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Late last year, Mike Langford, an Orlando, Fla.-area man, was injured in a car accident and filed a personal injury lawsuit against the other driver. Langford needed money to pay his medical bills while the suit was pending. On the advice of his attorney, David Heil of Miller & Heil in Winter Park, Fla., he turned to a Las Vegas company called Lawsuit Funding Partners for financial help. The company advanced him $5,000 in exchange for a share of any judgment or settlement he won. “The guy was injured and he needed cash fast,” says Bob Sandler, president of Lawsuit Funding Partners. Langford won his suit, and Sandler’s company took a cut of the winnings, though Sandler won’t say how big a cut. Heil did not return repeated calls for comment. Lawsuit Funding Partners, which has been in operation for about two years, offers funding to plaintiffs in personal injury cases either in the pre-trial stage or after the plaintiff has won a judgment and is facing an appellate challenge. It provides up to $100,000, depending on the strength of the case. Sandler contends that many Florida plaintiffs need funding to help them pursue meritorious lawsuits, particularly in the first month after being injured in an accident. “Attorneys are starting to realize that clients often need at least a small advance to tide over their personal expenses,” Sandler says. “And most states don’t allow the attorney to loan the client money himself.” Sandler’s company is one of hundreds — many owned and operated by attorneys — which have sprung up around the country in the past several years to provide upfront cash to plaintiffs, says Wayne Walker, president of Capital Transaction Group, a Southern Pines, N.C., litigation funding company. In exchange, they receive a minority interest in any judgment or settlement. While some only fund plaintiffs who have already won at trial, many fund promising cases at the pre-trial stage as well. Plaintiffs attorneys hired on a contingency fee basis have long borrowed money from banks to finance lawsuits. Unlike banks, however, these new companies buy a stake in the lawsuit’s outcome, rather than loaning money with interest to the plaintiff or his attorney. Their investors are willing to roll the dice in hopes of a big score — but must be prepared to lose their whole stake on an adverse verdict. Most litigation funding companies are small, typically advancing no more than $20,000 to individual plaintiffs. Larger firms, like San Francisco-based LawFinance Group, Plaintiff Support Services in Getzville, N.Y., and Expert Funding.com in Atlanta, sometimes advance hundreds of thousands of dollars to clients. Some of the smaller litigation funding companies function as feeder offices for the bigger ones. Litigation funding companies have only recently begun seeking business in Florida — and remain largely unknown in the legal and business communities here. Their activities are likely to accelerate, however, because they see Florida as a potentially rich market, with many lawsuits filed by plaintiffs of modest means who may not qualify for bank loans, says Sandler, who is not an attorney. That’s why companies like his are needed, he argues. Yet the concept disturbs legal ethicists, business groups and attorneys in both the plaintiff and defense camps throughout Florida. Many fear that such funding imperils the independence of attorneys and threatens to undermine the single most powerful deterrent to frivolous or marginal lawsuits — the fact that plaintiff lawyers must bet their own time and money when they take cases on a contingency-fee basis. “Let’s face it: Financing litigation means more litigation,” says Jon Shebel, president and chief executive of Associated Industries of Florida, the state’s most vigorous business lobbying group. “The reason litigation is out of control is because you can sue anybody for anything, regardless of the facts. All you need are deep pockets.” The practice is also inconsistent with several non-binding Florida Bar ethics opinions, according to Cynthia Booth, the Bar’s ethics counsel. “These advisory opinions say these services are improper,” Booth says. “Companies should not be buying into legal settlements.” Stuart Grossman, a Miami plaintiffs’ attorney and member of the Florida Bar Board of Governors, says LawFinance Group approached him, unsolicited, with a funding offer in April 1999. The company proposed to advance him $3 million to $4 million for a $37.4 million verdict he had just won from Florida Power & Light Co. over an auto fatality at a South Miami-Dade intersection where the utility had disconnected the traffic signal. FPL was appealing the record judgment. Grossman, who says his firm always finances its own litigation, considered it “outrageous” that Law Finance was asking for a return of several million dollars, which he would have to pay out of his fee. He rejected the offer. “I don’t know how they pass muster on the anti-usury statute,” he says. Allen Zimmerman, president of LawFinance Group, acknowledges that his company contacted Grossman after he won the FPL verdict, but denies that the company ever made a firm offer to the attorney. “We never discussed a specific amount that we would advance to him, and the issue of