California state bar committee addresses litigation funding
Recently, the State Bar of California Standing Committee on Professional Responsibility and Conduct (COPRAC) issued Formal Opinion no. 2020-204 (Opinion), which discusses the ethical obligations of an attorney whose client seeks litigation funding. According to the Opinion, litigation funding—the practice of an unrelated third-party providing funds for litigation in return for a portion of any financial recovery—is not prohibited by law in California, noting that prohibitions against champerty or its variants have never been recognized in the state. However, the Opinion acknowledges several ethical considerations an attorney must consider when working with a client using litigation funding. These considerations include, (i) “understanding how the terms of the funding agreement” may impact litigation decisions; (ii) acting in the client’s best interest at all times, particularly when the client’s interest may depart from the litigation funder’s; and (iii) informing the client of the confidential information risks that exist once a relationship with the funder is formed and communications between the parties continue.
The Opinion was published after COPRAC released the Proposed Formal Opinion Interim no. 14‑0002, seeking feedback from interested parties with a comment period beginning on September 6, 2019 and ending on January 14, 2020. Throughout its discussion of attorney ethics involved in the practice, the Opinion provides pertinent policy reasons why litigation funding should generally be viewed favorably in California as a means to provide access to justice. The Opinion follows Burford Capital’s recent debut on the New York Stock Exchange, an example of litigation funding, as a practice, becoming more widely accepted.