A recent Law 360 article by Hilary Gerzhoy and Julienne Pasichow, “Avoiding The Ethical Pitfalls of Crowdfunded Legal Fees”, reports on the ethics of crowdfunding for legal fees. This article was posted with permission. The article reads:
Within two days of being charged with manslaughter in the death of Jordan Neely, Daniel Penny had crowdfunded over $1.5 million to cover his legal fees. Penny was charged with killing Neely, a Michael Jackson impersonator, on a New York City subway after placing him a fatal chokehold. The case was widely covered and highly politicized.
Democrats, including Rep. Alexandria Ocasio-Cortez, D-N.Y., and New York Gov. Kathy Hochul, called for charges against Penny and justice for Neely's family. Republicans, including Florida Gov. Ron DeSantis, Rep. Marjorie Taylor Greene, R-Ga., and Rep. Matt Gaetz, R-Fla., voiced their support for Penny.
Crowdfunding legal services is a relatively new phenomenon. It's most often used to fund litigation involving individuals — as opposed to corporate entities — that implicates human rights issues, the environment and judicial review.
In one widely publicized case, two Yemeni refugees with valid immigrant visas were intercepted at Dulles International Airport, handcuffed and sent out of the country — the result of former President Donald Trump's temporary seven-country travel ban, which had been signed just a few hours earlier while the brothers were en route. The crowdfunding campaign raised $36,600 in its first week.
While crowdfunding legal services provides a way for many to access lawyers when representation would otherwise be unaffordable, it also comes with a bevy of ethics risks. This article will examine the key ethical rules governing crowd-sourced legal funds and the steps lawyers can take to mitigate their risk.
The Daniel Penny Case
In May, the Manhattan District Attorney's office charged Penny, a 24-year-old U.S. Marines veteran, with second-degree manslaughter after he killed Neely on a New York City subway earlier that month. For more than three minutes, Penny placed Neely in a fatal chokehold leading to his death. Penny claimed self-defense, stating that Neely was threatening passengers on the train. It was later learned that Neely had been suffering from a mental health crisis and was experiencing homelessness at the time he was killed. Penny was released on $100,000 bond. On June 28, he appeared in court in Manhattan to plead not guilty.
The law firm representing Penny — Raiser & Kenniff PC — arranged for a fundraiser on the Christian crowdfunding site GiveSendGo to cover Penny's legal fees. As of Sept. 29, the fundraiser has collected nearly $3 million. How can Penny's legal team use those crowd-sourced funds? What restrictions are imposed by the ethics rules?
This article will examine the critical steps to ensure compliance with the American Bar Association's Model Rules of Professional Conduct, which are largely adopted in most jurisdictions.
Confidentiality Runs to the Client, Not the Funders
Perhaps the most fundamental feature of the lawyer-client relationship is the protection of client confidences. Model Rule of Professional Conduct 1.6 prohibits a lawyer from revealing "information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted [under certain enumerated circumstances]."
A lawyer must make reasonable efforts to prevent inadvertent or unauthorized access to the information, a standard that is highly fact-dependent and considers the sensitivity of the information and the extent to which additional safeguards would enhance security versus hinder the representation. Lawyers who organize fundraisers, manage crowdfunded donations and apply them toward legal fees must ensure that they neither represent nor imply that they will provide information about the representation to donors in exchange for donations.
It is best to obtain informed consent for any information that will be disclosed to donors and to steer clear of "providing specific information about how the funds will be used to effectuate the legal strategy," as articulated by the D.C. Bar in a 2018 ethics opinion. To avoid any ambiguity, lawyers should note in the narrative section of the fundraiser that they will not provide any information about the objectives of the representation, actions taken, specific uses of the funds or developments in the case.
When donors fund a lawyer's representation of a client through crowd-sourcing, they must do so with the understanding that they will receive no information about the representation. We recommend including the proposed narrative language for the fundraiser in the engagement letter signed by the client, which should also describe the fundraising arrangement and the fact that the collected funds will be applied to legal fees and expenses as they are earned or incurred.
There may be instances in which a client wants a lawyer to provide case updates to donors or specific individuals. To do so, the lawyer must obtain informed consent from the client. This requires that the lawyer explain the risks of disclosure to the client and have the client approve of the exact information to be disclosed.
Most importantly, the client must understand that disclosing privileged and confidential information about the representation to third parties will destroy the attorney-client privilege and prevent the lawyer from later claiming privilege over the disclosed information. The same warning should also be given to a client who is managing the fundraiser themselves and wishes to disclose case information or updates to donors.
