Attorneys Are Permitted To Include Interest And Fees In Client Case Costs

By Author: Kevin M Janes
Total Articles: 5
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In a draft white paper on alternative litigation finance dated 10/11/11, the American Bar Associations Commission on Ethics 20/20 notes that attorneys financing a lawsuit with borrowed money may pass the interest costs onto their clients so long as the financing charges comply with the reasonableness standard of Model Rule 1.5(a). The ABA recognizes that "the projected cost of a protracted lawsuit mayexceed the firm's ability to finance these expenditures out of its ordinary operating budget. Numerous state ethics opinions have considered this question and concluded that it is permissible to pass on to the client interest charges on funds borrowed in order to finance the costs and expenses of litigation, provided the lawyer fully discloses the terms of the loan and the interest rate is reasonable."At the time many state ethics committees issued their opinions on this matter, the U.S. litigation finance industry was virtually nonexistent, and the question of whether it was ethical to include interest and fees as part of case costs had not been widely addressed.Litigation financing is available to plaintiffs' attorneys on a limited ...
... basis.In the time since these opinions, the litigation finance industry has grown and a small number of new lenders with legal experience have entered the field. "At a time when banks have essentially gotten out of the business of lending to contingency based law firms, the need for funding has never been greater for personal injury firms" says Richard Silverstein, President of Case Funding Inc., a specialty finance company based in New York and Nevada serving the legal community. "There are only a handful of lenders with the expertise and capital that are actively funding contingency firms," he adds.States' bars allow attorneys to recoup interest and loan fees from settlement fundsMost states allow attorneys to borrow money to fund their cases, and most also allow the attorney to include reasonable interest and fees on the loan to be included in the case cost expense, and then repaid from their clients' settlement proceeds.Many plaintiffs' lawyers defend the practice, reasoning that it helps level the playing field because they face such a great financial disadvantage when taking on corporate defendants. Others argue that having a reliable source of available funding, enables them more vigorously mount their cases.Lawyers incur thousands of dollars in bills over the course of litigating a case, from filing fees and litigation support to hiring expert witnesses and travel. In most situations, the attorney is required to pay these costs upfront and cannot recoup these expenses until after settlement and payout from the defendant. But borrowing is expensive and rates can exceed 40 percent per year, representing the risk inherent in this type of lending. If the cost can be included in the case expenses, it lowers one of the hurdles lawyers face when deciding whether or not to borrow and pursue a case.Lawyers are permitted to share the cost of borrowing with clientsConsidering the cost of funds, it is not surprising that lawyers would want to share the financial burden. In most states, lawyers are allowed to include interest and fees on borrowed money, provided that they inform their client and the interest charges are "reasonable." Most state bars have written their own ethics opinions and guidelines on the matter."Adequate working capital is an invaluable resource for litigators working on a contingency basis," said Mr. Silverstein, "and often makes the difference between achieving a favorable outcome or not. The fact that the attorney can include interest and fees in case expenses helps to spread the cost among all the parties that benefit from the settlement." Litigation financing can give firms the flexibility they need to mount an effective case against deep-pocketed law firms retained by large insurance companies.Silverstein advises that attorneys should research their respective bar guidelines on the subject and always follow them carefully. They may even be able to enlist the guidance of another attorney in their jurisdiction that has already implemented the practice.Case Funding Inc. is a New York based specialty finance company and industry leader in providing litigation funding solutions to attorneys and law firms. Pre and post settlement working capital loans enable attorneys to; invest in their cases in the form of expert witnesses, pay operating expenses and marketing costs and better manage cash flow. Founded in 2002 by a team of legal and financial professionals, Case Funding was recently acquired and recapitalized by the Chesswood Group, a public company listed on the Toronto Stock Exchange (T:CHW). Case funding provides attorneys and law firms of all sizes with case and trial cost financing, legal funding and litigation financing for settled case fee advances and cases on appeal, in the form of working capital loans. Visit www.Casefunding.com for more information.Case funding provides legal funding and attorney funding solutions.