In this and part one of this series, we are looking at the structure of Alternative Litigation Financing (ALF) in the United States today, and some of the ethical issues that it raises.
Because the recipients, amount, and structure of ALF vary between each group, the legal and ethical issues vary as well. Consumer legal funding, for example, perhaps has the greatest potential to provide access to the legal system to plaintiffs that would not otherwise be able to afford it, but the clients are also the least sophisticated. Lawyers are prohibited from providing living expenses to clients in part because it "would encourage clients to pursue lawsuits that might not otherwise be brought and because such assistance gives lawyers too great a financial stake in the litigation," but these criticisms apply equally well to ALF suppliers. Several ethical concerns apply equally, however, to each of the three forms of ALF. In particular, ethical rules concerning confidentiality and attorney-client privilege, independent professional judgment, and conflicts of interest are all implicated by ALF.
First, ALF can have serious consequences for confidentiality and attorney-client privilege. ALF suppliers require disclosure of information about the case before choosing whether to provide funds, and then throughout the case to monitor their investment. Disclosure of information to any third party typically waives attorney-client privilege and makes information discoverable by the opposing party; while some have argued that carefully structuring the ALF relationship could protect the privilege, at least one court required a party to turn over in discovery the documents it shared with an ALF provider.
The ABA has suggested that disclosures to ALF suppliers could be limited to discoverable material. Corporate ALF suppliers already limit their investigations to non-privileged documents because they are not willing to chance discovery given the "unsettled" law. Though the commercial ALF suppliers behave conservatively to protect their investments, consumer and law firm suppliers may be less cautious and these ALF recipients are also less sophisticated. Either way, attorneys need to be particularly careful that clients are informed of the possible effects of disclosure for ALF.
Even after information is disclosed, "a lawyer must act competently to safeguard information . . . against inadvertent or unauthorized disclosure by . . . other persons who are participating in the representation," but the attorney has no control over what the ALF supplier does after it receives the information. It is also uncertain whether a client may withdraw a lawyer's authority to share confidential information once the funds are received.
Second, ALF has the potential to curb attorneys' independent judgment. Critics argue that ALF suppliers "inherently desire to protect their investment and will therefore seek to exert control over strategic decisions in the lawsuit." The fact that ALF suppliers continue to receive information about the ongoing litigation suggests that they maintain some control. The CEO of Juridica Investments, Richard Fields, admits that while "it's sometimes a challenge to remain hands-off in cases where he has so much at stake," his hedge fund knows it "must keep its distance." Instead, Fields says, ALF suppliers make up for this lack of control by conservatively choosing cases most likely to yield substantial returns and avoiding novel legal questions or cases that will likely go to trial.
Building a Better Legal Profession (BBLP) is an organization based at Stanford Law School. BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.
 Model Rules of Prof'l Conduct R. 1.8 cmt. 10.
 There are many other ethical considerations relevant to ALF, but the three I have chosen are among the most often implicated and apply broadly to all three types of ALF. For more discussions of potential ethical problems, see generally McLaughlin, supra note 2; John Beisner et al., U.S. Chamber Institute for Legal Reform, Selling Lawsuits, Buying Trouble: Third-Party Litigation Funding in the United States (2009); and Geoffrey McGovern et al., RAND Institute, Third-Party Litigation Funding and Claim Transfer: Trends and Implications for the Civil Justice System 19 (2010).
 McGovern et al., supra note 14, at 16.
 Id. at 17.
 Leader Technologies, Inc. v. Facebook Inc., 719 F. Supp. 2d 373, 376 (D. Del 2010).
 Memorandum from ABA Comm'n on Ethics 20/20 Working Group on Alt. Litig. Financing to ABA Entities, Courts, Bar Ass'ns, Law Sch., Individuals, & Entities 5 (Dec. 2, 2010) [hereinafter ABA Memo].
 Nate Raymond, Litigation Funders Face Discovery Woes, Privilege Protection Questions Dog Young Industry, Nat'l L.J., Feb. 24, 2011.
 At least some attorneys seeking law firm financing do not inform their clients they are seeking loans, even though they disclose confidential information to receive the loan. Appelbaum, supra note 1, at A1. Contra Model Rules of Prof'l Conduct R. 1.6(a) ("A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent.").
 See Model Rules of Prof'l Conduct R. 1.6(a).
 Model Rules of Prof'l Conduct R. 1.6 cmt. 16.
 ABA Memo, supra note 18, at 9.
 Independent judgment is protected through Model Rules like 5.4(c): "A lawyer shall not permit a person who . . . pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services." Model Rules of Prof'l Conduct R. 5.4(c). See also Model Rules of Prof'l Conduct R. 1.8 cmt. 11 ("Because third-party payers frequently have interests . . . in minimizing the amount spent on the representation . . . lawyers are prohibited from accepting . . . such representations unless the lawyer determines that there will be no interference with the lawyer's independent professional judgment.").
 Beisner et al., supra note 14, at 7.
 Melissa Maleske, Hedging Bets: Third-Party Litigation Funding Gains Steam in the U.S., Inside Couns., Dec. 2009, at 18, 21.
 Jonathan D. Glater, Investing in Lawsuits, for a Share of the Awards, N.Y. Times, June 3, 2009, at B1.