March 2017 LACBA MCLE Test and Answer Sheet

Test No. 266: Perils of Third-Party Funding

To access the article related to this test, please click here.
Instructions for Obtaining MCLE Credit

The Los Angeles County Bar Association certifies that this activity has been approved for Minimum Continuing Legal Education ETHICS credit by the State Bar of California in the amount of 1 hour. To apply for credit, please follow the instructions.

1. Study the CLE article.

2. Answer the test questions by marking the appropriate boxes. Each question has only one answer.

3. Photocopies of this answer sheet may be submitted; however, this form should not be enlarged or reduced. Mail the answer sheet and the $20 testing fee ($25 for non-LACBA members) to:

Los Angeles Lawyer
P.O. Box 55020
Los Angeles, CA 90055

Make checks payable to Los Angeles Lawyer.

4. You can also fill in the test form and submit it directly to LACBA by clicking "Submit." To submit your test answers online you will need to pay by credit card. After submitting your answers you will be presented with a screen requesting payment information. This information will be submitted in a secure mode which will allow you to safely transmit your credit card number over the Internet. If you prefer not to pay by credit card, please print this answer sheet and submit your responses by regular mail.

5. Within six weeks, Los Angeles Lawyer will return your test with the correct answers, a rationale for the correct answers, and a certificate verifying the CLE credit you earned through this self-study activity.

6. For future reference, please retain the CLE test materials returned to you.


Test Sheet

Mark your answers to the test by clicking next to your choice.  All questions must be answered.  Each question has only one answer. This test is worth 1 hour of credit.*

1. Third-party funders’ receiving case data as part of the negotiation regarding funding has no effect on discovery of privileged material.

2. A fundamental ethical conflict that arises in the presence of third-party funding is independent judgment regarding control of the litigation.

3. If counsel realizes that the third-party funding contract is usurious, counsel must immediately secure written waivers from the client in order to save the deal.

4. Monetary advances that are actually loans, which litigants must repay , constitute usury per se.

5. Third-party funding agreements can be structured so they are outside usury laws.

6. If class counsel discusses the ethics issues in a third-party funding arrangement with the lead plaintiff, counsel’s ethical obligations to the class are satisfied.

7. Third-party funders and the lawyers they are backing share a community of interest, with similar goals and motivations.

8. Class counsel are under no ethical obligation to disclose to anyone the involvement of a third-party funding agreement.

9. When privilege logs are needed in the context of discovery, they should note specific, applicable privileges, and not “common interest.”

10. Courts are never permitted to seek disclosure of the existence of a funding agreement.

11. Plaintiff’s counsel can never be compelled to turn over third-party funding agreements to the defense.

12. The involvement of third-party financiers with potential lead class counsel could raise questions about that law firm’s resources to meet the demands of representing the class.

13. Material transferred between counsel for the company and an investor or potential investor in that company is not always protected by the joint defense doctrine.

14. The common interest doctrine insulates from discovery material shared between lawyers who are negotiating adversaries in the course of representing their respective clients.

15. If negotiations with third-party funders are purely financial, the common interest doctrine may not protect the sharing of privileged material from discovery.

16. Paying the lender a portion of attorney fees could be considered prohibited fee-sharing.

17. Counsel may waive work-product protection by disclosing counsel’s work product to a third party—including, potentially, prospective funders—who have no interest in maintaining confidentiality.

18. California advocates seeking third-party funding for litigation in California must be careful to avoid accidental champerty.

19. Disclosures to third-party funders might be protected under Evidence Code §912.

20. Counsel’s discussions with potential funders can create ethics pressures for clients.


Before clicking the Submit button, please verify that all questions have been answered. An error message will appear if not all questions are answered.

* The Los Angeles County Bar Association has been approved as a continuing legal education provider of Minimum Continuing Legal Education credit by the State Bar of California. This self-assessment activity will qualify for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour.