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Private Lawsuit Funding - PDF


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                                                      Mark M. Bello
          Lawsuit Funding – New Legislation in Ohio
                                                     “Attorneys all over the
                                                           country have
                                                     recognized that lawsuit
                                                     funding is a significant
                                                        strategic tool that
                                                        balances financial
                                                         inequity, obtains
     In the battle for money damages in
     personal injury lawsuits, insurance              needed assistance for                          the state of Ohio. In Rancman v. Interim
                                                                                                     Settlement Funding Corp. 99 Ohio St. 3d.
     companies have significant economic                their clients, and                           121, 2003-Ohio-2721 the Supreme Court
     advantages over injured plaintiffs and often                                                    not only agreed that the transactions were
     use plaintiffs’ economic harships to their        improves litigation                           ‘loans,’ the Court further determined that
     benefit. Settlement voidance techniques                 results.”                               the transactions were champertous, indi-
     can result in a desperate plaintiff accepting                                                   cating that an ‘intermeddler was not per-
     an offer far below case value. Simply           court declaratory judgment against a law-       mitted to gorge upon the fruits of litiga-
     stated, the typical plaintiff lacks the         suit funding company and for a plaintiff who    tion.’ Where a usury finding would have
     financial resources to wait out the process.    had sought the company out and entered          applied to this one case, a champerty find-
                                                     into multiple contracts with it. The appel-     ing applied to all similar cases and lawsuit
     Enter lawsuit funding, a process that           late court determined that the contracts        funding was dead in the state of Ohio.
     provides plaintiffs with timely and strategic   were “loans”. The court said there was no
     cash advances that assist them in waiting       real probability that non-payment would
                                                     occur. “Loans” are governed by a licensing      A substantial nationwide demand for law-
     out the process and allowing them to
                                                     requirement in the Small Loan Act. The          suit funding services has allowed the in-
     receive, hopefully, a larger settlement or
                                                     funding owner had no license, thus was          dustry to prosper and establish a national
     verdict. Lawsuit funding has been around
                                                     guilty of ‘contracting for small loans’ with-   niche in the trial lawyer community. At-
     for many years and has become a
                                                     out a license. The contracts were void and      torneys all over the country have recog-
     prominent tool for trial lawyers in the new
                                                                                                     nized that lawsuit funding is a significant
     century. Plaintiffs and attorneys all over      the company could not enforce or collect.
                                                                                                     strategic tool that balances financial ineq-
     the country have been utilizing this
                                                                                                     uity, obtains needed assistance for their
     valuable strategic service, except those in
                                                                                                     clients, and improves litigation results.
                                                     The company appealed to the Ohio Su-
     In October, 2001, the Ohio Court of             preme Court. In January, 2003, the Su-          Lawsuit funding industry professionals,
     Appeals, for the North District, decided        preme Court affirmed the Court of Ap-           trial lawyers and legislators began to
     Rancman v. Interim Settlement Funding           peals, effectively ending the ability to en-
     Corp., 2001 Ohio-1669, affirming a trial        gage in lawsuit funding transactions in

                                Mark Bello has thirty-one years experience as a trial lawyer and ten years as an underwriter and
                                situational analyst in the litigation funding industry. He is the owner and founder of Lawsuit Financial
                                Corporation where he is instrumental in providing cash flow solutions and consulting when necessities
                                of life funding is needed during litigation. Mr. Bello is a member of the American Association for
                                Justice, Sustaining and Justice Pac member of the Michigan Association for Justice, Business Associate
                                of the Florida, Tennessee, and Colorado Associations for Justice, and a member of the Michigan and
                                American Bar Associations.

