By Samson Habte
Dec. 29 — Ethics rules permit a lawyer to use a “crowdfunding” platform to solicit donations that would cover his fees for bringing a lawsuit on behalf of a client who can't afford to pay the lawyer, the Philadelphia bar's ethics committee concluded in a December opinion.
The opinion appears to be the first one from a bar association to address the propriety of a practice the committee described as increasingly prevalent: the use of crowdfunding websites by “lawyers seeking to raise funds that will cover expenses or fees incurred in connection with litigation.”
The committee endorsed this use of crowdfunding—if lawyers do it right.
“Crowdfunding sites can be a beneficial source of funds allowing the public to assist in the assertion of valid legal claims that might otherwise go without recourse,” it said. “Thus, great care should be taken to make sure that the initial development of such sites not affect the ability of subsequent persons to use such a source.”
The opinion responds to an inquiry from a lawyer who wants to use a crowdfunding site to solicit donations that would cover his fee for bringing a lawsuit against a government entity on behalf of a client who can't afford to pay for counsel. The inquirer said he believed “certain members of the public might be interested in supporting what they would view as a worthy public cause.”
The committee concluded that ethics rules do not, as a general matter, forbid the use of crowdfunding to collect donations that will serve as a lawyer's fee.
But the opinion is studded with caveats—including warnings that the proposal would be unethical if it allows the lawyer to “be paid as a fee whatever sum is raised by crowdfunding, regardless of its amount” and irrespective of the time ultimately spent on the matter.
That raises “the possibility of a clearly excessive fee,” in violation of Pennsylvania Rule of Professional Conduct 1.5, if the matter “ends quickly with relatively few hours of work expended,” the committee said.
Treating crowdfunded donations as earned upon receipt is also problematic because it amounts to charging a nonrefundable retainer, the committee said. While “there is no per se prohibition on non-refundable retainers in Pennsylvania,” it added, such fee arrangements raise concerns if they interfere with a client's ability to discharge a lawyer.
Accordingly, the committee said a lawyer seeking crowdfunded donations to cover his fee should make clear the scope of his obligation in return for the payment, and should guard against the possibility of charging an excessive fee by placing crowdfunded donations in trust until they “are earned in accordance with the terms of the final fee agreement.”
The inquiring lawyer said his client—who will seek equitable, nonmonetary relief in the anticipated lawsuit—has agreed to assign to the lawyer any statutory attorneys' fees that may be awarded if the suit succeeds.
The inquirer asked whether he may also solicit compensation on a crowdfunding site. The inquirer said he would make it clear to the client and potential donors that any amounts raised “would be payments to counsel, not the [client],” and would remain his property even if the court awards attorneys' fees.
The committee said it “reviewed many crowdsourcing sites” and encountered campaigns by other lawyers seeking similar arrangements. The committee said that although it “does not view those efforts as inherently problematic,” the inquirer's proposal is insufficiently clear about certain matters that raise ethics concerns.
The committee said a lawyer who solicits donations to cover his fee in a client's matter must, as a threshold matter, abide by Rule 1.8(f).
That rule provides that a lawyer may accept compensation for representing a client from a third party if the client gives informed consent, there is no interference with the lawyer's independent judgment and client confidences are protected.
The committee further determined that a lawyer who wishes to crowdfund his fee in a client's matter must satisfy these conditions:
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A review of authority by Bloomberg BNA indicates that Philadelphia Ethics Op. 2015-6 analyzes a question that has never been the subject of official guidance from a bar association.
One state bar panel—tackling another question of first impression—found that attorneys “may engage in certain types of crowdfunding” to raise capital needed to launch a new law practice. See New York State Ethics Op. 1062, 31 Law. Man. Prof. Conduct 455 (2015).
Several ethics opinions not addressing crowdfunding have examined the propriety of steering clients to litigation funders that offer nonrecourse loans in exchange for an interest in the proceeds of a case. See New York City Ethics Op. 2011-2, 27 Law. Man. Prof. Conduct 405 (compiling authority).
The Philadelphia opinion seems to be the first to address whether a lawyer may use crowdfunding to solicit compensation for his work on a case from people who “would receive nothing more than the satisfaction that they offered financial support to a legal cause in which they believe.”
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