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
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