems
for lawyers if they are a participant in the transaction itself. This Opinion only
addresses non-recourse civil litigation advance contracts between a client and an
ALF provider. For guidance on ALF transactions involving lawyers, the
following opinions of the Board should be consulted: Ohio Sup. Ct., Bd. of
Comm’rs on Grievances and Discipline, Op. 2004-2 (June 3, 2004) (improper for
lawyer, upon settlement, to sell or assign a legal fee to a funding provider in
exchange for immediate payment at a small discount of the fee); Ohio Sup. Ct.,
Bd. of Comm’rs on Grievances and Discipline, Op. 2002-2 (Apr. 5, 2002) (lawyers
discouraged from facilitating client loans that benefit both a lender and a
consulting provider with which the lawyer has a business relationship); Ohio
Sup. Ct., Bd. of Comm’rs on Grievances and Discipline, Op. 2001-3 (June 7, 2001)
(law firms may obtain loans to advance expenses of litigation and deduct fees
and costs of the loan from the client’s settlement); Ohio Sup. Ct., Bd. of Comm’rs
on Grievances and Discipline, Op. 94-11 (Oct. 14, 1994) (lawyers cannot agree to
pay a financing provider a percentage of their legal fee in exchange for a loan to
the client).

7 Professor Stephen Gillers has suggested that the Court may see R.C. 1349.55 as ‚an intrusion on its
inherent power to regulate the bar.‛ Gillers, Waiting for Good Dough: Litigation Funding Comes to Law, 43
Akron L.Rev. 677, notes 15 and 101 (2010).
Op. 2012-3 7

Candid Advice and Communication

    Ohio lawyers may encounter clients at various points of connection with

ALF providers. A client may see commercials sponsored by these providers on
late-night television and seek their lawyer’s guidance on obtaining a civil
litigation advance to pay medical bills or living expenses during the pendency of
their civil case. Some clients may approach an ALF provider on their own, sign a
contract, and ask their lawyer to execute the acknowledgment required by R.C.
1349.55(B)(6). Yet another category of clients may want general advice on
financing options if they are unable to earn a living due to injuries suffered in an
accident and a lengthy settlement negotiation is expected. In all of these
situations, the lawyer must function as the client’s advisor.

    The lawyer’s role as advisor is set forth in Prof.Cond.R. 2.1: ‚In

representing a client, a lawyer shall exercise independent professional judgment
and render candid advice. In rendering advice, a lawyer may refer not only to
law but to other considerations, such as moral, economic, social, and political
factors that may be relevant to the client’s situation.‛ The Official Comment to
Prof.Cond.R. 2.1 provides further insight on the lawyer’s obligation to provide
complete advice to clients. Comment [1] states that legal advice may involve
‚unpleasant facts and alternatives,‛ and Comments 2+ and 3+ indicate that legal
advice may require practical considerations such as costs, especially with clients
inexperienced in legal matters. Further, Comment [5] allows lawyers to ‚initiate
advice to a client when doing so appears to be in the client’s best interest.‛ The
language of Rule 2.1 and the comments indicate that technical legal advice alone
may provide little benefit to a client focused upon difficulties such as the
inability to earn a living after sustaining injuries in an accident.

    Related to the lawyer’s duty to provide candid advice is the obligation to

engage in proper communication with the client. Under Prof.Cond.R. 1.4(a), a
lawyer shall promptly inform the client of decisions requiring informed consent,
consult with the client on the means to accomplish the client’s objectives, keep
the client reasonably informed, comply with reasonable requests for information,
and consult with the client about limitations on the representation imposed by
the Rules of Professional Conduct. A lawyer must also ‚explain a matter to the
extent reasonably necessary to permit the client to make informed decisions
regarding the representation.‛ Prof.Cond.R. 1.4(b).
Op. 2012-3 8

   To render candid advice and communicate in accordance with

Prof.Cond.R. 1.4 and 2.1, a lawyer who is aware that his or her client needs
financial assistance due to the injuries sustained in the underlying accident or
tort should make the client aware of the options available. It is not improper to
present a non-recourse civil litigation advance as one of the possible alternatives.
In fact, the Board has already concluded that a lawyer may reference ALF
providers as a choice for clients, and the ethics authorities in a number of other
states agree. See Op. 94-11, supra; ABA Commission on Ethics 20/20,
Informational Report, at notes 84, 85. However, the lawyer may not blindly refer
clients to ALF providers. If a lawyer references a non-recourse civil litigation
advance, or has a client inquiring about, or even demanding one, the lawyer
must provide sufficient information on the risks and benefits of such an advance.
The lawyer should be further prepared to make a recommendation to the client
as to whether a non-recourse civil litigation advance is in the client’s best interest
based upon the facts and circumstances unique to the client’s legal matter.

