MASSACHUSETTS SHOULD OUTLAW PRE-SETTLEMENT CASE FINANCING IN PERSONAL INJURY CASES

A recent and dramatic push by specialized financing companies, eager to “advance” money – often on a “non-recourse” basis - to plaintiffs in personal injury cases, poses a serious to the Massachusetts civil trial system, and to the attorney–client relationship in personal injury cases.

Companies such as American Legal Funding, PSFinance.com, Anylawsuits.com, and Oasis Legal Finance to name just a few, offer to advance (not loan) funds to plaintiffs in advance of trial or settlement. Because the loans are non-recourse, Massachusetts’ “usury laws” have not applied and “advancers” are free to charge fees that may run as high as 30-40% per year or more (as some include a percentage of the gross settlement or verdict in addition to interest). The advances are non-recourse in that the lenders are contractually barred from recovering any portion of the advance from the plaintiff the plaintiff loses the case.

These funding schemes promote needless litigation as plaintiffs, who have already received large advances on their cases, and are contractually obligated to repay 3-4 times the original advance, may insist that their case, which could otherwise be settled for fair value, proceed to trial on the off chance that the plaintiff could receive a surprise verdict, beyond the value of the outstanding obligation to the legal funding company. Plaintiff’s lawyers find themselves in the difficult position of arguing against trial in such cases, knowing that their clients will receive little if no additional funds after repayment of their “advance”.

Allowing this kind financing encourages wasteful and protracted litigation to the detriment of all parties, their counsel, insurers, and the Commonwealth. 

Comments

[You Are Joking Right?]

This is an April Fools post, right?

You must work for the insurance companies. You also have no idea what it is like to be poor and destitute.

[Eric J. Parker]

Your comments are misguided. Those who are "poor and destitute" are those who can least afford to pay unreasonable interest rates - rates which rival those of "street" loans. While I can certainly appreciate a situation in which a plaintiff, facing tremendous financial pressures, chooses to pay ridiculously high interest rates for a loan, such pressures should not be allowed to circumvent existing usury laws simply on the basis of a lending technicality (non-recourse lending). This breed of lending practice undermines our legal system and the attorney client relationship as outlined in my original post.

[Roger Shields]

There is no evidence that legal funding advances either promote needless litigation . The leading companies in the legal funding industry formed the American Legal Finance Association (www.americanlegalfin.com) in order to promote ethically sound best practices in the industry. One rule for ALFA members is that do not "overfund" cases: funding only up to a typical maximum of 10% of the anticipated net value of the case assures that the investment does not interfere with the lawyer's ability to obtain a fair and just settlement.
Furthermore, ALFA actively discourages frivolous litigation: if an ALFA member encounters a frivolous case during their evaluation, they will not fund it. Besides being against public policy, frivolous cases also make very bad investments, since the overwhelming majority of them have low probability of success. By helping victims with compelling claims, ALFA Members actually discourage frivolous litigation by denying frivolous cases financial support.
Furthermore, the plaintiff is not paying "unreasonable interest rates", since all the costs of the funding come from the proceeds of the case, and the plaintiff is never out of pocket personally. Our members have very many testimonials from their clients attesting to the fact that a non-recourse advance helped them avoid financial catastrophe at a time when they could not obtain funds from any other source.

[Eric J. Parker]

Roger - while I appreciate your comments, I respectfully disagree with them. How can you accurately estimate the value of a personal injury case without factoring-in the inevitable problems that arise for plaintiffs over the life of the case? And what about liens superimposed upon liability issues? In many cases, by the time the case reaches trial, much of the value has been compromised based on problems neither the plaintiff nor his lawyer could ever have been aware of on day one. Many of these "cash advances" are made by out-of-State funding companies with little or no knowledge of Massachusetts personal injury law. They know nothing of the challenges Massachusetts imposes on victims of negligence. Every time I try to explain to out-of-State lawyers that Massachusetts caps liability against hospitals at $20,000 they think I'm joking! That cap applies even if the hospital kills a patient! And if a member of the clergy rapes a child, it's the same story. Twenty grand! Massachusetts lawmakers work very hard to ensure that victims of negligence never receive a dime in compensation. This means that lawyers who represent injury victims do everything within their power to put every last dollar possible in their client's pocket. If "legal funding" companies can pull 30-50% out of that recovery in exchange for "advancing" funds for a year or two, we face an even greater challenge. Legal funding is exactly what the current tort climate does not need.