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Companies providing loans to cash-strapped plaintiffs who need to fund their lawsuits will be paying close attention to the Florida Bar this week as the state’s legal profession moves to tighten rules governing how lawyers help their clients obtain loans to finance cases. On Thursday, the Florida Bar’s professional ethics committee is expected to approve an opinion that will provide a road map for lawyer involvement in litigation funding. Proponents of the new opinion praise the language as further removing lawyers from the loan process while at the same time allowing poor plaintiffs to secure needed cash while their lawsuits are progressing through the court system. But critics such as Jon Shebel, president and chief executive officer of the powerful Tallahassee-based Associated Industries of Florida, a business lobbying group, indicated the opinion does not go far enough. He said loan companies need to be regulated stringently because many of them charge potentially illegal interest rates. “It’s another scheme,” Shebel said. “These companies don’t care about justice.” At the same time, Florida’s Department of Banking and Finance is gearing up to release its own legal opinion on whether lawyers should be allowed to help their clients acquire these loans. There is also the lingering possibility that businesses with political clout in Tallahassee will pressure lawmakers into passing laws curtailing largely unregulated loan companies in next year’s session of the Legislature. UNDER SCRUTINY In recent years, dozens of companies in Florida and throughout the nation have begun advancing money to plaintiffs and their attorneys to cover personal, medical and legal costs while their lawsuits are pending. The bulk of these loans are nonrecourse investments, which means that the loan company only recovers the principal and interest if the plaintiff wins a judgment or settlement. While supporters insist these companies expand poor plaintiffs’ access to the courts, detractors say these companies exploit desperate clients and that many of these companies charge outrageous and usurious interest rates. In June 2000, the Bar’s ethics committee approved a proposed advisory opinion allowing attorneys to help their clients obtain nonrecourse funding in appropriate circumstances. However, the money obtained could only be used to cover personal expenses — not attorneys’ fees or legal costs. Soon thereafter, Gainesville, Fla., solo Steve Bagen complained that the proposed ethics opinion was too lax. In a written complaint, he recalled how one of his clients considered securing an $8,000 nonrecourse advance from Pan American Funding Corp. of Kennar, La., which has an office in Gainesville. But when Bagen examined the contract terms, he learned that his client 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. Ultimately, the client would have owed $25,000 on the original $8,000 advance, something Bagen said was “outrageous” and “borderline criminal.” Other companies he’s been approached by charge as much as 200 percent interest. This prompted the ethics committee to hold another meeting to revisit its decision. DISTANCING LAWYERS In late January, the Bar’s ethics committee met in Miami, ready to affirm its original opinion. But after the Daily Business Review reported that the Florida Department of Banking and Finance was looking into the legality of these loan companies, the committee unexpectedly withdrew its proposal, formed a subcommittee and unanimously agreed to re-examine the opinion’s language. An amended opinion is expected to be unveiled and voted upon at the Florida Bar’s annual meeting in Orlando. According to a copy of the proposed opinion obtained by the Daily Business Review, the key difference between the new and old version is that lawyers are no longer allowed to sign a letter of protection to the loan company, which assures that the money will be repaid if the client’s suit is successful. While the client may sign such a letter, the lawyer may not. The opinion maintains previous stipulations as well. The lawyer may not recommend the client’s matter to the loan company and he may not co-sign or otherwise guarantee the financial transaction. He also may not allow the loan company to “direct the litigation, interfere with the attorney-client relationship, or otherwise influence the attorney’s independent professional judgment.” And finally, the attorney “may not have any ownership interest in the company or receive any compensation or other value from the finance company in exchange for referring clients.” “This opinion goes a long way in answering our concerns,” said Gary Lesser, a partner in the West Palm Beach, Fla., firm Lesser & Lesser who is an ethics committee member and chaired the subcommittee that redrafted the new opinion’s language. “It further distances the attorney from the loan process, and that’s what we wanted to accomplish.” In March, the Lawyers Weekly USA newspaper reported that the Bar