The first installment in the "Betting on Justice" series from the NY Times, reported on the issue of banks and financiers loaning funds to plaintiffs' counsel to cover litigation expenses during the pendency of a case. The second installment reported on the financing of divorce actions. This third installment, "Lawsuit Loans Add New Risk For the Injured" features the practice of loaning money directly to plaintiffs in lawsuits. Apparently, the lenders characterize their practice as "investing" in the lawsuit and, therefore, avoid regualtions that apply to loans. The distinction is justified, they allege, because the plaintiff is not required to pay the money back if the lawsuit is unsuccessful. Therefore, the investments are particualrly risky and higher interest rates are justified. According to the Times, those rates may exceed 100% annually - even when a settlement has already been reached and payment is pending, thereby eliminating the "risk." When I came to the bar in the early '80s, it was impermissable for a lawyer to agree to finance a client's litigation. In a contingent fee case, the client had to agree to repay all expenses regardless of outcome. I know those rules have changed in many places. However, leaving these investors unregulated would seem to allow them to reap unreasonably large gains at the expense of the weak and vulnerable. Wouldn't this practice fall within the definition of unconscionability?
Two of the companies referenced in article are LawCash and Oasis. A Law Cash ad was featured in the blog post from Part 1 of the series. Below are more examples of ads from each:
The front page of yesterday's NY Times featured an article entitled "Putting Money on Lawsuits, Investors Share in the Payouts". This article is the first in a series entitled "Betting on Justice." The article shines daylight on a practice know well in the profession but far outside of the experience and contemplation of undergraduate law students. The article traces the history, law, philosophy and practices of banks and hedge funds getting involved in financing lawsuits. There are both success and horror stories. Many of my students tend to be fairly politically conservative finance and accounting majors. This article may show them a different face of lawsuits - as an investment vehicle for profit-making. This article strikes me as one that could generate some active class discussion or drive an effective online discussion thread.
Of course, nothing gets a discussion going like a video. Below is a video from a company that provides funding for lawsuits. (Self Serving Disclaimer: I do not endorse or promote this company or its practices. I just find the videos and post them here for you to use in class if you think they are helpful to promote discussion or thoughtful consideration.) Further below is a video from a company that loans money directly to clients while their lawsuits are pending. There are so many of these videos available on line, that is was hard to choose a representative. If you want to explore them yourself, search "lawsuit funding" at youtube.
Case Expense Funding:
Cash For Clients:
In my opinion, the following video is crass and tasteless. The person who uploaded it to the internet labelled it as "funny." Maybe students will think it is funny - I don't know. It is certainly provocative, if that is what you need for your class.
