Last October, the New York City Bar established a working group to study the litigation funding industry and deliver a report by the end of this year. May 30 was an important milestone for the working group, as it was the deadline for the legal community to provide the working group with comments about the benefits of litigation funding.

Discussions of litigation finance typically focus on whether funding is consistent with various legal and ethical rules, such as duties to maintain client confidences and prohibitions against sharing fees with non-lawyers. We expect many submissions to address these issues, and the comments submitted by our litigation finance company, Validity Finance, focus in part on funding's consistency with these background rules.

But it is not simply that litigation finance does not violate the ethics rules. As we explain in our comments to the working group, properly understood the ethics rules may affirmatively require lawyers to familiarize themselves with litigation finance if they are to competently advise their clients.

The New York Rules of Professional Conduct require lawyers to provide “competent representation to a client,” and they prohibit lawyers from failing to “seek the objectives of the client through reasonably available means permitted by law and these Rules.” (Rule 1.1). Over the past decade, litigation finance has become an essential and increasingly available means by which claimholders may achieve their legal objectives.

Imagine, for example, that a lawyer is approached by a prospective client with a meritorious legal claim—perhaps it is a small business whose main supplier has breached a critical contract—but the client does not have enough money to pay the lawyer to litigate the case for three years, and the law firm will not take the case on contingency.

Does the lawyer provide competent advice if she simply tells the client she has been priced out of the civil justice system? Certainly not. We believe that the lawyer has a duty to make her client aware of litigation funding as a way to finance the skyrocketing legal costs. After all, the very preamble to the New York Rules of Professional Conduct declares that lawyers have a duty “to promote access to the legal system and the administration of justice.”

Our suggestion is not novel. To the contrary, the Rules already recognize that lawyers may consider not only legal but also “economic” considerations when providing advice (Rule 2.1), and they further recognize that “[a]dvice couched in narrow legal terms may be of little value to a client, especially when practical considerations, such as cost or effects on other people, are predominant” (Rule 2.1, Comment [2]).

In fact, the ethics rules explicitly suggest that when a matter is likely to involve litigation, it may be advisable for counsel “to inform the client of forms of dispute resolution that might constitute reasonable alternatives to litigation.” (Rule 2.1, Comment [5].). If clients should be told that arbitration or mediation are possible substitutes for litigation, why should they not be told that litigation funding is a possible substitute for the increasingly unsustainable billable-hour model that prices many clients out of our legal system?

The legal system and the ethics rules exist to protect clients and allow them access to the courts. Some opponents of litigation finance have tried to undermine the industry by arguing that the industry invites conflicts of interest and threatens client confidentiality. This is all false. Courts have time and again upheld litigation funding agreements. Funders do not control litigation. Attorneys are skilled at putting their clients' interests first—just as they do every day when they take cases on contingency fee or represent a client whose legal fees are paid by a third party. And lawyers are skilled at maintaining client confidences and protecting attorney-client communications—just as they have been doing for generations before the advent of litigation funding.

The New York City Bar should recognize these latter points, but much more importantly, it should recognize that litigation finance affirmatively supports and furthers the goals of the legal system. The Bar's own mission statement declares that the organization exists to “uphold the rule of law and access to justice in support of a fair society and the public interest.” The Bar should embrace this recent solution to the crisis of affordability that afflicts our civil justice system.

Ralph J. Sutton is the founder and CEO of Validity Finance, a litigation finance company. He can be reached at [email protected].