   R.C. 1349.55(B)(5) requires non-recourse civil litigation advance contracts

to contain a statement in which the client acknowledges that his or her lawyer
has not provided tax, benefit planning, or financial advice concerning the
transaction. Although the client disclaims this advice in the contract, R.C.
1349.55 requires a written acknowledgment by the lawyer stating that he or she
has reviewed the contract and determined that all costs and fees have been
disclosed including the annualized rate of return. Given this acknowledgment
and the lawyer’s ethical duties to advise and communicate, the contract review
must incorporate a frank discussion with the client about the contract terms and
the true cost of the advance. Because most non-recourse civil litigation advance
contracts are structured such that the consumer’s financial obligation under the
contract increases as the time to recovery increases, the lawyer should make the
client aware that the contract may create an incentive for the client to accept a
premature or inadequate offer of settlement.

   Finally, the Board advises lawyers to be cognizant of their role in the ALF

transaction. If a lawyer goes beyond the statutorily-required ALF contract
review and the accompanying discussion of the contract terms with the client
and becomes an active participant in the transaction itself, the lawyer must
consider the applicability of Prof.Cond.R. 1.8. Under Prof.Cond.R. 1.8(a), a
lawyer may not enter into a business transaction with a client or acquire a
pecuniary interest adverse to a client unless: 1) the transaction terms are fair and
reasonable and fully disclosed to the client in writing; 2) the lawyer advises the
Op. 2012-3 9

client to have independent counsel review the transaction and provides the client
an opportunity for such review; and 3) the client consents in writing to the
transaction terms and the lawyer’s role in the transaction. ‚Where the lawyer
represents the client in negotiations with the ALF supplier, and where the terms
of the agreement may affect the rights the lawyer and client have, vis-à-vis one
another, in the proceeds of any recovery<s+uch a case likely involves the lawyer
acquiring a ‘pecuniary interest adverse to a client,’ triggering the requirements of
Prof.Cond.R. 1.8(a)+.‛ ABA Commission on Ethics 20/20, Informational Report,
at 18-19.

Independent Professional Judgment

    While providing candid advice and communicating with the client in a

way that promotes informed decision making, lawyers shall exercise
‚independent professional judgment.‛ Prof.Cond.R. 2.1. If the client has
decided to obtain a non-recourse civil litigation advance, the lawyer must ensure
that the ALF provider does not attempt to dictate the lawyer’s representation of
the client. As noted above, R.C. 1349.55(B)(3) requires non-recourse civil
litigation advance contracts to contain a disclaimer stating that the provider does
not have a right to make decisions regarding the underlying civil case and that
such decisions belong to the consumer and their lawyer. As part of the contract
review referenced in the R.C. 1349.55(B)(6) acknowledgment, the lawyer must
verify that the disclaimer is present and discuss the language with the client. The
lawyer should explain that the Rules of Professional Conduct obligate the lawyer
to provide independent professional judgment throughout the representation
and that any attempt by the ALF provider to interfere with the lawyer’s
judgment may require the lawyer to withdraw from the representation. See
Prof.Cond.R. 1.16(a) (a lawyer shall withdraw if the representation will result in
a violation of the Rules of Professional Conduct). Also during the representation,
the lawyer is advised to monitor the ALF provider’s influence on the client
especially in regard to the decision to settle the underlying civil case.

   The lawyer’s written acknowledgment is a central part of the consumer

protection provisions contained in R.C. 1349.55. The Board has been informed
that because the acknowledgment is a statutory requirement, ALF providers
often provide a boilerplate acknowledgment for the lawyer to sign. The Board
advises lawyers to carefully scrutinize the proposed acknowledgment language,
confirm that it complies with R.C. 1349.55(B)(6)(a)-(d), and execute the
acknowledgment only if it accurate as to the current representation. If the
Op. 2012-3 10

boilerplate acknowledgment contains provisions in addition to those set forth in
R.C. 1349.55(B), before signing the acknowledgement the lawyer should verify
that he or she is not agreeing to forego independent professional judgment or
commit other violations of the Rules of Professional Conduct. As part of an
effort to secure acknowledgment language that satisfies R.C. 1349.55 and the
Rules of Professional Conduct, a lawyer may consider offering an addendum to
the ALF provider’s standard acknowledgment or draft his or her own
acknowledgment for inclusion in the contract.

