Tag Archives: In Ius Voco Spurius

Litigation Funding: Helping you get your case to trial or disrupting the litigation process?

If you haven’t heard of litigation funders, then stay tuned. I’m sure you will soon. They’re here to make sure your next big case gets the cash it needs to stay alive to victory or settlement.

Or are they just here to see if they can make a buck? Or both?

If you have heard of litigation funding, then I’d like to hear what you think.

What is ‘litigation funding?’

What is a “litigation funder?” These are financiers that provide one of two types of litigation funding to plaintiffs: either by cash advances to individual plaintiffs or funding to plaintiffs’ firms, helping them trade future risk for current cash flow.

In other words, they offer the cash to plaintiffs and plaintiffs’ firms to make it possible for litigation to go forward when it might not otherwise due to the cost of litigation.

The best part is that plaintiffs and plaintiffs’ firms need only pay it back if they win.

The cost? Funders can charge between 36% and 150%, per year, though, according to Kirby Griffis of Hollingsworth LLP, higher rates are not unheard of. They get away with it and avoid usury laws by advancing the cash on a non-recourse basis, requiring repayment only if the plaintiff wins or gets a settlement in their favor.

The Legal and Ethical Gray Area

The main problems–ethically and legally–arise under the legal doctrines of maintenance and champerty. As summarized by Griffis, maintenance is “the giving of assistance to a litigant in pursuing a lawsuit, and champerty is a form of maintenance in which the party giving assistance does so in exchange for an interest in the outcome of the lawsuit.”

Cases, such as Rancman v. Interim Settlement Funding Corp., have found that “a]n intermeddler is not permitted to gorge upon the fruits of litigation.” 789 N.E.2d 217 (Ohio 2003). As a result, the industry has formed a lobby to legitimize litigation funding. The American Legal Finance Association (or the ALFA) approaches legislatures and lobbies them to endorse “voluntary” codes of standards through codification.

ALFA has been successful, even overturning Rancman by statute in Ohio. Maine and Connecticut allow litigation funding by statute, and similar legislation is pending in Kentucky. Texas, Florida, New Jersey, Mississippi, Massachusetts, North Carolina and South Carolina and New Hampshire courts have allowed litigation funding contracts.

So, in some places it’s legal, others it’s not…but what is the effect?

It’s not healthy for our system, Giffis says. Third-party litigation funding disrupts the normal operation of litigation and will increase litigation in the U.S. He cites three reasons for the disruption, as well as an explanation for the potential increase in litigation:

1.  Conflicts of interest: the objectives of the funders and those of the individual plaintiffs are not necessarily aligned.

[I]t is difficult to believe that plaintiffs’ firms that receive a large portion of their funds from a third party will not come under the influence of that third party to at least some extent. Funders may want to hasten settlement to recoup their investment, delay settlement to increase their interest charges, and steer cases toward monetary and away from injunctive relief, among other things.

2.  Displacement of Risk: The opportunity for certain cash (which is only repaid from proceeds of a victory) from funders may create an incentive for plaintiffs’ firms to shift risks to third-party funders, trading future uncertainty for secure cash flow in the present.

3.  Confidentiality conflicts: The involvement of third-party funders “risks the disclosure of confidential information.” Like any investor, funders will want as much information as possible about the case they are financing, and right now the case-law “strongly suggests” that there is no privilege for communications with a third-party funder. What does this mean for defenders against such law suits?

[I]f you are defending a case in which the plaintiffs’ firm has litigation funding, go after the communications with the funder.

Why Increased Litigation? The Bottom Line

These are some of the ways litigation funding distorts the legal system, but why could it result in increased litigation? Simply put, the best way for a litigation firm to protect its investment, much like a smart investor, is by spreading out risk.

For anyone who stands to make money from litigation, as much litigation as possible should happen…

Litigation funding enables plaintiffs’ firms that are reluctant to take on risky litigation to shift the risks of failure to investors, who are able to bear the risk because they can spread it around. Obviously that will cause more litigation to occur.

Is there another side to this? Without a doubt, there are plaintiffs that fail to hold defendants to account in court because of the prohibitive cost of litigation. Should they be prohibited from obtaining third-party funding?

(h/t to Kirby Giffis of Hollingsworth LLP whose comments were published in “The Metropolitan Corporate Counsel,” vol. 19, no. 7, July 2011)

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A post in which a businessman feeds himself to a shark, er, lawyer.

You own a small business. You provide a service or a product. Then one day, you get a letter.

No, it’s not a letter of gratitude from a happy client. Actually, it is just the opposite. Somewhere along the way, one of your well-meaning employees messed up on a job. It caused a lot of damage. And the letter is from a lawyer. Not a friendly-to-your-business type lawyer. Quite the contrary. It’s one of those you-caused-a-lot-of-damage-and-you-gotta-pay-for-it types. The ones that insurance companies own in droves.

You’re getting sued.

So, naturally, you put the letter away. You’ll get to it later. When you think about it. If you think about it.

Or maybe you could just clear this up now. You call the lawyer, explain what happened, give him details of the situation, how your business works, and ask his advice, his mercy, his clemency.

News flash: he’s not going to give it to you.

Both actions would be mistakes. Potentially large mistakes. Just listen to Patrick‘s experience (and a clue–he’s the lawyer, not you):

Just before leaving the office last night I got a call from Greg, of Greg’s Quality Plumbing.  Greg does seem, on the phone anyway, to be a quality plumber: a nice guy running a six employee shop for new construction and homeowners.  Unfortunately one of Greg’s employees made a mistake, overtightening a compression nut on the toilet water supply line in a very expensive house insured by BigState Casualty Insurance Company.  The nut eventually fractured,over Christmas vacation with the family out of town, and the water flowed for days.  BigState paid hundreds of thousands of dollars to rehabilitate the waterlogged house, and wants its money back.  From Greg’s Quality Plumbing.

