CAN LAWYERS SOLICIT CROWDFUNDED DONATIONS TO COVER LEGAL FEES? THE PHILADELPHIA BAR SAYS“ MAYBE”
CAN LAWYERS SOLICIT CROWDFUNDED DONATIONS TO COVER LEGAL FEES? THE PHILADELPHIA BAR SAYS“ MAYBE”
JUSTICE DANIEL CROTHERS North Dakota Supreme Court
Can lawyers solicit crowdfunded donations to support litigation on behalf of an impecunious client? The Philadelphia Bar Association’ s Professional Guidance Committee answers with a qualified“ yes.” 1 Whether North Dakota lawyers can make similar solicitations is beyond the scope of this article, and a North Dakota lawyer contemplating a similar course of conduct should consider first seeking guidance from the SBAND Ethics Committee. 2
Crowdfunding is“ the practice of soliciting financial contributions from a large number of people especially from the online community.” 3 Another source explains:
“ Just like there are many different kinds of capital round raises for businesses in all stages of growth, there are a variety of crowdfunding types. Which crowdfunding method you select depends on the type of product or service you offer and your goals for growth. The three primary types are donationbased, rewards-based, and equity crowdfunding ….” 4
The Philadelphia Bar Association ethics opinion involved a donation-based crowdfunding effort. 5
The inquiring Philadelphia lawyer represented a client contemplating a state court action against a governmental entity. 6 The client’ s claim was for equitable, non-monetary relief that could permit recovery of attorney’ s fees if the client’ s claims were successful. 7 The client would assign any award of attorney fees obtained in the litigation to inquiring counsel, and all crowdsourced funds would become the attorney’ s property and not the client’ s property, regardless of result. 8
The opinion notes,“ No contributors would be given a financial stake in the outcome of the litigation. They would merely make a contribution, and would receive nothing more than the satisfaction that they offered financial support to a legal cause in which they believe.” 9
The Philadelphia committee’ s legal analysis first considered whether a lawyer can accept a fee from a source other than a client. Rule of Professional Conduct 1.7 generally prohibits lawyer conflicts of interest. Comment 13 to Rule 1.7 states,“ A lawyer may be paid from a source other than the client … if the client is informed of that fact and consents and the arrangement does not compromise the lawyer’ s duty of loyalty or independent judgment to the client. See Rule 1.8( f).” 10
Rule 1.8( f) provides a lawyer shall not accept compensation for a representation from a source other than the client represented unless the client gives informed consent, the lawyer’ s independence and professional judgment are not interfered with, and the client’ s confidential information is protected from disclosure. 11
On this first consideration, the committee concluded“ no reason” existed to think the lawyer’ s duty of independence and loyalty would be compromised by receiving crowdsourced funding. 12 Therefore, crowdsource funding was permitted under Rules 1.7 and 1.8( f) as long as donors knew they would have no financial stake in the litigation and the client was adequately informed about the arrangement. 13
The committee next considered whether the lawyer could publicize the case on the crowdsource funding website without breaching confidentiality requirements imposed by Rule 1.6, which provides in pertinent part,“ A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, disclosure [ is ] impliedly authorized in order to carry out the representation.…” 14 It concluded the lawyer with a client’ s informed consent could reveal limited information about the litigation for the fundraising purpose. 15
The committee’ s final consideration was whether the anticipated fee arrangement was permitted under Rule 1.5, which prohibits a lawyer from agreeing to, charging, or
22 THE GAVEL