Transcript Third Party Litigation Financing--

Third Party Litigation Financing--Public Policy Aspects
CONFERENCE OF WESTERN ATTORNEYS GENERAL
Gail Markels
Executive Director
American Legal Finance Association
[email protected]
Third Party Litigation Financing
1)
Also Referred to as:

Consumer Legal Funding (CLF)

Pre-Settlement Funding

Civil Litigation Funding

Alternative Legal Funding (ALF)
2)
Three Types of Litigation Funding
1) Consumer

Funds Life needs

Non-Recourse Transaction

ALFA funds CLF
2) Attorney—Loans to law firms
3) Commercial—Provides capital to corporate law
departments or law firms
What is the American Legal
Finance Association (ALFA)
1) ALFA, was established in 2004 , and
represents companies that provide
Consumer Legal Funding, “CLF.”
2) 1n 2005, NY Attorney General Spitzer
investigated one CLF, after a staffer saw a
subway ad and found NO improprieties in the
CLF transaction.
3) ALFA working in conjunction with AG Spitzer,
voluntarily entered an “Assurance of
Discontinuance” and developed a set of Best
Practices.
What is the American Legal
Finance Association (ALFA)
4) The Assurance of Discontinuance provides for notice,
disclosure and transparency of contract terms.
 Notice and disclosure of contract terms
1. Itemization of fees
2. Total amount to be funded
3. Percentage rate of return, annualized
4. Total amount to be repaid every 6 months for
36 months
5. 5 Business Day Right of Recission
6. Attorney Acknowledgment on the funding
7. Contract must be completely filled out
 Consumer knows the terms of the CLF when they
enter the agreement
ALFA Self Regulation
 ALFA Best Practices Augment NY AG Agreement
 BP require written acknowledgment of
consumer’s attorney
 BP prohibit Interfering with underlying litigation
 BP prohibit intentionally overfunding case
 BP prohibit false or misleading advertising
 BP prohibit referral fees between attorneys or
medical providers
 BP prohibit acquiring an interest in the case
Who Uses Consumer Legal Funding
 ALFA Member Companies Provide CLF to:
 Individuals with PI case & counsel, who cannot pay bills
 Consumer Legal Funding is used for life needs
 Foreclosure 78.26%
 Food 9.61%
 Car Payments 6.72%
 Child Support 3.52%
 Credit Card 1.09%
 Tuition .80%
 CLF allow plaintiffs to get a fair & equitable settlement
 Without CLF, consumer may be forced, due to financial
pressures, to take a less than an equitable settlement
CLF Allows Consumer To Get A Fair
Settlement
 Case valued at $100,000.00
 Without Consumer Legal Funding
 Settles for $50k within 6 months
 Lawyer:
$16,666
 Client:
$33,334
 With Consumer Legal Funding at 3% and $350 fees
 Settles for $100k after 1 year
 Lawyer:
$33,333
 Client:
$61,887
 Funding Co.:
$ 4,780
 CLF allows consumer to get a fair settlement
How Does Consumer Legal Funding Work
 Consumer Legal funding is Non-Recourse
 If the consumer loses their case, or if there is not
enough to pay back the CLF Company, consumer
owes nothing, unlike a loan which must be repaid.
 CLF is inherently risky, just like the court case itself.
 While the numbers may vary by company, 12% to 20%
of funded cases are lost or settle for substantially less
than expected.
 When a case settles for less than anticipated,
adjustments are made, by the CLF Company, so a
case can be resolved.
 Losses and adjustments combined with the cost of
capital and administrative costs result in fees that are
higher than rates associated with traditional loans.
How Does Consumer Legal Funding Work
 10% Rule—Do not provide more than 10% of the estimated value
of case at the time of funding
 Plaintiff is represented by counsel and has a bona fide PI case
 CLF helps working people, who live paycheck to paycheck pay
their bills, when they are unable to work, due to an accident
 Banks, lines of credit and credit cards are not usually available to
these consumers
 Asset has unknown outcome
 Asset had uncertain maturity
 Asset has no collateral other than the future value of the case,
which may not be successful
What Consumer Legal Funding Does Not Do
 Does not promote
frivolous lawsuits
 The Consumer MUST
have a pending case
or action before they
receive CLF
 The Work of State
Courts reviewed
litigation growth and
found that while
contract litigation
grew 37% from 2006
to 2007 that tort
litigation fell 24%
 Cannot blame
CLF for non
existent increase
in tort litigation
What Consumer Legal Funding Does Not Do
Frivolous litigation=dismissed/lost
cases=bad investments=lost money
Douglas Richmond, Aon Risk Services,
Mercer Law Review 2005, Ethics of Litigation
Funding,“ Litigation Funding companies exist
to make money not throw it away. Funding
Companies have no incentive to advance
money to plaintiffs with frivolous lawsuits
because the chance of recovery is low.”
What Consumer Legal Funding Does Not Do
 Does not interfere with the attorney client privilege
 CLF companies neither request nor obtain privileged or
confidential information
 Does not interfere with conduct of case or settlement
 ALFA Best Practices preclude interfering or participating in
litigation
 ALFA supported legislation states, CLF cannot interfere
 Young industry, supports self regulation and proper regulation
 Legislation enacted in Ohio, Maine and Nebraska mandating BP
 Efforts to enact additional laws mandating best practices, for nonmembers as well as ALFA members, killed by opposition from the
insurance industry, tort reform groups and US Chamber
 Defeat in Kentucky
ALFA Is In Good Company
 The US Chamber Institute for Legal Reform
presented testimony on May 24th, 2011 before
the Subcommittee of the Constitution of the
Committee on the Judiciary before the US
House criticizing both State Attorneys General
retaining outside contingency fee counsel
and Consumer Legal Funding and called for
both to be strictly regulated or banned
Did the Chamber Really Say This?
 http://www.uschamber.com/legalreform
 Target lawsuit abuse in states and jurisdictions in
need of reform:
 ILR works to rein in overreaching state attorneys
general who initiate crusades against one
industry after another, often working in tandem
with personal injury lawyers “deputized” to file
lawsuits on behalf of state governments.
 The Chamber doesn’t like CLF either.
ALFA Is In Good Company
 No secret that the US Chamber opposes CLF
 Chamber testimony full of misstatements about CLF
 CLF does not increase frivolous litigation
 CLF does not increase cost of litigation, however, a fair settlement will
cost more than an unfair settlement
 If a consumer loses their case or the case settles below the cost of
the funding, adjustments are made. The consumer is not worse off
 Douglas Richmond, Aon Risk Services, Mercer Law Review 2005,
Ethics of Litigation Funding, “ LF may even promote settlement &
discourage prolonged litigation by forcing a recalcitrant
defendant to approach a case reasonably…in light of the fact
that its adversary has the resources to meaningfully prosecute
the matter.”
Work With ALFA To Adopt Best Practices
 CLF industry is growing and maturing. We have worked with
AGs across the country who have supported our self regulatory
efforts.
 ALFA is interested in working with your offices to adopt a set of
Best Practices in your state.
 Several of you have told us that there have been no
complaints hence no need for an MOU
 Since ALFA’s efforts to enact Best Practices laws have been
defeated by the Chamber and Insurance industry, we hope
that we can work together to adopt a set of Industry Best
Practices with your offices