And so Greg got my letter, and Greg picked up the phone to sort this all out, and to set me straight. […]

Can you see the train wreck coming? Can you sense the inevitability of the disaster “Greg” has just created for himself?

[…]  As I said, I have no doubt Greg is a quality plumber but Greg is an absolute amateur when it comes to dealing with sharks in the water.  He made a number of serious mistakes, feeding me information about his business, the employee who did the work, the general contractor who built the house and will be cross-claiming against Greg in the coming lawsuit, and Greg’s business assets.  All while trying to set me straight.

In the end, Greg did not set me straight.  What he accomplished was to give me information I will use against him at his deposition and at trial.  He kneecapped the defense attorney his insurance company will retain, an attorney who won’t even hear about the dispute between BigState and Greg’s Quality Plumbing for several months.  I almost feel sorry for Greg, who came into the conversation with high hopes that he would frighten me off or convince me that I have no case against him.

“Kneecapped” is a great way to describe how Greg’s eventual attorney is going to feel when he finally gets his hands on the file.

What should Greg have done?

Patrick, the very guy Greg was “gushing” to (no pun intended), has a few choice pieces of advice that business owners would be wise to learn if they’re going to avoid the disaster Greg created, for a disaster is what it was (and I’m not talking about the compression nut).

Check out the ten suggestions he at the original post here, but in the meantime, here are a few of my favorites:

1. When you get a letter from a lawyer, read it. Read it immediately. Read it more than once. Then take a short break, and read it again.  When Greg called me, he told me he “wanted to find out what all of this was about.”  If Greg had bothered to read my letter, which detailed exactly what we think the problem was, what we want from Greg, and how to give us what we want, he wouldn’t have needed to call me. And he wouldn’t have answered a bunch of my questions as I pretended to search my files and databases to get to the bottom of the problem in BigState v. Greg’s Quality Plumbing.

There’s nothing worse than unnecessary, self-imposed pain and suffering, but that’s exactly what Greg is doing to himself. He’s talking to a lawyer, but a lawyer who owes a duty to another client, not him. This lawyer is not your friend. Stop talking. Call your own lawyer.

2.  Don’t be an ostrich. Don’t ignore the problem: It won’t go away. I’ve spent most of my career defending clients for insurance companies, so I’ve ceased being amazed at how people hide their heads in the sand when they get bad news. But they do. They even get a “letter”, by certified mail, that says CIVIL SUMMONS with another “letter” titled COMPLAINT attached, and file it away, meaning to get around to responding to it. They violate rule #1, failing to read the Summons which clearly states that they have 30 days to respond, in writing filed with the clerk of court, or something bad will happen to them. After you’ve read the letter, you need to frame a response. And that response should not come from you.

You know who you are. You’ve got a pile of “stuff” that you’ll go through eventually, and you’ll deal with it when it’s convenient…meanwhile, time is ticking…

4.  Shut up. Wise advice, that applies to civil matters as much as criminal cases. Don’t call the lawyer who sent you “the letter” to “set him straight”. You won’t solve the problem on the phone.  But you might hang yourself.

Click the link. Really. Here it is again, if you missed it. Just shut up. (and ignore the profanity).

Read the post. It’s wise advice there (“keep your files,” “don’t be penny-wise but pound-foolish,” and “call your insurance company”), and it might just save you a buck or two when you get that letter.

Whatever you do, don’t just file the letter. Read it.

(h/t Popehat)

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Libya: Members of Congress Challenging Constitutionality of Military Action

(en) Libya Location (he) מיקום לוב

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It’s the American way. Got a problem? Take it to court.

Even if that problem is military action in Libya.

While Rep. Boehner is taking a more diplomatic tact by sending a letter to President Obama seeking clarification on Libya, others have had enough and are challenging him in federal court.

Is our continued military action in Libya legal? That is the question Professor Jonathon Turley, representing ten Members of Congress, is asking the court to decide.

This is an action for injunctive and declaratory relief. In addition to challenging the circumvention of express constitutional language, it will also challenge arguments that no one (including members of Congress) has “standing” to submit this question to judicial review. These members will ask the federal district court for review of the constitutional question and for recognition that the Constitution must allow for judicial review of claims of undeclared wars under Article I.

via Members of Congress Challenge Libyan War in Federal Court « JONATHAN TURLEY.

The Congressional members in the suit are from both parties and include Representatives Roscoe Bartlett (R., Md); Dan Burton (R., Ind.); Mike Capuano (D., Mass.); Howard Coble (R., N.C.); John Conyers (D., Mich.); John J. Duncan (R., Tenn.); Tim Johnson (R., Ill.); Walter Jones (R., N.C.); Dennis Kucinich (D., Ohio); and Ron Paul (R., Tx).

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Big Brother: not just the government, anymore.

As sure “as the day follows night,” Apple has been sued for its iPhone location tracking.

Whether the suit survives a summary judgment motion is another question.

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Meet the Tiger Elders, with lawyers on speed-dial

Age pyramid for China showing smaller age coho...
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Meet the Tiger Elders, with lawyers on speed-dial.

Citing the New York Times, the blog Overlawyered notes that a law has been proposed in China that would require adult children to visit their elderly parents… or face a law suit.

China is facing an aging population that will increase pension and health care costs, Baby Boomers are having on the United States, and decrease the competitive advantage afforded the country due to large quantities of cheap labor as its population leaves the labor force. Due to the one child policy, the squeeze will be much greater in China.

Perhaps requiring adult children visit and pay attention to their parents is a way to provide for the mental well-being of the elderly? And help diminish the costs on state to care for them?