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A group from the New York City Bar Association, which has previously opined that litigation funding can run afoul of the state's Rules of Professional Conduct, proposed changes to the rules on Monday that would clearly allow lawyers to work on such cases.

Rule 5.4, which prohibits sharing legal fees with nonlawyers, "should be revised to reflect contemporary commercial and professional needs and realities," the bar's litigation funding working group said in a report that has been months in the making. The report put forward two proposals for changes to the rule that would give lawyers "less restricted" access to funding.

Both proposals call for a section to be added to the rule saying a lawyer or law firm "may share legal fees with an entity in exchange for the entity's providing" money, but they put different conditions on that permission and the working group was split in its support for the proposals, the report said.

Both proposed changes make references to lawyers' need to comply with Rule 1.6, regarding the confidentiality of information, and Rule 1.7, on conflicts of interest.

But the first proposed change conditions the use of litigation funding on the funder not being allowed to participate in a matter "except for the benefit of the client," while the second prohibits a funder's participation "in the decision-making regarding the representation" and says a lawyer must maintain professional independence.

The first proposal also limits funding "specifically for use with respect to a legal representation." The second proposal is much more looser, allowing a lawyer or firm to use litigation funding for their "practice." The second proposal's proponents said it "still prohibits the funds from being used for purpose unrelated to client representation, but allows for funds to support generally a firm's legal infrastructure, such as new lawyers, paralegals and investment in information technology."

Meanwhile, the first proposed rule calls for clients to be informed in writing that their lawyer or law firm is sharing fees with a litigation funder. The second proposal requires that a client provide "written informed consent to the financial arrangement."

The changes come more than a year after the city bar's ethics committee concluded that a lawyer may run afoul of Rule 5.4 by entering into an agreement with a non-lawyer litigation funder where the return would come from the lawyer's contingency fee. That opinion sparked controversy and disagreement in the legal industry.

The city bar said it would have a panel discussion about the proposals with members of the litigation funding working group on March 12. Debra L. Raskin and Lynn K. Neuner, its co-chairs, will moderate, and Bruce Green, David Perla, former U.S. District Judge Katherine Forrest, John McCarthy, Margaret Dale, and Jordan Goldstein are scheduled to be on the panel.

The working group's report comes amid a nationwide push to expand access to legal services that has sparked concern among some lawyers that such a move could open the floodgates to non-lawyer investment—and influence—on the practice of law.

Earlier this month, the American Bar Association's House of Delegates passed a resolution calling for innovation but tempered it after the New York State Bar Association and others expressed similar concerns.  In the end, that resolution that passed said it should not be construed as recommending any changes to the ABA Model Rules of Professional Conduct, including Rule 5.4.