third party litigation financing--- public policy aspects conference of western attorneys general...
TRANSCRIPT
Third Party Litigation Financing---Public Policy Aspects
CONFERENCE OF WESTERN ATTORNEYS GENERAL
Gail Markels
Executive Director
American Legal Finance Association
1) Also Referred to as: Consumer Legal Funding (CLF) Pre-Settlement Funding Civil Litigation Funding Alternative Legal Funding (ALF)
2) Three Types of Litigation Funding1) Consumer
Funds Life needs Non-Recourse Transaction ALFA funds CLF
2) Attorney—Loans to law firms3) Commercial—Provides capital to corporate law
departments or law firms
Third Party Litigation Financing
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 terms1. Itemization of fees2. Total amount to be funded3. Percentage rate of return, annualized4. Total amount to be repaid every 6 months
for 36 months5. 5 Business Day Right of Recission6. Attorney Acknowledgment on the funding7. 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
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
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.”
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 non- members as well as ALFA members, killed by opposition from the insurance industry, tort reform groups and US Chamber Defeat in Kentucky
What Consumer Legal Funding Does Not Do
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