Lawsuit Funding: An Important Strategic Tool in a Trial Lawyers Arsenal

I am pleased to announce that I have become an InjuryBoard member and look for a long and rewarding association with its membership. After 25 years as a practicing personal injury attorney, beating my head against the wall that is Michigan tort reform (‘deform’), I decided to make a slight career change and enter a new industry, known as the lawsuit financing industry. The main focus of my business is to provide strategic cash advances to cash strapped plaintiffs, who, through no fault of their own, find their physical and financial lives turned upside down by an injury accident. These lawsuit cash advances are collateralized only by pending litigation; if the lawsuits fails, the advances are excused.

Since I am an InjuryBoard newcomer, I decided to see if any of our members have ever posted a blog or inquired about the legal finance industry. I performed a search of previous posts and came across a September 28, 2005 post entitled "Lawsuit Funding-Not Always a Good Idea" by Bob Carroll. Bob’s premise, simply, is that he does not like ‘lawsuit funding’. He feels that it is too expensive, that the client forgets, at the end of the case that he got (and owes) the money, that rapidly escalating charges might pressure an attorney to compromise a case to avoid funding increases. Finally, Bob opines that if ‘lawsuit funding must be obtained make it for the smallest possible sum’.

Since I am actively engaged in providing these services to plaintiffs and plaintiff attorneys all over the country, it might surprise Bob, and many other members, that I agree with everything he says. Legal funding can be "expensive", the client does, sometimes, forget that he received assistance, and some attorneys do feel pressure to settle to avoid funding increases. And, absolutely, lawsuit funding should be obtained for the least amount needed, not for any amount the client desires.

However, litigation funding is a vital tool in a trial lawyer’s arsenal of tools and it is very important that trial lawyers learn how to effectively use this tool to assist their clients, improve their practices, and, most importantly, enhance case recoveries. Bob’s post (with all due respect) does not go far enough in evaluating lawsuit financial services; he describes its negative features but provides no positive aspects or practical tips on how to effectively use the valuable service. Attorneys must not stand by, silently, and allow their clients to engage in this process without their valuable input and assistance. Here are some valuable, practical tips when your client is considering accepting lawsuit financing:

1. You must evaluate why your client needs the money. As Bob indicated, legal funding can be expensive. Only absolute need should be funded. And, if there are not pressing needs like eviction, foreclosure, food, car payments, medical care, prescriptions, etc., the client should not seek legal finance services.

2. Legal funding should be used, as often as possible, as a strategy. A client who can’t pay his/her necessary bills is not a positive influence on settlement negotiations. An offer made during a stressful financial time is likely to be accepted by the client. That will not only cost a client money; it will cost the attorney money as well. Lawsuit financing relieves financial burden; the pressure to settle early and cheap is removed, and you have purchased precious time to complete the case and obtain improved results.

3. Lawsuit finance amount must fit comfortably into projected case value. This must be true regardless of the client’s desire or demand. It is an important lawsuit funding underwriting skill and why you should engage an experience pro-justice company. Further, the litigation finance company must understand that litigation is often unpredictable and must be willing to compromise profit if the case does not do as well as predicted. Make sure that you engage a company willing to offer a results oriented compromise, up-front.

4. The legal funding company must have no input on case management. Lawsuits belong to clients and attorneys; they do not belong to legal finance companies. If you ever find yourself answering to or explaining case strategy to a harrassing lawsuit funding company representative, you have chosen the wrong company. It is recommended that you deal with a trial lawyer owned company, one who has a keen understanding of litigation, to avoid this possibility.

5. Lawsuit funding should be contingent on case outcome. While this type of non-recourse funding is more expense than a lawsuit loan, you do not want your client owing the company money even if he/she loses the case. This is why legal funding is usually considered expensive: if the case fails, the company loses the money it advanced your client.

6. Consider a litigation funding company that caps its funding. If you do this, you will always know the maximum amount the client will be obligated to pay out of case proceeds. If the company is also willing to compromise results in cases where the result was less than predicted, the case will never be over-burdened.

7. Ask about the company’s experience. The industry is growing; transitioning sales people, mortgage and real estate professionals are "sampling" this industry. Therefore, you will encounter people with varying degrees of experience and ethics. Ask questions. How long have they been in business? Is lawsuit financing all they do? Are they brokers or principals? Are they financial people or lawyers? How many transactions have they participated in? What strategies do they recommend? An experienced legal finance company can be a substantial asset for strategic funding and strategic case resolution.

I am proud to be a member of the InjuryBoard family. My paralegal staff and I are pleased to answer any questions about strategic use of Lawsuit Financial’s services, free of charge, whether you are considering the services of my company or of a competitor. My main goal is to see that this service is used ethically and appropriately to assist accident victims and their attorneys in getting the best possible results out of their litigation. I look forward to meeting some of our members at the upcoming convention and in assisting all members in understanding and appropriately utilizing this important strategic practice tool.