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Mark Bello

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Lawsuit Funding:  A Potential Difference Maker in Your Client's Case

In 1999, after practicing personal injury law for almost 25 years, I decided to transition into a then, untested, new industry, the lawsuit funding industry.  I did so because I felt that lawsuit funding could make a huge difference in the success of a case and that I could assist people all over the country, something I couldn't do as a Michigan licensed attorney.  15 years later, the industry is still struggling to define itself and is still struggling to gain acceptance in the plaintiff attorney community.

The reasons for this vary, but the number one reason, in my humble opinion is that attorneys do not use the service strategically and will typically permit their clients to decide when to fund and who to use for funding.  This is a huge mistake.

Simply put, strategic lawsuit funding can level the playing field for plaintiffs involved in contentious personal injury litigation.
An injured person files a lawsuit expecting simple justice, a fair resolution of the case.  Trial lawyers know that this is hardly an easy task; a contested lawsuit can be a long, complicated, battle. As time goes by, a plaintiff begins to feel the financial pressure, making it necessary to consider an early settlement for less than full and fair compensation.  

Lawsuits often take a huge financial toll on plaintiffs. Many plaintiffs don’t realize how important their financial health is to the success of their case.  In personal injury litigation, a disabled plaintiff must continue to make ends meet until the case settles or is tried to a verdict (and goes through the appellate process).  Lawsuits often take a long time to resolve, and time is not on the side of an injured or disabled plaintiff.  Insurance companies and corporate defendants deliberately delay proceedings for as long as possible, hoping that financial pressure forces the injured party into settling too early, for too little.  As we all know, this is a common defense strategy.

A financially desperate plaintiff is not a positive influence on settlement negotiations. Financial hardships must be minimized or eliminated before serious settlement negotiations are conducted.  Lawsuit funding helps a plaintiff stay financially sound during the litigation process rather than be forced to settle early due to the lack of time, money, or power. 

So, when should a plaintiff consider lawsuit funding?  Here are some simple, but important Q’s and A’s:

Why does the plaintiff need money?

Are there pressing financial issues? If your client does not need money to keep a roof over their head, feed their family, pay medical bills, or cover other emergency expenses, or, if he/she have other immediate sources of revenue, the client should reconsider seeking a lawsuit cash advance.  Why?  Although a lawsuit cash advance is provided on a non-recourse basis (plaintiffs don’t pay it back if they lose their case), it is often more expensive than traditional financing, when the case is successful.

Is there potential for lawsuit funding to increase the value of a plaintiff’s case?

When utilizing the services of a lawsuit finance company, an attorney should consider whether it is an appropriate strategy to enhance case value.  Lawsuit funding should be used as a strategic tool.  Strategic timing is the key; the right legal finance, at the right time, will produce additional case revenue for your client and the advance will, quite often, pay for itself out of proceeds it has made possible. An offer made in a time of great financial stress is likely to be accepted, or at least seriously considered, by a financially distressed client. Lawsuit funding offers a way to relieve the immediate financial burdens so your clients can wait for the larger settlements they deserve.

Does lawsuit funding fit comfortably into the projected value of the case?

This is an extremely important.  When a plaintiff receives a fair offer to settle a case, an attorney does not want funding principal and profit to be so significant that they prevent your client from resolving the case.  Doing business with a funding company that understands the nuances of litigation, knows how to properly evaluate litigation for appropriate funding, and is willing to compromise its return to accomplish stated goals is an important consideration.  This is a good reason for you to involve yourself in your client's choice of a lawsuit funding company.  Inexperience is dangerous in the lawsuit funding business.  An experienced legal funding expert can help determine whether and when lawsuit funding is a good fit for your client.

Does the lawsuit finance company have a “hands-off” policy regarding the case management process?

The pursuit of case litigation, strategy, negotiations, trial preparation, settlement and decisions, etc, belongs to plaintiffs and their attorneys. A lawsuit funding company should never become involved in the decision-making or management of the case.

Does the lawsuit funding company provide its funds contingent upon the outcome of the litigation?

Make sure funding is “non-recourse.”  This means that repayment is contingent upon the outcome of the case. If the case fails, so does the repayment; the client keeps the money without obligation to repay. 

How are funding profits calculated?  Are there additional “junk” fees?

It is important to consider a company that does not charge confusing, monthly “interest” formulas and has no “up-front” administrative charges of any kind.  Watch out for companies that assess front end “administrative” or “broker” fees then charge profits on those fees as if they were a part of the proceeds received by the client.  Plaintiffs should look for simple formulas and capped funding so they know in advance the minimum and maximum amounts due from case proceeds.

What is needed to apply and how long will it take to get funding?

The application process should be quick and easy. Often, a client can complete the one-page application online or by calling the funding office.  There should be no credit checks, employment verifications, or monthly payments.  As long as case documentation (medical records, complaint, police report, etc.) is provided from the plaintiff’s attorney in a timely manner, funding approval should occur with funds available in 24 – 48 hours.

Here is a real case situation that explains how lawsuit funding assists a financially distressed personal injury victim and increases the value of a case:

An Indiana woman suffered a serious closed head injury in an auto accident; she was unable to work. She had missed several mortgage payments and the bank was threatening foreclosure. While this was happening, the insurance company contacted her attorney and offered $250,000 to settle the case. The woman wanted to accept the offer; after all, she was losing her house.  

Her attorney believed the case was worth $1 million; settlement was not imminent, but he was confident that he could achieve that amount or close if given the proper time to do so.  He advised her to reject the offer and called my company,  Lawsuit Financial.

After reviewing appropriate case materials, I approved an initial lawsuit cash advance of $15,000 which was sufficient to bring her mortgage payments current and pay other immediate debt. The woman, on the advice of her attorney, rejected the $250,000 offer. During the course of the litigation, we provided lawsuit funding on two additional occasions for a total of $30,000 in funding.  Nine months after receiving the initial funding, the woman settled her case for $950,000.

Lawsuit funding was a substantial reason for a $700,000 increase in final case proceeds. The client's upside, after attorney fees was over $400,000. The attorney made an additional $233,000! Lawsuit funding assured that the client's house was saved and that a fair result in her litigation was achieved.

This true story is an important reminder of the power of litigation funding. This key legal funding strategy should, absolutely, be considered by any plaintiff who is contemplating acceptance of a lower than full value settlement offer.  Before your client settles a valuable case for pennies on the dollar; consider lawsuit funding.  Appropriate legal funding advice may not be "priceless", but it might be worth $700,000 or more! Do the math for your case funding situation.
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