Competence

    Lawyers must provide ‚competent representation‛ to clients, which

‚requires the legal knowledge, skill, thoroughness, and preparation reasonably
necessary for the representation.‛ Prof.Cond.R. 1.1. Competent representation
may be provided through ‚necessary study‛ or associating with a lawyer who
has expertise in the area in question and includes ‚adequate preparation.‛
Prof.Cond.R. 1.1, Comments [2] and *5+. Further, lawyers ‚should consult with
the client about the degree of thoroughness and the level of preparation required,
as well as the estimated costs under the circumstances.‛ Id.

   As previously discussed, Prof.Cond.R. 2.1 requires a lawyer to provide

candid advice to clients who wish to obtain a non-recourse civil litigation
advance. Under Prof.Cond.R. 1.1, the lawyer must also be able to competently
advise clients concerning such advances. If the lawyer is not familiar with the
advance contracts regulated by R.C. 1349.55, he or she must take steps necessary
to ensure the client receives competent legal advice. These steps may include
reviewing legal resources to learn more about civil litigation advance contracts8,
consulting with a lawyer who has experience with consumer litigation funding,
or referring the client to another lawyer for advice on the transaction.

8 Legal scholars, commentators, and regulators have written extensively on consumer litigation funding,
giving lawyers numerous options for study in this area. See, e.g., Garber, supra; ABA Commission on Ethics
20/20, Informational Report, supra; Hashway, Litigation Loansharks: A History of Litigation Lending and a
Proposal to Bring Litigation Advances Within the Protection of Usury Laws, 17 Roger Williams Univ. L.Rev. 750
(2012); DeStefano, Nonlawyers Influencing Lawyers: Too Many Cooks in the Kitchen or Stone Soup, 80 Fordham
L.Rev. 2791 (2012); Pardau, Alternative Litigation Financing: Perils and Opportunities, 12 U.C. Davis Bus.L.J. 65
(2011); Gillers, supra.
Op. 2012-3 11

Confidentiality

   One of the hallmarks of the lawyer-client relationship is the duty of

confidentiality detailed in Prof.Cond.R. 1.6. Rule 1.6(a) provides that ‚a lawyer
shall not reveal information relating to the representation of a client, including
information protected by the attorney-client privilege under applicable law,
unless the client gives informed consent * * *.‛ The confidentiality rule ‚applies
not only to matters communicated in confidence by the client but also to all
information relating to the representation, whatever its source.‛ Prof.Cond.R. 1.6,
Comment [3]. Although Rule 1.6 contains several exceptions to the general duty
of confidentiality, this Advisory Opinion assumes that an exception does not
apply.

  Upon a consumer’s initial application for a non-recourse civil litigation

advance, the ALF provider conducts a case review to determine the potential
recovery amount. As part of the case review, the provider typically contacts the
consumer’s lawyer and requests documentation that may include the retainer
agreement, police or accident reports, proof of insurance, and medical records.
Some providers require the consumer’s lawyer to complete a questionnaire
regarding the case.9

    The duty of confidentiality found in Prof.Cond.R. 1.6 encompasses all

information related to the representation of a client. Accordingly, a lawyer may
not provide any information or documentation concerning a representation to an
ALF provider without the client’s informed consent. Because Prof.Cond.R. 1.6
fails to contain an exception for information that is publicly available, the lawyer
must obtain informed consent even for records that may be maintained in a
repository of public records (such as police or accident reports). Bennett, Cohen
& Whittaker, Annotated Model Rules of Professional Conduct, 97 (7th Ed. 2011).
Additionally, Prof.Cond.R. 1.6 prohibits a lawyer from disclosing a client’s
identity unless the disclosure is impliedly authorized or the client consents. Id. at

98. Should a lawyer receive a request for information from an ALF provider
    before the client notifies the lawyer that the client applied for an advance, the
    lawyer must secure the client’s consent prior to identifying the client to the
    provider.