Crowd-sourced Funds Cannot Interfere with a Lawyer's Professional Independence
Before accepting crowd-sourced funds as payment for legal services, a lawyer must obtain informed consent from the client. This is true regardless of whether the lawyer is self-administering the funds as they are earned or whether the client is paying the lawyer's invoices using crowd-sourced funds. Lawyers should consider including relevant language providing for this arrangement in their engagement letter with the client. Under the Model Rules, even if such an arrangement is in place, a lawyer may not, under any circumstances, allow the person or persons paying the lawyer's fees to "direct or regulate the lawyer's professional judgment in rendering such legal services."
While donors' generosity often enables a client to pursue legal claims or defenses where it would otherwise be financially impossible, donors cannot control how the fundraised money is used within the representation. Only the client determines the objectives of the representation and whether to follow the lawyer's recommended strategy.
Ensuring that the narrative statement on the fundraising website contains language informing donors that they will not be permitted to exert control or influence over the objectives of the representation or the methods by which they are carried out — in addition to not being entitled to case information — may prove helpful in warding off donors who believe that their dollars earn them a say in the representation. There may be situations in which the donors' interests differ from those of the client — for example, where donors may wish to minimize the amount spent on the representation to get more for less or avoid taking steps in the representation that may be costly.
In circumstances where the lawyer is aware of divergent interests between the donors and the client, the lawyer cannot accept the representation or continue the crowdfunded payment arrangement unless the lawyer is certain that they can exercise independent judgment and will not allow the donors to interfere with their professional decision making.
Be Circumspect About Trial Publicity
Crowdfunded cases are often those that are highly publicized, political and involve public figures. They tend to come with an increased public desire for publicity and insider information. Many of these cases go to trial, which further extends the period in which the public remains interested and heightens public intrigue.
Model Rule 3.6 governs trial publicity and warns lawyers against making statements that are likely to prejudice the proceedings in any way. This is all the more true in highly publicized cases, where a lawyer's statements about a case are likely to be widely disseminated. While media attention on a case does not change lawyers' confidentiality obligations under Model Rule 1.6, Model Rule 3.6 provides that lawyers can provide concrete facts about the case if they are unlikely to cause prejudice.
Lawyers can reveal basic information about the claim at issue, people involved, public records, the existence of a pending investigation, the scheduling or results of litigation, and requests for help in obtaining evidence, and they can offer warnings of danger to an individual or to the public. In criminal cases, lawyers can provide additional information to the public, including, among other things, information about the residence and occupation of the accused, and the location, time and place of the arrest.
Where a client has suffered prejudice due to recent bad publicity, the lawyer can make statements to mitigate that prejudice. A lawyer should not speak publicly about a case, however, without the consent of their client after the client weighs the risks and benefits of such disclosures.
Treat Cowdfunded Legal Fees as Advanced Fees, Safeguarding Them in a Trust Account
The two most prominent ethics opinions to address crowdfunded legal fees, a 2015 Philadelphia Bar opinion and a 2018 D.C. Bar opinion, emphasize the importance of safeguarding crowdfunded fees in a trust account and not moving them over to an operating account until they are earned.
As the D.C. Bar opinion notes, because crowdfunding can "trigger areas of confusion that may not be present in a traditional client-self pay situation," lawyers should establish, in a written fee agreement, the rate of their fees, the scope of the representation and specific plans for crowdfunded money, such as the ownership of excess crowdfunds and responsibility for payment if the crowdfunds do not fully cover legal fees and expenses.
Critically, funds collected by a lawyer on a client's behalf through crowdfunding should be treated as advanced fees and placed in a trust account for the client. In the crowdfunded legal fees context, lawyers need to be especially cognizant of their duty not to charge excessive fees under Rule 1.5. For example, if a matter resolves quickly, a lawyer would be hard-pressed to claim all of the proceeds of the fundraiser as fees.
Conclusion
The crowdfunding of legal fees represents an exciting opportunity to provide access to legal services to those for whom it might be otherwise unattainable. With a principled approach — paying special attention to your obligations to maintain confidentiality and your professional independence, and safeguarding funds in a trust account — you can protect yourself from ethics mishaps while serving a wider array of clients.
Hilary Gerzhoy is a partner and vice chair of the legal ethics and malpractice group at HWG LLP. Julienne Pasichow is an associate at the firm.