Baker and Sebok, ‘Consumer Litigant Finance and Legal Ethics: Empirical Observations from Texas’

A handful of states, including Texas, have Rules of Professional Responsibility which permit attorneys to provide cash advances to their own clients. In previous work, we suggested that if more states permitted law firms to offer this sort of funding to their clients it would increase competition within the consumer litigant funding market, to the benefit of consumers. We also hypothesized that relaxing these existing prohibitions would better enable tort claimants to decline low-ball settlement offers from defendants in one-off cases.

This paper offers some initial insights into these questions. It reports the findings of our modest empirical study involving semi-structured interviews with four established Texas plaintiffs’ firms that represent a large number of mass tort claimants as well as varying numbers of single-event claimants. We obtained confidential information on the circumstances, frequency, and financial terms under which these sophisticated and well capitalized firms provide cash advances to their clients. We also sought information on each firm’s views on third-party advances to their clients, including their willingness and ability to negotiate repayment haircuts with third-party funders on behalf of their clients.

We found great diversity among the Texas firms in their approach to the opportunity provided by Texas Rule 1.08(d) to advance ‘reasonably necessary medical and living expenses’ to their clients. Our findings suggest that clients are likely to benefit from – and are unlikely to be harmed by – a relaxation of the strict prohibition against attorney advances to their clients that exist in the vast majority of states and in ABA Mode Rule 1.8(e).

Baker, Lynn A and Sebok, Anthony J, Consumer Litigant Finance and Legal Ethics: Empirical Observations from Texas (February 15, 2024), 25 Theoretical Inquiries in Law (2024 Forthcoming); Cardozo Legal Studies Research Paper No 2024-17.

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