For general information on the application process, see ABA Commission on Ethics 20/20, Informational
9

Report, at 30 and notes 115-118.
Op. 2012-3 12

   Informed consent is defined as ‚the agreement by a person to a proposed

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 action.‛ Prof.Cond.R. 1.0(f). This language demonstrates
that a lawyer must do more than simply obtain permission from the client to
release information concerning the representation to an ALF provider or rely on
a waiver executed by the client. An explanation of the risks of disclosing
information to the provider must be part of the process of obtaining informed
consent. One significant risk of providing representation information to an ALF
provider is the waiver of attorney-client privilege. See ABA Commission on
Ethics 20/20, Informational Report, supra, at 36. The concepts of privilege and
waiver are legal doctrines beyond the scope of the Board’s advisory authority.
See BCGD Proc.Reg. 20(A)(4); Ohio Sup. Ct., Bd. of Comm’rs on Grievances and
Discipline, Op. 2000-1 (June 1, 2000) at 5. Although the Board cannot address the
specifics of privilege and waiver, Prof.Cond.R. 1.4 and 2.1 clearly obligate the
lawyer to explore the possible waiver of privilege with the client and explain the
potential consequences of a waiver before securing an informed consent. For a
discussion of attorney-client privilege in the context of ALF, see ABA
Commission on Ethics 20/20, Informational Report, at 32-35.

    The Board recognizes that Prof.Cond.R. 2.3(a) permits a lawyer to ‚agree

to provide an evaluation of a matter affecting a client for the use of someone
other than the client if the lawyer reasonably believes that making the evaluation
is compatible with other aspects of the lawyer’s relationship with the client.‛
This provision presumably allows a lawyer to provide a case evaluation to an
ALF provider if the lawyer has determined that the evaluation is compatible
with the lawyer-client relationship. Rule 2.3 does not give the lawyer an
unlimited ability to engage in outside evaluations. Under Prof.Cond.R. 2.3(b), if
the evaluation is ‚likely to affect the client’s interests materially and adversely,‛
the lawyer must obtain the client’s informed consent before providing the
evaluation. Again, there is a significant risk that disclosure of information to an
ALF provider about a client representation will constitute a waiver of attorney-
client privilege. Like Prof.Cond.R. 1.6, then, Prof.Cond.R. 2.3(b) also requires
informed consent prior to participation in a case evaluation for an ALF provider.
Prof.Cond.R. 2.3 does not eradicate the confidentiality requirements of
Prof.Cond.R. 1.6, and even after providing an evaluation of a case for an ALF
provider, the lawyer may not disclose additional client information to the
provider or a third party without the client’s informed consent. Prof.Cond.R.
2.3(c).
Op. 2012-3 13

CONCLUSION: Ohio lawyers may inform clients of the non-recourse civil
litigation advances that are offered by alternative litigation finance (ALF)
providers and regulated by R.C. 1349.55. If the client pursues such an advance,
lawyers must recognize the ethical obligations the transaction creates.

    Under Prof.Cond.R. 1.4 and 2.1, the lawyer shall communicate with the

client about the transaction and provide candid advice, including a review of the
true cost of the advance and the impact it may have on a potential settlement.
Pursuant to Prof.Cond.R. 1.1, the lawyer must be able to provide competent
advice regarding a civil litigation advance, which may require outside study,
consultation with a lawyer with experience in consumer litigation funding, or a
referral to another lawyer for an independent review of the contract.

   Additional ethical considerations are the duties of independent

professional judgment and confidentiality found in Prof.Cond.R. 1.4 and 1.6,
respectively. When a client decides to pursue a civil litigation advance, the
lawyer shall ensure that his or her independent professional judgment is not
influenced by the ALF provider. The lawyer may not reveal the client’s identity
to an ALF provider or disclose information about the representation without
securing the client’s informed consent. The process of obtaining informed
consent to share information with an ALF provider must include a discussion
concerning the potential waiver of attorney-client privilege and the consequences
of such a waiver. Like the release of confidential client information to an ALF
provider, rendering a case evaluation for an ALF provider pursuant to
Prof.Cond.R. 2.3 requires informed consent because the evaluation may
materially and adversely affect the client’s interests.

  Advisory Opinions of the Board of Commissioners on Grievances and

Discipline are informal, nonbinding opinions in response to prospective or
hypothetical questions regarding the application of the Supreme Court Rules
for the Government of the Bar of Ohio, the Supreme Court Rules for the
Government of the Judiciary, the Ohio Rules of Professional Conduct, the
Ohio Code of Judicial Conduct, and the Attorney’s Oath of Office.