05282017Headline:

Fairfax, Leesburg & Loudoun, Virginia

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Doug Landau
Doug Landau
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Borrowing Money to Finance Lawsuits

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The Herndon law firm ABRAMS LANDAU, Ltd. is bombarded by solicitations to by companies wanting the Virginia "Law Shop" to borrow money to finance litigation. While the Landau Law Shop once looked into assistance financing an international catastrophic cycle crash paralysis case that wound up going all the way to the Supreme Court of the United States, the personal injury team decided against doing so due to a variety of reasons. One reason was the high rate of interest. Another was the fact that neither the client nor counsel had any personal relationship with the potential lenders. And, lastly, Landau had heard too many "horror stories" of situations where things did not work out where the injured victim’s interests in the litigation had been mortaged. The New York Times took a detailed look at this emerging aspect of litigation finance.

The NY Times piece describes how, "Large banks, hedge funds and private investors hungry for new and lucrative opportunities are bankrolling other people’s lawsuits, pumping hundreds of millions of dollars into medical malpractice claims, divorce battles and class actions against corporations — all in the hope of sharing in the potential winnings. The loans are propelling large and prominent cases. Lenders including Counsel Financial, a Buffalo company financed by Citigroup, provided $35 million for the lawsuits brought by ground zero workers that were settled tentatively in June for $712.5 million. The lenders earned about $11 million." Further:

  • Total investments in lawsuits at any given time now exceed $1 billion, several industry participants estimated. Although no figures are available on the number of lawsuits supported by lenders, public records from one state, New York, show that over the last decade, more than 250 law firms borrowed on pending cases, often repeatedly.
  • The rise of lending to plaintiffs and their lawyers is a result of the high cost of litigation. Pursuing a civil action in federal court costs an average of $15,000, the Federal Judicial Center reported last year. Cases involving scientific evidence, like medical malpractice claims, often cost more than $100,000. Some people cannot afford to pursue claims; others are overwhelmed by corporate defendants with deeper pockets.
  • A review by The New York Times and the Center for Public Integrity shows that the inflow of money is giving more people a day in court and arming them with well-paid experts and elaborate evidence. It is helping to ensure that cases are decided by merit rather than resources, echoing and expanding a shift a century ago when lawyers started fronting money for clients’ lawsuits."

Troubled by abuss, but understanding the need in special cases, the question of lawsuit financing by outside companies, banks and other investors is one that will require coordinated oversight by federal and state authorities.