                                                              Ohio Trial - Summer 2009
seek a legislative solution in Ohio that                   (c) the total dollar amount to              contingency basis per a written      29
would permit plaintiffs and their attorneys                be repaid by the consumer, in               fee agreement.
to utilize this valuable service. As a re-                 six-month intervals for 36
sult of this collaboration, and because law-               months, and including all fees;             (c) All proceeds of the civil
suit funding can be a vital tool for plaintiffs                                                        litigation will be disbursed via
and attorneys, Governor Ted Strickland                     (d) the annual percentage                   the trust account of the attorney
signed legislation (former House Bill 248)                 rate of return, calculated as of            representing the consumer in
effective August 27, 2008, allowing law-                   the last day of each six-                   the civil action or claim or a
suit funding companies to do business in                   month interval, including                   settlement fund established to
the state of Ohio. Ohio became the sec-                    frequency of                                receive the proceeds of the civil
ond state in the country (Maine is the                     compounding.                                litigation from the defendant on
other) to pass regulatory legislation for                                                              behalf of the consumer.
the legal funding industry.                       • Contracts must contain the initials of
                                                    the consumer on each page.                         (d) The attorney representing
This legislation is reasonable and                                                                     the consumer in the civil action
thoughtful. Ohio injury victims can qualify       • Contracts must contain the following               or claim is following the written
for vital funding in situations where               statement, in at least 12-point                    instructions of the consumer
traditional lenders won’t provide                   boldface type, located immediately                 with regard to the non-recourse
assistance. Injury victims are protected            above the place on the contract                    civil litigation advance.
by guidelines that litigation funding               where the consumer’s signature is
companies must follow when providing                 required: “DO NOT SIGN THIS              •   Contracts must be written in the
their services.                                     CONTRACT BEFORE YOU READ                      primary language of foreign speaking
                                                    IT COMPLETELY OR IF IT                        citizens.
• The act also provides some key                    CONTAINS ANY BLANK SPACES.
 definitions:                                       YOU ARE ENTITLED TO A                     •   The legal funding company must have
                                                    COMPLETELY FILLED IN COPY                     no right to make decisions involving
 “Non-recourse civil litigation advance”            OF THIS CONTRACT. BEFORE                      the claim and its settlement.
  means a transaction in which a                     YOU SIGN THIS CONTRACT                       Contracts must contain the following
  company makes a cash payment to a                 YOU SHOULD OBTAIN THE                         statement in at least 12-point boldface
  consumer who has a pending civil                  ADVICE OF AN ATTORNEY.                        type: “THE COMPANY AGREES
  claim or action in exchange for the                DEPENDING ON THE                             THAT IT SHALL HAVE NO RIGHT
  right to receive an amount out of the              CIRCUMSTANCES, YOU MAY                       TO AND WILL NOT MAKE ANY
  proceeds of any realized settlement,              WANT TO CONSULT A TAX,                        DECISIONS WITH RESPECT TO
  judgment, award, or verdict the                   PUBLIC OR PRIVATE BENEFIT                     THE CONDUCT OF THE
  consumer may receive in the civil                 PLANNING, OR FINANCIAL                        UNDERLYING CIVIL ACTION OR
  lawsuit.                                          PROFESSIONAL. YOU                             CLAIM OR ANY SETTLEMENT
                                                     ACKNOWLEDGE THAT YOUR                        OR RESOLUTION THEREOF
 “Company” means a person or entity                 ATTORNEY IN THE CIVIL                         AND THAT THE RIGHT TO
  that enters into a non-recourse civil             ACTION OR CLAIM HAS                           MAKE THOSE DECISIONS
  litigation advance transaction with a             PROVIDED NO TAX, PUBLIC OR                    REMAINS SOLELY WITH YOU
   consumer.                                        PRIVATE BENEFIT PLANNING,                     AND YOUR ATTORNEY IN THE
                                                    OR FINANCIAL ADVICE                           CIVIL ACTION OR CLAIM.”
  “Consumer” means a person or                       REGARDING THIS
   entity residing or domiciled in Ohio              TRANSACTION.”                            •   Contracts may be cancelled by the
   and represented by an attorney with
                                                                                                  consumer within five business days
  a pending civil claim or action.                • Contracts must require written                without penalty using this specific
                                                      acknowledgment by the attorney              language: “CONSUMER’S RIGHT
Here are some of the bill’s                           representing the consumer in the            TO CANCELLATION: YOU MAY
requirements:                                         civil action or claim, which must           CANCEL THIS CONTRACT
                                                      state all of the following:                 WITHOUT        PENALTY         OR
• Contracts must be completely filled                                                             FURTHER OBLIGATION WITHIN
   in and contain, on the front page,                      (a) The attorney representing          FIVE BUSINESS DAYS FROM
   appropriately headed and in at least                    the consumer in the civil action       THE DATE YOU RECEIVE
   12-point boldface type, the following                   or claim has reviewed the              FUNDING FROM [insert name of
   disclosures:                                            contract and all costs and fees        company].”
                                                           have been disclosed including
           (a) the total dollar amount                     the annualized rate of return      •   If a dispute arises between consumer
           to be advanced to the                           applied to calculate the amount        and funding company concerning the
           consumer;                                       to be paid by the consumer.            funding contract, the responsibilities
           (b) an itemization of one-time                                                         of the attorney representing the
           fees;                                           (b) The attorney representing          consumer in the civil action or claim
                                                           the consumer in the civil action
                                                           or claim is being paid on a

                                                           Ohio Trial - Summer 2009
30   are no greater than the attorney’s                                      advances is, typically, contingent upon
     responsibilities under the Ohio Rules of                                recovery (non-recourse). If the subject
     Professional Conduct (R.C. 1349.55(C)).                                 litigation is successful, the company is
                                                                             repaid principal and risk adjusted profit
     Lawsuit funding is now available to injured                             out of case proceeds. If the case fails, the
     and disabled citizens of Ohio, struggling                               company forfeits the advanced funds.
     to make ends meet as a direct or indirect                               Ethical companies will happily provide an
     result of their injuries or disabilities. The                           appropriate compromise if the case
     statute contains sensible regulation and                                resolves at significantly less than predicted
     protection for lawsuit funding companies                                case value. This is not an industry standard
     and permits seriously needed financial                                  practice and the reader should consider
     support for personal injury victims in easy-                            this policy of case appropriate compromise
     to-understand terminology.                                              to be an important factor in choosing a
                                                                             company. The goal of lawsuit financing is
     Trial lawyers who are unfamiliar with                                   to get the litigant through the litigation,
     lawsuit funding companies or common                                     without having pressing bills and expenses
     lawsuit funding procedures will find that                               effect the value of their case. Someone
     most companies provide prompt service.                                  desperate for money is not a positive
     Most companies will provide funding                                     influence on settlement negotiations and
     within 24 hours of receipt of inquiry. Most                             will, almost always, settle his/her case for
     provide web-based and/or toll free service                              less than appropriate value. Strategic
     to assist the client in his/her time of need.                           litigation funding will often prevent this
     Most will provide complimentary advice                                  from happening and will often pay for itself
     by phone or email. Repayment of lawsuit                                 with increased case proceeds. OT

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                                                                                                Ohio Trial - Summer 2009

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