pricing was definitely not discussed,” Zimmerman says. Normally, when plaintiffs’ attorneys take on clients in contingency-fee cases, they draw on their firms’ general operating account or line of credit at a bank to cover legal costs during the litigation. Clients, however, are on their own financially. Under the Florida Bar Code of Professional Responsibility, law firms are not allowed to advance clients’ money for any personal expenses. That prohibition is intended to prevent firms from bidding for promising suits. In large cases, where legal costs can run into the hundreds of thousands of dollars, law firms sometimes take out bank loans to cover the costs, using their own assets to secure the loan. Smaller, less affluent firms are more likely to go this route. This is risky, because the firm may have to tap its assets to pay back the loan. “[Taking out a loan] should be reserved for very special contingency cases because if you lose the case, you can get completely zipped,” says Howard Berlin, managing partner of the Miami firm Kluger Peretz. But LawFinance Group chief executive Michael Blum, an attorney himself, says his company can alter the financial equation for attorneys and clients of modest means who are locked in legal battles with corporate Goliaths. Not surprisingly, his company prefers to bet on Davids with slam-dunk cases. In 1996, for instance, Gordon Vann, a 75-year-old auto repair shop proprietor, was sued by his San Francisco landlord for environmental contamination of the property. Vann contacted his liability insurer, the Travelers Corp., but the company refused to defend him or defray any legal expenses. So Vann retained attorney Phillip L. Pilsbury, of the San Francisco firm Pilsbury Levinson & Mills, to file a bad-faith suit against Travelers. In February 1997, Vann won a $26.4 million verdict, with $25 million of that in punitive damages, according to Pilsbury. Travelers appealed. Vann faced the joint economic burdens of defending against the suit by his landlord and caring for his wife, who suffered from Alzheimer’s disease. He couldn’t afford to continue litigating the Travelers case. Broke and desperate, he considered seeking a bank loan, but lacked collateral. Pilsbury suggested seeking funding from LawFinance Group. “The guy was in a pickle,” Pilsbury says. “He was strapped for cash and it looked like it was going to be a tough appeal.” LawFinance Group gave Vann $200,000 in exchange for a $400,000 stake in any resulting judgment or settlement. If he lost the appeal, LawFinance would forfeit its investment, and Vann would have no further obligation to the company. If successful, he’d pay LawFinance $400,000 out of his portion of the judgment or settlement. Vann used the $200,000 to pay his wife’s care costs and the legal expenses in defending against the landlord’s suit, according to Pilsbury. But Vann won the Travelers appeal in April 1998, bagging the $26.4 million plus $4 million in interest. Pilsbury says LawFinance gave his client the financial stability he needed to fight the appeal and care for his ailing wife. “A lot of these big [insurers] know they have the upper hand when it comes to resources,” Pilsbury says. “They hope they can wait you out so you will settle for less than you deserve. After LawFinance decided to support our case, it evened the playing field.” “No one should be forced into an unfair settlement because they can’t afford to continue with their case,” Blum argues. “Everyone deserves equal access to the justice system, and that’s what we help provide.” Each company has a different model for providing funding. Some advance money to the plaintiff, and some give it to the plaintiff’s attorney. LawFinance Group generally contracts with the lawyer. Some funders require that the money be used only for litigation expenses, such as filing fees or deposition costs, while others require that it be used for personal expenses, such as medical bills or mortgage payments. Some negotiate a percentage of any final award or settlement, while others take a flat dollar sum. At the time of a final judgment or settlement, payment to the litigation funding company generally comes out of the attorney’s share if the money was used for legal costs, and out of the client’s share if the money was used for personal expenses. Before deciding how much money to advance, litigation funders consider how much money the plaintiff needs to see the case through, how long the legal process is likely to take, and the risk that the suit will fail. The return sought by the company depends on the amount advanced and the risk level of the case. For all these companies, if the lawsuit fails, they walk away empty-handed. Several of the larger litigation funders say that, after studying the merits of the applications submitted to them by plaintiffs and attorneys, they invest in only about one in 10 cases. Their goal is to pick winners 75 percent of the time, says one company official, who did not want to be identified. LawFinance Group provides funding only for plaintiffs who have won at trial and are facing appeals. Like other companies in the field, it mostly funds plaintiffs in personal injury cases. But it also has backed medical malpractice, fraud, breach of contract and race discrimination actions. Clients