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Ethical Lawsuit Funding

Some of my fellow trial lawyers may not be aware of some recent regulatory (and welcome) trends in the litigation finance business. In 2005, then New York Attorney General, Elliot Spitzer (yes, that Elliot Spitzer), mandated, in an agreement with several lawsuit finance companies that all legal cash advance contracts:

1. Be in “plain language” (as defined in New York’s General Obligations Law, Sec 5-702)

2. Be completely filled in and containing disclosures on the front page, in at least 12 point bold type, appropriately headed, with:

a. The total amount advanced to the consumer

b. Itemization of one-time fees, broken out item by item (e.g. application, processing, attorney review, broker, etc.)

c. Percentage fee or rate of return, stated on an annualized basis, including frequency of compounding

d. Total amount to be repaid by the consumer, broken out by six month intervals, carried forward to 36 months, and including all fees as well as any minimum required payment amount.

3. Provide a five business day cancellation policy

4. Provide for consumer’s initials on each page of the contract

5. Contain a legend, immediately above the consumer’s signature, in at least 12-point boldface type, to read:

Do not sign this contract before you read it completely or if it contains blank space. Before you sign this contract you should obtain the advice of your attorney. You are entitled to a completely filled in copy of this contract.

6. Contain a written statement by the consumer’s attorney record that he/she has reviewed the contract and explained to the consumer its terms.

7. For foreign language speaking persons, the “principal terms” shall be translated in writing into the consumer’s native language.

8. May not require mandatory or binding arbitration

9. Shall comply with all existing state and federal statutes

Thus, the New York agreement should be used by attorneys, across the country, as a benchmark for the minimum ethical standards required when their clients enter into a legal funding contract. It should be noted that Lawsuit Financial has always been in substantial compliance with these requirements (before they existed). In addition to the New York standard, I suggest that the following standards be considered, as well:

1. The lawsuit finance company should not, in any way, participate in, interfere with or attempt to sway or influence the litigation and/or litigation outcome.

2. The litigation funding company should make a detailed inquiry into the client’s current financial situation and fund only the current need. Substantial consumer savings can be derived by funding the client over the length of the case rather than a “front end” advance to cover the estimated length of time the case will take to resolve.

3. A lawsuit funding company should never intentionally over-advance funds; funding should be limited to an amount that, with profit, will not exceed one-third of case value. Most companies accomplish this by limiting the amount funded to 10% or less of the case value their underwriter places on the case. This is a function of experience and superior underwriting. Ask the lawsuit financing company how long they have been in business and whether they are a principal or a “broker”.

4. Avoid any legal finance company that offers to pay you a commission, kickback, or referral fee for referring your clients to them. If it is unethical for you to advance your own money to a client, it is equally unethical for you to profit off of a referral to a company that performs this service for your clients.

5. Do not participate with any litigation finance company that does not first seek your consent in entering into a legal funding relationship with your client. If you are presented with an client-executed agreement as your first contact with the lawsuit finance company, refuse to participate in the transaction and refer your client elsewhere.

The educated attorney is the consumer’s best advocate. Lawsuit funding, from an ethical and flexible plaintiff advocate oriented legal finance company can be a valuable revenue-enhancing tool in plaintiff counsel’s litigation arsenal. Be certain, also, to deal with a company that is attorney owned and operated, because all disclosures will be considered attorney-to-attorney, thus confidentiality is assured. Ask questions; satisfy yourself that the company is one that you can work with. Often, your client will bring you into a litigation finance situation. While you must recognize that in the attorney-client relationship, the client is the “employer” and the attorney, the “employee”, your previous relationship with a trustworthy lawsuit finance company should be discussed with the client as an alternative to an unknown, untested company. Lawsuit Financial provides toll free service and free consultations to openly discuss ethics and flexible terms with all prospective clients and their attorneys. Lawsuit Financial will even provide a complimentary, honest evaluation of the terms offered by a competitor. An educated plaintiff and attorney are, always, our best clients.

The New York AG Opinion & Agreement is now, obviously, the standard for New York, but it has also been adopted by the Florida Bar as its ethical benchmark and by the legislature in the state of Maine, which adopted similar language for the first such litigation finance industry regulatory legislation in history. For more information on lawsuit financing and ethics, visit www.lawsuitfinancial.com or call, toll free, 1-877-377-SUIT, to discuss your legal funding situation for free.