CBA Record September 2018

Illinois Rules of Professional Conduct: Pitfalls when Working with TPLF Firms The Illinois Rules of Professional Conduct (“IRPC”) became effective January 1, 2010, and have been amended twice since then. Neither amendment clarifies how to work ethically with TPLF firms. An attorney should review and explain the consequences of the TPLF contract terms to the client because the terms can create ethical pitfalls for the attorney. On March 13, the Appellate Court of Illinois, First District, Second Division, applied bothMinnesota and Illinois law to separate issues raised in a TPLF case, and issued an opinion on an attorney’s liability to repay a TPLF after settlement or court judgement. Prospect Funding Holdings, LLC v. Saulter, --- N.E.3d ----, 2018 IL App (1st) 171277, 2018 WL 1364716, ¶ 1. The opinion has not been released for publication in the permanent law reports, and until released, it is subject to revision or withdrawal. As part of the contract, the attorney “was to hold settlement money in his client trust account and to pay [the TPLF] before disbursing settlement money to [the client].”The court dismissed the case but forwarded it to the ARDC to investigate the attorney’s distribution of funds to the client and not the TPLF under IRPC 1.15. “Even if [the attorney] had a duty under Rule 1.15 to hold the settlement funds in his trust account, an issue we need not address, his failure to do so cannot serve as the basis of a claim by [the TPLF]. This does not, however, preclude the ARDC from considering [the attorney’s] conduct, and we direct the appellate court clerk to send a copy of this opinion to the ARDC for further investigation.” As noted in Prospect Funding, in many instances, a client’s financial straits may preclude going to trial and force the client to accept a lowball settlement offer. IRPC 1.5 prohibits attorneys from uncondition- ally agreeing to finance the costs of litiga- tion and from charging “unreasonable” fees. TPLF firms not only expect a return on their investment, but also tend to take a large portion of the damages recovered, often leaving little for the client. TPLF firms have been known to take a dispro- portionate amount of the damages when

by which such third person undertakes to carry on the litigation at his own cost and risk, in consideration of receiving, if successful, a part of the proceeds or subject sought to be recovered.” (emphasis added). Miller UK Ltd., 17 F. Supp. 3d at 711. “Generally, under Illinois law, champerty and maintenance have been disapproved by the courts as against public policy because a litigious person could harass and annoy others if allowed to purchase claims for pain and suffering and pursue the claims in court as an assignee.” The Illinois Supreme Court has not weighed in on the issue. In 2015, Illinois State Senator William R. Haine (D-Alton) introduced two bills to address the TPLF issue. However, neither bill was assigned a committee, which effectively killed them by precluding their full consideration by the Senate. The first, S.B. 1396, proposed the creation of the Civil Justice Funding Act to establish requirements for both funding contracts and for registration with the Department of Financial and Profes- sional Regulation before funding could be given. It also proposed setting forth prohibited conduct by TPLF companies, listed disclosure requirements, set fee limi- tations, and crystalized what attorneys can and cannot do when working with a TPLF company. The second bill, S.B. 1397, proposed creating the Non-Recourse Consumer Lawsuit Funding Act. It would have required that all TPLF contracts be writ- ten, and that they disclose the total fund- ing amount, itemize all fees, and include a 10-business day cancellation provision for the consumer. S.B. 1397 also would have capped the funding to $40,000 per consumer claim, and capped the TPLF company’s award to no more than 80% of the proceeds, including charges, interest, and fees. Although the bills were not enacted, their submission demonstrates that at least one legislator supports permittingTPLF in Illinois. The bills’ death may signify Illinois’ interest in not interfering with the creation of contracts and allowing businesses to do business freely. So, what ethical pitfalls do Illinois attorneys need to consider when working with a TPLF firm?

compared to the original loan amounts, and clients become irritated when they do not recover what they anticipate, or end up in debt, from a lawsuit. In Lawsuit Finan- cial, LLC v. Curry, the court held “plaintiff loaned defendant Curry $177,500 and […] demanded payment of $887,500. Without a doubt, the interest rate plaintiff charged exceeded the legal rate [of 7%]. Accordingly, the loans were usurious and plaintiff is barred by statute from recover- ing any interest, fees, late charges, court costs, or attorney fees.” 683 N.W.2d 233, 240 (2004). What are the keys to mitigating the risk of having an irritated client? Communica- tion and consent. A few rules of professional conduct require extra attention when a lawyer is working with TPLF firms. Taking cues from the states that have enacted legislation to clarify how to work with TPLF firms, the biggest pitfall is managing the client relationship without creating a conflict of interest and letting theTPLF firm interfere (IRPC 1.6, 1.7, 1.8, 5.4, and 1.16). Having up-front discussions with the client about how the TPLF contract affects the lawsuit, about the split of damages recovered, and how information is to be shared among the three parties can offset the risk of an ethical pitfall. TPLF firms are in the business of making a return on their investment and of mitigating the risk of losing money. Businesses make educated decisions about whether to continue or discontinue a cer- tain service, and that decision is typically based on how the service is performing (how much money it is making/going to make). The TPLF firm may hound the attorney for information before they make the decision of whether to continue financing the litigation or pull the plug. An attorney cannot give in to the demands for information unless the client has given informed consent to the disclosure (IRPC 1.6(a)). The client must be told about the consequences of releasing such informa- tion to the TPLF firm, e.g., attorney-client privilege does not apply after disclosure. IRPC 1.7 and 1.8 prohibit an attorney

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