and their attorneys apply by submitting a detailed history of the case. The percentage the company charges is negotiated on a case-by-case basis, Blum says. Blum refuses to discuss LawFinance Group’s annual revenues, how many clients the company is funding, or its success rate in picking winners. He will say only that business is booming. Since its launch five years ago, the company has opened offices in Los Angeles, Boston and New York. It funds cases in about 30 states and currently is expanding into the Southeast, recently funding its first cases in Florida. Blum declined to identify any Florida plaintiffs, law firms or attorneys with whom he has done business. Al J. Cone, an Ocala attorney, takes a different approach with his litigation funding company, Advanced Settlement Funding, which he and two friends started last year. It provides funding directly to plaintiffs either pre-trial or after they’ve won a verdict and are facing an appeal. The minority percentage the company receives of any judgment or settlement is negotiated between it and the plaintiff, and varies based on the risk of the case. The money can only be used for a client’s personal expenses, not for legal costs. The plaintiff’s attorney doesn’t get involved at all in the transaction, he says. Cone, who bristles at the term “litigation funding,” says he chose this approach because he believes it’s consistent with a Florida Bar ethics opinion stating that attorneys should refrain from helping their clients secure loans to cover personal expenses during litigation. That rule exists to protect the attorney/client relationship. While some litigation funders give money to attorneys as well as plaintiffs, Cone argues that this is “probably” unethical. By avoiding any contact with the client’s attorney, Cone contends, he eliminates the potential of influencing the attorney’s legal strategy. “A lawyer can always get a loan from a bank at reasonable rates,” Cone says, offering this as another reason for dealing directly with plaintiffs. “But we have found that there is an enormous need among clients who have significant personal bills to pay during litigation, whether it is medical expenses or a mortgage.” Still, some law firms are eager to tap this funding source to cover their own litigation costs. Sandler, of Lawsuit Funding Partners, says that law firms, by having their clients receive funding from his company, are able to take on more cases than they could otherwise afford. “I’ve got firms now that will send me four, five, six cases a week,” says Sandler, who funds about 250 cases a year. “We support these cases on a contingency basis — an arrangement you’re not going to get at a bank.” Charles Agee, president of Memphis-based Augusta Capital, says law firms of all sizes have sought financing from his company, though he declined to name any. “I think law firms recognize the fact that companies like ours are instrumental in removing the financial risk and burdens from trial lawyers,” he says. “Big firms like the service because they can take on more cases. Smaller firms like it because they can continue with cases they otherwise couldn’t afford.” But Stuart Grossman questions the financial viability and legal smarts of law firms that are willing to hand over such a large portion of their contingency fees to litigation funders. “I think it’s a sign of weakness on the part of the lawyer,” he says, calling it “a breach of the trial lawyers’ code. It’s like you flinched.” If defense attorneys found out about the financing, they’d press even harder for a lower settlement. “The only people who would take litigation funders up on this must be in pretty desperate shape,” he scoffs. Litigation funding companies face a potential obstacle in trying to expand their business in Florida. While no laws or Florida Bar rules forbid plaintiffs or attorneys to use the services of litigation funding companies, several opinions issued by the Bar’s Committee on Ethics have found the practice unethical, according to the Bar’s Cynthia Booth. Such funding creates the potential for a third-party to exercise undue influence over the legal strategy of a case, Booth says. And it doesn’t matter whether the funding occurs during the trial stage or the appeals stage. The Bar’s ethics opinions, however are only advisory, and are not enforceable rules. But they seem to have kept litigation funding underground. Litigation funding companies generally were unwilling to provide names of Florida clients, and no Florida attorneys who have used litigation funding would talk to Florida Lawyer about their involvement with these companies. These ethics opinions have caused some litigation funding companies to steer clear of Florida. One is Capital Transaction Group, which provides up to $20,000 for personal injury cases that have not yet been appealed. Wayne Walker, Capital’s president, points to a 1975 ethics opinion by the Bar that states that attorneys should not become involved with the loan process that helps fund a client’s case. “That view handicaps us,” Walker says. “It’s easier to do business in New York or Massachusetts, where they support our line of business and have ethics opinions that show that. States in the Northeast understand the idea that litigation, in and of itself, is not