CBA_April 13Report - page 5

April 2013 CBA REPORT
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cover article
“Can you help me get
a lawsuit loan?”
If you’re like me, these words send ice
water through your veins. You want to
help injured people–not predatory lend-
ers. You may be a capitalist, but you hate
that anyone can charge your client three
percent interest–a month–on a loan. And
a loan where the payoff increases by one
third or one half per six months–as some
do–can change your goal from getting a
fair settlement to resolving the case while
the settlement proceeds can pay off the
loan.
In December, the Ohio Board of
Commissioners on Grievances and Disci-
pline (BCGD) issued Opinion 2012-3,
recommending ethical guidelines for
lawyers whose clients are willing to trade
a share of their [future] personal injury
settlement in exchange for [fewer] dollars
now. If you represent injured people, you
should know the opinion.
The History
Most Ohio lawyers first became
sensitive to the legal and ethical implica-
tions of loans secured by an interest in
their client’s recovery in the 2003 case of
Rancman v. Interim Settlement Fund-
ing Corp
. 99 Oh. St. 3d 121, 2003 Ohio
2721. Rancman contracted for lawsuit
loans totaling $7,000 secured by her
personal injury claim; when she settled
her case for $100,000.00, she repaid her
lenders at eight percent interest, rather
than at the contractual rates requiring
payment of at least $17,800. Her lawyers
sued the lenders, requesting rescission
and a declaratory judgment that the
sales practices were unfair, deceptive and
unconscionable. (The lenders claimed the
advances were investments, rather than
loans.)
The trial court had held that the
contracts were usury and violated R.C.
Chapter 1321, the Small Loan Act; the
Court of Appeals voided them because
the lenders did not have the licenses
required by the act. The Supreme Court
decided the case on the common law,
holding:
“Except as otherwise permitted by
legislative enactment or the Code of
Professional Responsibility, a contract
making the repayment of funds advanced
to a party to a pending case contingent
upon the outcome of that case is void as
champerty and maintenance. Such an
advance constitutes champerty and main-
tenance because it gives a nonparty an
impermissible interest in a suit, impedes
the settlement of the underlying case, and
promotes speculation in lawsuits.”
Id at
Par. 19.
In 2008, the legislature passed RC
1349.55, setting minimum standards for
such loans. The statute requires dis-
closure of the amount of the advance,
applicable fees, the amount to be repaid,
the annual rate of return, a five day can-
cellation provision and a statement that
the lender agrees it does not have deci-
sion making authority in the underlying
civil case. The statute also requires the
borrower’s attorney to advise him about
elements of the transaction.
If lawsuit loans are not yet perva-
sive in Ohio, the companies who make
them are – at least on the internet. Type
“lawsuit loan” into Google, and my guess
is that you will find as many search
results as you do for “personal injury
lawyer.” The BCGD opinion, citing a
RAND Institute study, stated that there
are 30 companies that are members of
the American Legal Finance Associa-
tion, and as many as 80 other Alternative
Legal Funding (ALF) providers working
in the United States. More to the point,
if personal injury cases are a big part of
what you do, you are going to get a call
sometime in the next month from either
a client who wants a lawsuit loan or a
lender who has been contacted by one of
your clients.
How Do Lawsuit LoansWork?
First let’s talk about the loans or, as
the legislature calls them, “non-recourse
civil litigation advance contracts.”
1
In exchange for the loan, the plaintiff
agrees to repay the money when the case
settles, “plus additional financing fees.”
The terms of the loan may provide that
the principal or financing fees are not
payable if there is no recovery–hence the
term “non-recourse”–although this is not
a requirement of the statute.
Typically, the client learns about the
lender on a website and logs onto the
website or calls a phone number shown
on the website to ask for a loan. The client
signs a document authorizing the attor-
ney to release information to the lender
about the client’s case. The lender sends
an email or fax to the attorney and asks
By William Strubbe
The Board of Commissioners Addresses
LAWSUIT
LOANS
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