 mark m. bello |
By
Mark Bello, CEO Lawsuit Financial Corporation
Clients and Lawyers should consider several issues before deciding whether lawsuit funding is the correct move. Lawsuit funding is available to plaintiffs for necessary living expenses during the period that their case is pending. When is it right for you? Here are important issues to consider:
1. Does the Client Have Dire Circumstances Requiring a Cash Advance?
If the client is not faced with dire financial circumstances (needs food, shelter, medical care, prescriptions, rehabilitation, transportation, rent payments, saving his/her house from foreclosure, etc.) or has other sources of revenue to tap, the client is not an appropriate candidate. This should, absolutely, be a dire need-based program. Legal funding should be considered only as a last resort.
2. Will Funding Prevent the Client from Settling Early and Cheap?¶
The best candidate for legal funding services is one that is considering acceptance of an inadequate offer of settlement because of a dire need (outlined in Step 1, above) for funds now. Strategic legal finance will prevent a client from settling a valuable case for pennies on the dollar by providing the cash that the plaintiff needs now and providing the attorney with the precious time needed to resolve the case for full value. This vital strategy should result in larger settlements, more money for the client and the attorney
3. Does the Lawsuit Financial Cash Advance Comfortably Fit Into the Value of the Case?
The size of any legal funding cash advance must fit into case value and leave substantial room for the plaintiff to receive the bulk of his/her settlement proceeds. An appropriate "rule of thumb" is to avoid lawsuit funding that, with maximum profit, would absorb more than 1/3 of the total value of the case funded. The attorney must take an active role in this process. An experienced legal finance company is an important asset in preventing the “over funding”, but an attorney, where results are predictable, should also counsel his/her client to do what is sensible. The last thing an attorney or an
ethical legal funding company representative want is a case that, when settlement time comes, a disproportionate amount of the settlement is due the funding company.
4. Does the Lawsuit Funding Company Have a "Hands Off" Approach to Funding?¶
Any company that the client or attorney deals with must have a "hands-off" policy with regard to case management. Case management decisions, i.e., whether to settle and for how much, whether to take certain depositions, whether to go to trial or not, are all decisions to be made by the lawyer and the client and the funding company has no place in this vital decision-making process. All case decisions and legal strategy should be left to the lawyer and client. If the funding company wants to involve itself in these strategies or decisions, find another company.
5. Is Lawsuit Financing Contingent Upon Recovery?
Most lawsuit finance programs are non-recourse programs. Return of the legal funding company's principal and company profit should be based solely upon the outcome of the case. If the case fails to recover, the company should be willing to lose its' principal.
6. Will the Lawsuit Funding Company Provide, In Advance, a Formula for its Compensation?
A client should have an up-front understanding of the cost of funding. Many companies tack on fees and expenses and use complicated interest compounding formulas which confuse clients and attorneys and mask true charges. A non-compounded, flat fee approach, with concessions for early resolution, is the preferred method for your participation.
7. Will the Lawsuit Funding Company Offer a Settlement Appropriate Compromise if the results are less than predicted/expected?
Most legal finance companies underwrite cases by requesting the attorney to complete a form and provide case records. The form, titled ‘Attorney Questionnaire’ or something similar almost always asks the lawyer to predict the amount of settlement. The number placed on the form is a vital underwriting tool because the size of funding is directly dependant upon the predicted case value. What happens if the case does not achieve predicted case value and the funding principal and profit due is an impediment to settlement? The experienced, ethical legal funding company should be willing, up front, to promise a settlement-appropriate compromise if you find yourself in this situation. No funding company should prevent reasonable settlement by demanding full fees when everyone else is compromising. If the company you fund with will not provide this up-front compromise guarantee, you have chosen the wrong company.
8. How Much Experience does the Litigation Funding Company Have?
In order to be certain that your legal finance company is up-to-date with the latest developments in the legal and legal finance industries, a prospective client or attorney should inquire about the company’s experience and past clients’ and attorneys’ satisfaction with the company’s services. Ask whether the company representative has, ‘in-the-trenches’ legal experience as well as significant lawsuit funding experience. An experienced lawsuit finance company can make a huge difference in the bottom line of your client’s case.