suspect. This is about access to the courts.” But Blum says LawFinance Group won’t be deterred by those ethics opinions. “We are still going to do business in Florida,” he says. “I don’t believe we do anything that borders on what is truly unethical.” Anthony V. Alfieri, director of the Center for Ethics and Public Service of the University of Miami School of Law, disagrees. He says the key issue is the potential to compromise the independence of attorneys and to interfere with their duty to clients. “The presence of third-party financing may palpably or subtly influence litigation strategy in ways that may be inimical to the best interest of a client,” he says. George Kuhlman, ethics counsel for the American Bar Association, is less worried. As long as the third-party funding arrangement is structured so that it doesn’t interfere with the attorney’s independence, he sees no problem. “Those seeking to acquire an interest in another’s litigation don’t acquire the right to control the legal strategy or intervene in the attorney’s ability to make judgments,” Kuhlman says. “If the company does not involve itself in the legal strategy of the case, I would see no inherent conflict in the process.” He compares it to taking out an insurance policy. Still, Kuhlman expressed unease. “We don’t like things that tempt [attorneys] to misbehave,” he says. “But we hope there is not a need to ban an activity in order to make sure no one does a bad thing.” Blum, of LawFinance Group, downplays the ethical concerns. He insists that the attorney/client relationship is not compromised, because attorneys must obtain client approval before seeking funding and before providing case information to the company. His company vows that it keeps all information confidential. He also emphasizes that his company does not offer legal advice to clients or intervene in any way with the attorney’s legal strategy. Some companies even sign an agreement with the plaintiff’s attorney promising not to interfere with legal strategy. “We are strictly a financial group,” he says. “We are not practicing law here. We don’t get involved in the legal strategy of the attorneys and clients we help.” Business groups are more alarmed about the potential impact of third-party funding on the volume of litigation. Jon Shebel, of Associated Industries of Florida, argues that litigation funding companies will exacerbate what he sees at a glut of frivolous lawsuits, because plaintiffs’ attorneys will face less contingency risk. Shebel, a longtime proponent of legislation to restrict tort lawsuits, favors outlawing the practice. If litigation funding companies do cause an increase in lawsuits, Shebel says, the only solution may be to pass a state constitutional amendment that would regulate the fees of plaintiffs attorneys and force losing plaintiffs to pay the defendants’ costs. Shebel’s organization and other business groups already have discussed the idea of mounting an effort to place such an initiative on the 2002 election ballot. Personal injury attorney Grossman, however, doubts that third-party litigation funding would increase the volume of suits. Such companies, he argues, are unlikely to bet their money on weak cases. Still, Shebel has a surprising ally on the litigation funding issue — state Sen. Walter G. “Skip” Campbell, D-Tamarac, a trial lawyer and ardent opponent of efforts to limit tort lawsuits. “I find [third-party litigation funding] unethical because you basically have lawyers selling a percentage of their contingency contract,” he says. “An attorney needs to have independence, and this opens the door to anything and everything.” Campbell, a partner in the Fort Lauderdale firm Krupnick Campbell Malone Roselli Buser Slama Hancock McNelis Lieberman & McKee, says he is constantly approached by litigation funding companies but would never work with them. “What if an attorney wants to seek a settlement that is less than what the lending company is expecting?” he asks. “You could feasibly have nonlawyers putting pressure on an attorney to hold out for a larger settlement. Then you have a case of people practicing law without a license.” Campbell stops short of saying that government needs to regulate such businesses, though he believes that the state Department of Insurance already may have regulatory authority in this area. But a spokeswoman for the Department of Insurance says it has no authority over litigation funding. The Florida Division of Securities and Finance, which oversees various forms of risk-based investment, doesn’t have authority either, says a spokesman for that agency. They both point to the Florida Bar as the appropriate body to regulate such businesses, if any regulation is needed. But Booth says the Bar is not considering rules to restrict or outlaw the practice. Until someone files a complaint with the Bar about a litigation funding company — and none have been filed up to now — litigation funding companies will enjoy clear sailing in Florida, she says. Sandler, of Lawsuit Funding Partners, says that unless a law is passed prohibiting him from providing support to plaintiffs, he will continue to do business in Florida. “I’m going to continue helping plaintiffs wherever I can,” he vows.

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