What is crowdfunding? It is the use of an Internet site to share information about a project in order to solicit money from the public. Individuals who contribute are not given a financial stake in the project.
So, may an attorney post information about anticipated litigation and ask for funds as a way to be paid his fees as long as contributors do not gain any influence in how the case is handled or a stake in the outcome?
The Philadelphia Bar Association Professional Guidance Committee recently released Opinion 2015-6, which addresses an attorney’s use of crowdfunding to obtain legal fees from third parties on behalf of a client who cannot afford to pay for legal services. The Committee approved the general concept of crowdfunding, but with certain restrictions on its use.
The Committee opined that an attorney should obtain the client’s informed consent and be mindful of his duty of loyalty to the client. The Committee cautioned that an attorney’s online descriptions must avoid any implication that contributors are granted a right to direct or control litigation. Additionally, the Committee stressed the importance of ensuring that contributors do not feel that they have been misled in any way. Not only might a misleading description be a violation of the advertising rules and the obligation not to mislead third parties, but also, it might impede on the ability of future litigants to use crowdfunding to raise the fees necessary to assert their legal rights.
Finally, the Committee provided guidance on provisions that should be included in the fee agreement to avoid contracting for excessive or impermissible nonrefundable fees. (In other words, the attorney could potentially receive fees from crowdfunding that might be deemed excessive depending upon the nature of the case and the attorney’s participation in the case.) First, the agreement should include terms describing the lawyer’s obligation to remain on the case until its conclusion or until a point at which the retention of the contributions would not constitute an excessive fee. Second, the agreement should require that the funds raised be retained in a trust account until they are earned in accordance with the fee agreement.
Crowdfunding is another product of technology and the Internet that may assist in providing the public with greater access to legal services, but lawyers must beware of ethical landmines by understanding the technology at play within the context of the legal ethics rules.
