Alternative Litigation Financing: Perils and Opportunities
Stuart L. Pardau
Posted Wednesday, October 3, 2012

Alternative litigation finance (“ALF”) applies to situations where a claimant accepts funding for litigation from an unrelated third party. Although this arrangement provides relief to claimants who otherwise are unable to afford legal representation, it poses the possible danger of unfair influence exercised by ALF providers through the use of usurious interest rates and unconscionable terms of the agreement. Other legal issues that arise out of the context of ALF involve champerty, maintenance, and barratry, depending on the jurisdiction. The release of confidential client information to ALF providers may constitute waive of the attorney-client privilege. Attorneys even face conflict of interest issues between their clients and ALF providers, and as a result, they may lose independence in their professional judgment. Furthermore, ethical rules prohibit an attorney from splitting fees with non-attorneys. Despite these legal issues that ALF financing presents, the increase in global competition suggests that the market for ALF providers will continue to grow.