The Ethics of Crowdfunding for Law Firms and Plaintiffs

Once associated almost exclusively with tech startups, crowdfunding, or soliciting money from a large number of individuals via an online platform, is an increasingly popular option for attorneys seeking funding for law firm operations and plaintiffs seeking financing on their cases.

Members of the legal community have embraced crowdfunding as a way to democratize the law for all people, not just those who can afford to hire the best lawyers and experts. Even law schools have gotten in on the action, using crowdfunding to help support recent graduates preparing to take the bar exam. Many in the legal world predict that crowdfunding, along with other types of third-party financing, will continue to have a growing impact on litigation in the coming years.

While this form of fundraising may appeal to attorneys and plaintiffs alike, crowdfunding isn’t without its ethical risks. Here are some of the ethical red flags that attorneys and plaintiffs using crowdfunding should pay attention to:

Informed Consent

In a scenario in which a plaintiff seeks to use crowdfunding to finance attorneys’ fees and litigation (or any other situation where a non-client might be paying the legal fees, for that matter), the lawyer needs to ensure that the client gives their informed consent, and that the lawyer’s professional judgment is not compromised by this arrangement. It is a fairly common scenario for a lawyer to accept fees from someone other than the client, and no ethical lines are crossed so long as the lawyer does not give funders the impression that they would be given any control or stake in the litigation.

Confidentiality

A critical aspect that the lawyer in the above scenario would have to keep in mind is confidentiality. In a crowdfunding campaign, a certain amount of information about the case would need to be shared with potential funders to motivate them to contribute money, which would require the informed consent of the client. In a 2015 scenario considered by the Philadelphia Bar Association’s Professional Guidance Committee, the committee stated that the amount of information shared in a crowdfunding campaign should be “limited to what was reasonably necessary to achieve the purpose of the litigation, and that potential funders should not be misled by the way in which the case was presented.”

Be Upfront with Donors

In a 2015 case analyzing whether it was ethically permissible for a group of recent law school graduates to use crowdfunding as a way to raise funds for a new law firm, the New York State Bar Association issued an opinion stating that as long as the lawyers made clear that donors would receive nothing in return for the funds, and that the firm was a for-profit entity, using the crowdfunding model would not violate ethics rules. The association prohibits any form of fundraising that gives the investor an interest in a law firm or a share of its revenue.

The Bottom Line

Though most states do not yet have set laws regarding crowdfunding for law firms and plaintiffs, the general consensus is that this type of fundraising is allowed. Even though this kind of financial backing is still in its relative infancy, it should not require a radically new approach to ethics compliance. Rather, crowdfunding may simply require attorneys to apply established ethics rules to new technologies.

As technology continues to advance, new ethical conundrums are sure to arise. Attorneys must approach crowdfunding with the same caution, ethical principles, and adherence to the longstanding rules of professional responsibility that they use in all areas of their job.

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