Bar leery of advance funding schemes.

Florida attorneys representing personal injury plaintiffs should have little if anything to do with advance funding loans by third parties to their clients, according to the Bar Board of Governors.

The board at its February 1 meeting in Tampa had hoped to adopt a final version of Proposed Advisory Opinion 00-3, but instead sent it back to the Board Review Committee on Professional Ethics for further redrafting.

Advanced funding involves a third party loaning money to the client in exchange for part of the expected winnings from the case. Interest rates for the growing industry frequently range from 100 to 200 percent or more, but companies insist they are not loans because they are buying part of the expected judgment and don't get paid unless there is a recovery.

The Professional Ethics Committee debated the issue extensively, and eventually issued a draft of PAO 00-3, which said lawyers could tell clients about advance funding, give them the names of advance funding companies, share confidential information with a company with the consent of the client, and give them advice on a such a loan. The opinion said lawyers could honor an assignment by the client to repay an advance funding company, but should not issue a letter of protection to the company.

The BRCPE, when it first brought the issue to the board in October, recommended approving the opinion but with an amendment saying attorneys could issue a letter of protection. Board members were uncomfortable with that and asked the committee to revisit the issue.

At its December meeting, the committee asked for more time, noting that an intermediate Ohio appellate court had held that advance funding schemes were indeed loans and violated that state's usury laws. In the meantime, they asked that Florida lawyers seeking advice on the issue be told of the pending advisory opinion and the Ohio court decision.

At the February meeting, BRCPE Chair Richard Tanner said the committee was recommending the original language saying lawyers should not issue the letters of protection.

But a majority of board members said the more they dealt with the issues, the less they like the loans.

"The more I've thought about this, it is even worse than the last time we discussed this," said board member David Bianchi. "I think it is wrong, because at the end of the day it is this board which should be looking out for the best interest of these unsophisticated clients who are participating in this funding scheme at usurious rates of interest."

He raised the prospect of the other side in the case finding out the funding company had obtained copies of otherwise confidential files and work product.

"That's the end of confidentiality of work product in this case," he said. "Attorneys on the other side may subpoena the case files and get them."

"I have no doubt in my mind it's illegal. . . ," Board member David Welch said. "We're certainly doing more. harm to the public [by approving the opinion]."

"I think it creates an inevitable conflict of interest," said board member Robert Rush. "The advice we have to give attorneys is they can't participate in this."

But other board members said even if the practice is unsavory, there is little the board can do.

"We do not possess the ability to regulate that industry. It's beyond our purview," said board member Andrew Needle. "We regulate lawyers; we do not regulate people who prey on our clients."

If lawyers don't tell needy clients about the loans and offer advice, the companies can use direct mail to contact clients who may then make a completely uninformed decision, he said.

Board member Steven Chaykin cautioned that telling attorneys they cannot honor a client-executed assignment to an advance funding company might place attorneys in a difficult spot.

"If a client signs the assignment, there will be a court order ordering the attorney to honor the assignment," he said. "Sometimes we tend to have a very paternalistic attitude toward our clients. Our obligation to our clients is to also listen to them when they have made an informed decision.

President-elect Tod Aronovitz advocated finding an expedited way to bring the issue before the Supreme Court for advice.

"This opinion that we're talking about today is not proper, and we're not going to be giving good advice to our lawyers," he said. "At a very minimum, I would ask if there are other avenues available to bring this to the attention of the Florida Supreme Court."

The board, by voice vote, rejected the BRCPE's revised opinion, and President Terry Russell referred it back to that panel for further work.