Lawyers ≠ Partnering with Non-Lawyers

Law firm financing has become an increasingly complex and interesting aspect of the legal business. From personal injury litigation loans, to the financing of the Gawker lawsuit by a Silicon Valley billionaire, it appears many want to get a piece of a lawsuit these days.  However, the Second Circuit recently affirmed a district court ruling that law firms are still forbidden fruit for third-party financiers.

In a case originally brought in 2011, the Second Circuit recently affirmed a district court decision that non-lawyers are prohibited from investing in law firms and sharing legal fees under the New York Rules of Professional Conduct.  Citing a rule first drafted by the ABA and instituted nationwide, the Second Circuit found that any claims by the law firm plaintiff that it was losing the ability to hire new attorneys, expand operations and improve technology were both hypothetical and marginal, and did not infringe on the lawyers’ First Amendment rights.  Although the result itself is not surprising, the continuing argument that this rule ensures lawyers are shielded from outside influence does raise some questions in the modern legal landscape.

Specifically, the premise that a non-lawyer partner in a law firm would improperly influence fellow attorneys’ decisions is curious given that third-party financing is widely accepted in the United States.  To be sure, those individuals will typically contract with the client, not the attorney, which may avoid a violation of the strict language of the rule.  But is this merely a distinction without a difference?

Is there less chance of improper influence when a financier invests in a single case, rather than a law firm generally? Reports were abound that the financier in the Gawker case had a vendetta against the website, and sought to craft the litigation to avoid insurance coverage and bankrupt the company. True or not, it may come as a surprise to some that such individual financing is presumptively acceptable, while a more removed investor in a law firm is not. Nevertheless, it appears litigation financing is full steam ahead while non-lawyer partners remain dead in their tracks.


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