As recently reported by Law360, a Pennsylvania lawyer and a litigation funder are facing racketeering and malpractice claims. A Pennsylvania federal judge recently declined to dismiss claims brought by a client accusing his former lawyer of engaging in a conspiracy to improperly charge him inflated legal fees to cover high-interest litigation loans.
In the underlying matter, the client/plaintiff retained the lawyer to represent him in a lawsuit claiming he suffered neurological issues stemming from a titanium medical implant after installing a pole with a cell phone antenna near a train station. The client asserts that the lawyer promised him that he would receive a “life-changing amount” of money from the injury suit and encouraged him not to return to work. The lawyer also allegedly encouraged the client to sign a $33,000 litigation funding agreement with a litigation funder, which came with a two-year repayment plan with a 25-percent interest rate.
The suit dragged on, the client alleged, before the lawyer supposedly pushed him to accept a $475,000 settlement. Out of that settlement, the client received only $141,469 after costs and fees were taken out, despite experts stating he was owed nearly $3 million in damages. The final settlement was so small, because the lawyer allegedly took out his own litigation funding with the same funder and then tacked it, with interest, to the client’s bill, the suit claims.
The litigation funder argued the RICO claim must fail, because providing funding as described in the complaint is its “precise business” model. The judge noted that the client alleged “unauthorized, secret funding agreements that the enterprise used to defraud him,” which is enough to support a racketeering claim as “facially plausible.”
The judge found further that, because the client alleged that his lawyer “made multiple false misrepresentations and withheld material information from him,” his claims for fraudulent inducement, malpractice, breach of fiduciary duty and civil conspiracy may survive at this stage.
The lesson here? Litigation funding is fraught with peril for lawyers. If your client chooses to use litigation funding, make all efforts to do the following:
- Confirm the client understands the terms of the funding agreement
- Have the client – not you – sign the agreement with the funder
- Avoid signing the agreement on behalf of yourself or your client
- Ensure the client understands that the decision to sign the agreement is his/hers alone, without influence from you
- Advise the client of the option to consult with other professionals (e.g., other counsel, an accountant, or a financial advisor) about the decision to sign the agreement
- Obtain written/signed acknowledgement from the client of the foregoing
