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Florida officials say that they will investigate whether companies that advance money to plaintiffs and their attorneys to help them pursue personal injury and other types of lawsuits are violating the state’s anti-usury law. At the same time, some attorneys are questioning a Florida Bar ethics panel’s recent decision to give its qualified blessing to attorney involvement with litigation funding companies. Bar officials now say they may consider a more restrictive policy. In the past few years, dozens of companies in Florida and around the country have begun to advance money to plaintiffs and their attorneys to cover personal, medical, and legal costs while their lawsuits are pending. Many of these payments are “nonrecourse” investments, meaning the companies only recover the principal and interest if the plaintiff wins a judgment or settlement. Supporters argue that these companies expand access to the courts for people of modest means. But critics say they unethically exploit desperate people and collect an excessive percentage of plaintiffs’ winnings. For standard loans, states generally set statutory ceilings on interest rates. But some states set no rate cap on non-recourse litigation financing, viewing these advances as “contingent obligations” rather than loans. Florida Department of Banking and Finance officials, however, say the standard rate cap — 18 percent annually — does apply to nonrecourse financing. Under Florida law, charging 18 percent to 25 percent is a civil violation requiring the lender to pay back all of the interest assessed. Charging 25 percent to 45 percent is a criminal misdemeanor, while assessing more than 45 percent is a felony. “If money is being exchanged in the form of a loan, even a contingent loan, the lender has to follow the law,” says Melanie Etters, the department’s public affairs director. The department would investigate any complaints it receives about allegedly excessive rates charged by litigation financing companies, though it hasn’t gotten any so far, she says. Andy Price, an attorney with the department, says the agency’s predatory lending task force will take a closer look at litigation funding in the future. Last June, the Florida Bar’s professional ethics committee voted 19-9 to approve a proposed advisory opinion (00-03) which allows attorneys to help their clients obtain nonrecourse funding “in appropriate circumstances.” According to the opinion, the money can only be used to cover the client’s personal expenses � but not legal costs or attorney fees. The committee cited similar bar opinions in New York State, Philadelphia, South Carolina, Ohio, Virginia and Arizona. A 1997 advisory ethics opinion by the Florida Bar concluded that it would be unethical for a plaintiff’s lawyer to participate in a litigation funding arrangement. But the board of governors and the Florida Supreme Court have not established mandatory rules of professional conduct governing this area. According to the new, proposed opinion, it’s ethically acceptable for an attorney, with the informed consent of a client, to provide information about the client’s case to a litigation funding company. It’s also acceptable for the attorney to sign a letter assuring the company that the money will be repaid if the client’s suit is successful. The opinion cautions, however, that attorneys “should not recommend the client’s matter to the finance company nor contact the finance company on a client’s behalf.” The attorney also “may not allow the finance company to direct the litigation, interfere with the attorney-client relationship,” or “influence the attorney’s independent, professional judgment.” Finally, the attorney is not allowed to have any ownership interest in the funding company that aids his or her client. The opinion deliberately does not address the interest rate issue. “Whether a particular arrangement between the client and the finance company complies with applicable statutes is a legal question outside the scope of an ethics opinion,” the committee wrote. “This opinion goes a long way in validating what we’ve been doing,” says Al J. Cone, a solo personal injury attorney in Ocala who operates Advance Settlement Funding. Michael Blum, CEO of San Francisco-based LawFinance Group, called the Bar panel’s opinion “reasonable.” Still, the opinion would make it unethical for attorneys to receive payment for legal fees or costs from third-party funders. Blum’s company sometimes advances money for legal costs. He says he will continue doing business in Florida in compliance with Bar rules. But Steve Bagen, a Gainesville, Fla., lawyer, argues that the proposed ethics opinion is too lax. “I’m surprised that the Florida Bar hasn’t stepped up and taken a stronger stance,” he says. Last March, Bagen client Rodney Hooks of Orlando, who allegedly suffered a neck injury in a car accident, sued the driver of the other car in the Orange Circuit Court. To cover his medical bills and other personal expenses while the suit was pending, Bagen says, Hooks considered securing an $8,000 nonrecourse advance from Kenner, La.-based Pan American Funding Corp., which has an office in Gainesville. If the suit was successful, Bagen says, Hooks would have had to repay an amount equal to 20 percent of the advance monthly for the first three months, and 15 percent each month after that. Bagen estimates that by the time his client won a verdict or settlement, he would have owed Pan American $25,000 on the original $8,000 advance. “When I saw the ludicrous terms, I was outraged,” Bagen says. “I told my client to forget it. It wasn’t ethical.” When asked about the legality of Pan American’s contract, Price, of the Department of Banking and Finance, said the terms could constitute a civil law violation because the interest rate exceeded 18 percent annually. “That deal would seem out of line with the state’s usury laws,” he said. But Cone cites both federal district and Florida appellate court rulings holding that contingent obligations are not subject to statutory interest rate caps. After initially agreeing to comment via e-mail, Doug Friedman, Pan American’s managing director, did not respond to questions from this publication. Bagen asked the Bar Ethics Committee to rewrite its opinion to make it more restrictive. That prompted the panel to schedule new discussions of the issue at its meeting this month. Tim Chinaris, a member of the ethics committee and an associate dean and ethics professor at the Florida Coastal law school in Jacksonville, says he voted for the opinion last June because litigation funding can help plaintiffs who are not affluent. Many clients with meritorious lawsuits, he contends, are forced to settle their claims for too little money because insurance companies and other corporate defendants have the resources to outlast them. But Donna Fudge, an associate with the Tampa firm Hill, Ward & Henderson who also sits on the committee, voted against the opinion because of what she calls the “outrageous” interest rates charged by many of these companies. Bagen also wants the Bar to approve a formal rule governing attorney conduct in connection with litigation funding, because attorneys generally are not disciplined for violating an advisory ethics opinion. “With the majority of these companies, the client is sacrificing long-term interest for a short term benefit,” he says. His concerns resonated with at least one Bar governor, Anthony J. Abate, a shareholder at the Sarasota firm Abel Band Russell Collier Pitchford & Gordon. Abate says that while the proposed ethics opinion seems fair, a new Bar rule may be warranted. “It’s difficult to draw the line where these funding companies are helpful, and where they are taking advantage of someone because of profit motives,” he says. But Abate contends that it isn’t necessary for the Bar to address the interest rate issue because attorneys already are prohibited by the Rules of Professional Conduct from participating in any deal that is illegal or usurious. Nevertheless, business groups that seek to restrict tort litigation say they’ll push to regulate the activities of litigation funding companies in Florida. They seem ready to bypass the Bar and take their case directly to the Republican-controlled Legislature, which has been sympathetic to their efforts to limit lawsuits. “We are going to send the message that these businesses are not welcome in Florida,” says Bill Herrle, director of the Florida chapter of the National Federation of Independent Business, who first learned about them from an article last July in Florida Lawyer, a magazine affiliated with the Daily Business Review. He calls the interest rates they charge “extortionist.” Rep. Larry Crow, R-Palm Harbor, the chair of the House judiciary oversight committee, says he isn’t familiar with the issue but might bring it up for discussion in his committee. “I’m not sure that [litigation funding] benefits the public,” he says.

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