Some time ago, I wrote a bit about how existing ethics rules make attempting to use Kickstarter to launch a law firm not a viable option. The primary problem with using crowdsourcing to raise funds to start a law practice is the prohibition in the ethics rules on nonlawyer ownership or investment in law firms.
Having someone other than a client pay the fees and expenses of an attorney, however, is a concept that the ethics rules have long acknowledged, permitted, and embraced as long as certain safeguards are in place — primarily measures to make certain the attorney does not permit the person paying the fees to call the shots or impact the lawyer’s independent professional judgment.
Thus, it should come as no surprise to hear that the use of crowdsourcing platforms to raise money to pay for attorney fees is permitted by the ethics rules as long as the same kinds of safeguards are in place. Yet, given that new technologies can sometimes lead bodies that draft ethics opinions to lose sight of the “old wine in a new bottle” aspect of some questions, it is always refreshing to read a well-written ethics opinion that gets the answer to such a question correct.
And that is exactly what the Philadelphia Bar Association’s Professional Guidance Committee offers in Opinion 2015-6. And to make matters even better, Opinion 2015-6 does so in the context of educating the lawyer who made the initial inquiry that s/he can accomplish the goal but
not in a fashion different from what s/he initially contemplated.
Opinion 2015-6 starts out answering an inquiry from a lawyer who is contemplating representing a client who cannot afford to pay a fee in pursuit of litigation against a government entity on a cause of action that would not include damages but where the possibility exists for a statutory attorney fee award. The lawyer’s proposal in requesting the opinion was:
to solicit compensation for his or her work on a crowdfunding platform, an internet site that enables users to post information about a project and solicit financial contributions from persons who believe the project to be a worthy cause. The inquirer would publicize the anticipated litigation on such a website and solicit contributions to serve as his or her fee.
The lawyer’s inquiry also explained that any contract with the client would make clear that money obtained from crowdfunding would belong to the lawyer under any circumstances. Before working through the ethical issues implicated by, and the one real flaw associated with, the specific proposal, Opinion 2015-6 offered highly practical, and ultimately helpful, advice about the existence of an alternative that should work much better under the guidance the rest of the opinion will provide:
It is possible to raise funds on a crowdfunding site to support litigation, either by paying lawyers’ fees or expenses or both, but to hold the funds raised in some sort of trust arrangement and pay them out only as earned or incurred.
After teeing up the existence of this alternative, to which it returns in its discussion about the ethical requirement for reasonableness of fees, the opinion works through the traditional concept under the ethics rules permitting someone other than the client to pay an attorney’s fees as long as the safeguards imposed by RPC 1.8(f) are met. The opinion then addresses the reality that, in order to avoid violating RPC 1.6, the client will have to give consent to any disclosures about the case that would be made in connection with seeking to raise funds from public supporters on any such site.
The longest portion of the opinion, however, involves working through why having the money raised be the property of the lawyer creates ethical problems — and simultaneously why the contrasting alternative approach where the funds raised belong to the client (or even to a separate entity created on the client’s behalf) — is a much sounder ethical approach for lawyers.
We suspect that the inquirer anticipates that the amount raised will total far less than he would expect to be paid if the matter takes as long as he or she now anticipates, he or she spends the total number of hours now anticipated and if those hours were compensated at average rates of pay in the area. However, it may not turn out that way…. The litigation could end quickly, either favorably or not; before the litigation’s end the inquirer may seek to withdraw or the client may wish to discharge him; or the inquire may or may not succeed in seeking the payment of fees and expenses under an applicable fee shifting statute…. Without knowing how much was raised, it would therefore be difficult to determine whether or not the fees would be clearly excessive….
Opinion 2015-6 then proceeds to explain the kind of agreement attorney should enter into with client to pursue such an endeavor so as to avoid the RPC 1.5 concerns:
First, the fee arrangement should include terms which describe the lawyer’s obligations including the lawyer’s obligation to remain in the case, assuming the client wishes him to do so, until its conclusion or until some other point at which retention of the total fees paid would not constitute an excessive fee. For example, the fee arrangement with the client could state that the inquirer is obligated to remain in the representation until the time expended reaches a total figure such that the total fee paid is reasonable in light of that time expended.
Second, the arrangement should require that the amount raised be placed in a trust account established under Rule 1.15 until those amounts are earned in accordance with the terms of the final fee agreement. Until such time that it is determined that the fee is actually earned, the monies raised constitute Rule 1.15 funds and should be held separate from the lawyer’s own property.
The best part of the Philadelphia committee’s willingness to proffer such guidance is that it makes this kind of crowdfunding endeavor practically much more viable in terms of fundraising. One would anticipate that the average person would be more likely to throw some money toward an impecunious client than a lawyer representing that client. But even if the client in question would not qualify as impecunious, having the person who is the face of whatever cause is being pursued as the person making the plea for funds that can be used to pay an attorney seems like a rich vein of opportunity. Particularly so, given how divided the public is on so many polarizing issues and how fervently each side feels on a variety of issues, such that the number of “causes” that could be popular enough to generate ample fundraising is likely larger than you might otherwise think.
And, I’m certainly no tax lawyer, but depending on the nature of the cause to be pursued, I would guess the possibilities exist for the creation not only of entities separate from the client who would be the recipient of the funds raised and then paid on the client’s behalf to an attorney but also of even entities that might qualify as non-profits in terms of the “mission” of the litigation.
(One caveat worth referencing is that in any jurisdiction in which the mostly outdated concepts of champerty, maintenance, or barratry are still alive and kicking, an attorney would be wise to assist a client in working through whether any of those common law doctrines might offer some risk to an otherwise potentially successful crowdfunding endeavor.)
[Edited to add: Crowdsourcing also works for editing purposes. Thank you kind reader for catching my significant error which is now corrected above.]