A Practice Smart(TM) Feature
Economic inequities in the legal system have spawned an innovative industry that seeks to level the playing field between plaintiffs’ and attorneys’ on one hand and deep-pocket defendants on the other. Most non-recourse litigation funders strive to help individuals and businesses pursue legitimate claims, and to remove the financial pressure to settle matters for pennies on the dollar, and enable plaintiffs’ to have their day in court.
In this scenario, the plaintiff’s lawyer has an important role to protect a plaintiff’s rights, insure the fairness of a transaction and help the plaintiff and themselves avoid litigation finance companies that engage in shoddy business practices.
Because of the expensive cost of funds to the litigation funding company, the time it takes to litigate a matter to its final conclusion and the risks involved, litigation funding transactions are expensive and therefore should not be entered into lightly. The due diligence in selecting an investing litigation funder should match the funder’s due diligence in underwriting the case. Litigation funding companies with ethical business practices encourage plaintiffs to consult their attorneys before entering into a funding arrangement.
Here are my thoughts on Guidelines and Best Practices for attorneys representing plaintiffs in non-recourse financial transactions. The purpose of these Guidelines is to suggest practices for attorneys to protect clients and themselves from unfair transactions and unscrupulous and unprincipled companies that give the burgeoning litigation funding business a bad name.
- Counsel should represent any plaintiff considering a litigation funding transaction to insure that:
- The client (seller) understands all terms conditions and the costs of the transaction.
- There is value to the seller in light of the cost.
- All avenues of less expensive financial assistance been exhausted.
- The background and reputation of the purchaser (funding company) and its principals have been properly checked. The number of transactions completed, length of time in business, litigation history and references should also be reviewed.
- The transaction is structured as a non-recourse purchase (as opposed to a loan).
- There is a satisfactory process for resolving disputes.
- No confidential information (although in some circumstances it is permissible) is passed to the purchaser.
- The purchaser is specifically prohibited from involving itself in the litigation process or influence the outcome of the case.
- The attorney must have no interest in the purchaser.
- The attorney must not co-sign or personally guarantee the repayment of proceeds out of his/her/firms own pocket.
- The attorney must not evaluate the merits of the case for the purchaser.
Choose a company carefully. The terms of a litigation funding transaction vary greatly from company to company, so it may be in one’s best interest not to base the decision on price alone. Look at value and why the money is needed now. Consider how long it will take for the case to be finally resolved. Weigh the immediate benefits of a non-recourse monetization against the situation if there is no recovery when the case is finally over. Consider the experience and reputation of the company with whom you intend to do business. Get references from reputable sources and talk to attorneys who transacted business with the company.
Practice Smart(TM) Features are a service of Michael Blum and Appeal Funding Partners, LLC. The Features are thoughts from a variety of sources on our practices, on being trial lawyers and things of importance to trial lawyers and their clients.
Michael Blum is a trial attorney and CEO of Appeal Funding Partners, LLC with over 20 years’ experience providing risk mitigation services and non-recourse funding to attorneys and plaintiffs with money judgments on appeal. He is a member of AAJ and has served on the Board of Directors of the Consumer Attorneys of California and of the Marin Trial Lawyers Association. He is a speaker to trial-lawyer groups and has written for TLA magazines on the financial management of contingency-fee law firms. He may be contacted at 415-729-4214 or firstname.lastname@example.org.
The article is provide for informational purposes only and with the understanding that the author is not engaged in rendering legal, accounting, tax or other professional advice or services. The discussion is not intended be relied on for any purpose; seek the services of a qualified professional.
© copyright 2014 Appeal Funding Partners, LLC. All Rights Reserved.
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