may ban nonrecourse funding because there is currently no cap on the interests rates charged. While this is a concern among the bar’s ethics committee members, that is not an issue the committee is considering because it does not render opinions on issues of legality. Furthermore, several members of the committee have said that the new opinion allowing lawyers to help their clients obtain nonrecourse loans is all but assured of success. “It’s a lock,” one ethics committee member said. Lawyers Weekly also conducted a poll asking its readers whether companies should be allowed to loan money to plaintiffs (or their lawyers) in return for a stake in the lawsuit. Of the 490 readers that responded, 69 percent voted an outright “yes;” 19 percent said the loans should be allowed, but “only to plaintiffs, not their lawyers;” and 12 percent said an outright “no.” ‘DOING IT THE RIGHT WAY’ One of the strongest proponents of these nonrecourse loan companies in Florida is Al J. Cone, the 81-year-old former president of the Association of Trial Lawyers of America. He is a renowned personal injury attorney who operates Advance Settlement Funding, which advances plaintiffs money at an interest rate of 7.5 percent a month and never lends more than $5,000 to any client. While Cone doesn’t believe there is a problem with lawyers signing a letter of protection, he said he tentatively supports the ethics committee’s new opinion. He said there is too great a need among clients for his service to delay any longer. He said companies like his flatten the playing field between cash-strapped plaintiffs and wealthy defendants that have the upper hand because they have the funds to delay a case for months, sometimes years. “There are clients out there who truly need the help of companies like mine, and I believe the Bar is recognizing that finally,” Cone said. “I know there are others that may be trying to take advantage of clients, but I’m convinced I’m doing it the right way.” Still, officials from the Department of Banking and Finance remain concerned about these companies, which are effectively betting large sums of money on the success or failure of a legal action. Late last year, the department began looking into the matter after receiving calls from attorneys wanting to know if they were allowed to use their services. The standard rate cap for most loans under the state’s anti-usury laws is 18 percent annually for loans up to $25,000 and no more than 30 percent for loans exceeding $25,000. Those who charge higher rates face civil or criminal enforcement action. Robert Beitler, chief counsel of the Department of Banking and Finance, said a legal opinion is expected to be released within the next two months. He would not comment on what the opinion’s impact on the industry would be. Banking & Finance investigators have long maintained that any complaints filed against a lawsuit loan company would be investigated. To date, no complaints have been filed. “We will enforce the state’s usury laws,” Beitler said. Cone has long maintained that nonrecourse loans are not subject to the state’s usury laws, and he cites Florida appellate and federal district court rulings that he said supported his view. No matter how the Florida Bar or the Department of Banking and Finance responds, there are powerful, big business lobbying interests who would like to see state legislation implemented that has sharper teeth to stringently regulate this young industry. This is because they view these companies as rogue gamblers who will simply propagate more lawsuits against big businesses with deep pockets. Shebel said he has recently been contacted by two prominent Republican legislators who have voiced concern about these loan companies proliferating throughout the state. He said many of these loan companies are getting away with charging outrageous interest rates and that there is too great a chance that the companies will exert influence on either the client or client’s lawyer to tailor their legal strategy to serve the loan company’s financial interest. Shebel added that he has given up on hoping the Florida Bar will take the initiative to do the right thing. He believes the ethics committee should address issues of legality and usurious interest rates. “The Florida Bar obviously isn’t speaking to the issue,” Shebel said. “Someone else may have to.” OPINION HIGHLIGHTS These are the main points in the Florida Bar’s proposed ethics opinion on litigation funding: � Plaintiffs’ lawyers barred from signing letter of protection to loan company assuring repayment if suit is successful. � Lawyer may not recommend litigation to loan company. � Lawyer may not co-sign or otherwise guarantee loan. � Lawyer may not allow loan company to direct litigation, interfere with attorney-client relationship or influence lawyer’s professional judgment. � Lawyer may not retain ownership interest in loan company or receive any compensation from finance firm for referrals.

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