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Ethics Opinions

Tennessee
Tennessee State Bar

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BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

ADVISORY ETHICS OPINION 99-A-666

Inquiry is made as to the ethical propriety of a plaintiff's attorney referring clients to a venture capital company who invests in select workers compensation and automobile accident lawsuits by buying a share of the settlement based on the merits of the case. If the suit is unsuccessful the company gets no buyout of their interest and the plaintiff pays nothing to the company. The buyout figure is calculated after expenses and attorney fees.

In the instant inquiry the venture capital company is in essence loaning money to the plaintiff contingent upon the outcome of the plaintiff's case, if it appears particularly meritorious.

Clearly a lawyer may not loan living expenses or other expenses, which are not litigation expenses to the client, but clients are free to obtain loans for such expenses. See DR 5-103 (B). Virginia Ethic Opinion 1155 and opinions from other jurisdictions permit lawyers and law firms to refer clients to finance companies who loan funds to clients based on an investigation of the case made by the finance company with the client's consent. The opinion prohibits the lawyer from co-signing or guaranteeing the loan and the client remains ultimately liable.

Any direct involvement of the lawyer might violate DR 5-103 which prohibits a lawyer from acquiring an interest in litigation and also from advancing financial assistance other than for expenses of litigation, court costs, expenses of investigation, expenses of medical examination, and costs of presenting evidence.

So long as a lawyer does not evaluate the merits of the case for the company; and does not guarantee the financial assistance to the client; and gets no benefit from the client for the client availing himself/herself of the financial assistance of the venture capital company, there does not appear to be any ethical reason the lawyer could not ethically refer the client to the venture capital company, if there is no legal prohibition against such and arrangement.

Pursuant to Rule 9(26.5), this opinion is not binding on the Court, the Borard or the Ethics Committee.

This 11 day of January, 1999

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