The American Bar Association ban on fee-splitting, established as Model Rule 5.4(a), has been replicated in the codes for attorney conduct by state bars across the U.S. The rule dates back to the early 1900s, and most experts agree it was intended to prevent the kind of situation where a doctor refers an injured patient to a lawyer with the promise of receiving a portion of the lawyer’s fee as a kickback. Ostensibly, it aims to keep lawyers from having their judgment compromised by outside financial interests.

Over the past few decades, as litigation finance has developed, state bar associations have occasionally taken up inquiries from lawyers about whether Rule 5.4(a) would allow or prohibit various financing arrangements. The resulting opinions have not revealed a clear, bright-line rule, according to a forthcoming paper by Anthony Sebok, a professor at Yeshiva University’s Cardozo Law School in New York and a legal ethics adviser to Burford.

The Texas bar’s ethics committee, for example, determined in a 2006 opinion that it would be fee-splitting—and therefore prohibited—if a lender funded an attorney’s litigation expenses on the condition that the attorney repay the amount advanced plus a funding fee equal to a fixed percentage of any amount recovered, when and if the client recovered in the lawsuit.

 

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