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A growing number of cash-strapped plaintiffs are borrowing money to get by during litigation, a practice that has raised concerns among many lawyers and triggered a move toward regulation in a handful of states. Defense and plaintiffs’ lawyers alike are concerned that the legal-finance industry, which makes money by taking a cut of plaintiffs’ settlements, is distorting the litigation process, manipulating settlements and gaining access to privileged attorney-client information. Proponents counter that the industry provides a much needed service to plaintiffs who need money to pay bills during litigation, and don’t want to settle too early or for too little simply because they’re broke. The concept is catching on. In the past three years, the legal-finance industry has more than doubled its business, with one company alone processing more than 100,000 applications from plaintiffs seeking financial help, according to the American Legal Finance Association, the trade association representing the legal-funding industry. ALFA has 18 members who make up about 80% of the industry. Meanwhile, in January, a first-of-its-kind law will go into effect in Maine, mandating that legal-funding companies register with the state, disclose all fees and costs up front in a written contract, and outline what is owed over time as the case develops. A similar bill is pending in Ohio. The statutes are modeled after a set of rules and procedures set forth in 2004 by the New York State Attorney General’s Office, which mandated increased disclosure by legal funding companies and imposed other requirements to protect consumers. Many lawyers, however, are wary of the practice. “I really think that it does distort the litigation process,” said Dwight Davis of Atlanta-based King & Spalding, who questions the legal-funding industry’s tactics and motives. “lf they are out soliciting people, saying, ‘We’ll front you money’ � is that not a way of stirring up litigation, which for many years was thought to be inappropriate?” Davis, who defends companies in class actions, recalled a case he handled in recent years in which the settlement process, he believes, was adversely affected by legal funding. He would not elaborate, saying only that the legal-funding company invested heavily in the case and “could not allow [plaintiffs] to settle for a reasonable amount. “I think that that was distorting the process,” said Davis, who compared legal-funding groups to “another lawyer with economic interests.” Plaintiffs’ attorney William Sayegh of the Law Firm of William G. Sayegh in Carmel, N.Y., echoed similar concerns, saying that he is “100% opposed” to legal funding, and that he tries to talk his clients out of using such services. Sayegh believes legal-funding companies overcharge clients, pressure them into making earlier settlements so they can get their money faster and ask for information covered by attorney-client privilege. “Trusting an unknown third party? I have very serious concerns with that,” Sayegh said. “They’re definitely interfering with our work.” Staying power? Gary Chodes, chief executive officer of Northbrook, Ill.-based Oasis Legal Finance Group LLC, one of the larger legal-funding companies in the United States, adamantly denies tampering with the legal process. “We are not involved whatsoever with their claims,” Chodes said. “We are there to help when people are in a time of need.” Legal funding also gives plaintiffs more staying power during settlement talks, Chodes said. “It allows the consumer who is living on the financial edge to be able to stay in the game so they can get a reasonable amount and not have to settle under duress,” said Chodes, who testified in favor of the new Maine legislation and the pending bill in Ohio. Chodes said legal-funding companies get paid only if cases settle or the plaintiffs win at trial. He said most legal funding clients are car accident victims or people hurt at work who are advanced between $2,500 and $3,000 � or roughly 10% of their expected settlement or verdict. Legal-funding companies get a return based on how long it took to resolve the case and how much was initially advanced. But customers know about the potentially high fees up front and do it anyway, said Edward Radloff of Radloff & Radloff in Jacksonville, Fla., who has no reservations about the legality of legal funding. Radloff said that, although he tries to steer clients away from legal funding because of the potentially high interest rates, he does see it as a tool of last resort for those in dire straits.

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