Post-Settlement Funding: Waiting for Legal Fee Payments is No Longer Required
Recently, the judicial system has been subject to massive delays that have affected the entire legal system. Publications including the New York Times, National Law Journal, and others have reported on the ways in which delays have impacted citizens, attorneys, courts, and what these delays mean for society at large. Funding has been cut significantly, causing trials to be postponed well past their scheduled time. Furthermore, reductions in court staffers have resulted in longer wait times for everything else. The longer people have to wait for justice, the more likely they are to lose faith in the system, and possibly give up their claims for compensation and justice in a court of law.
Court delays and a whole other host of issues weaken the American vision of the average person being able to access justice through the court system. If this trend continues, the impact on our legal system will be enormous and may possibly lead to people becoming apathetic and doubtful of the ideals that are supposed to be imbedded within the judicial system.
The legal lending industry was created to help ease the burden carried by attorneys, especially those who work on a contingency fee basis, who also suffer harsh consequences due to court delays. Contingency fee attorneys are especially hampered, if not damaged, by these delays because their entire business is built on obtaining quick results in court to ensure payout. Contingency fee attorneys only get paid when their clients get paid, so they are constantly dealing with cash flow issues. Legal lending companies evaluate an attorney’s assets in a different manner than a traditional lender like a bank. These companies, many of which are run by lawyers or former lawyers who understand the business side of the legal system, are better able to value the assets of an attorney.
Many legal lending companies offer non-recourse funding, which means an attorney does not have to pay back the advanced funds if the attorney loses in trial or if the settlement is never paid. There are different kinds of legal lending, including litigation financing, case cost financing, pre-settlement financing, post-settlement financing, appeal financing, and attorney fee acceleration. The different kinds of legal lending can be used in the different stages of a legal case.
These different versions of legal funding fall into two main categories: pre-settlement finance and post-settlement finance. Pre-settlement financing is when an attorney is funded before a settlement is reached, usually receiving funding at higher interest rates because of the risk involved for the funding company. Some examples of pre-settlement funding include litigation financing, case cost funding, and appeal financing. Litigation financing is used when an attorney would receive funding to launch a lawsuit that they would normally not have the capital to litigate. Case cost financing is used when an attorney receives funding only to finance the costs and expenses associated with a specific case. Appeal financing is used when an attorney receives funding to litigate appeal cases.
Post-settlement funding is when an attorney is funded after a settlement is reached, but is facing a payment delay. When an attorney uses post-settlement financing, the funds usually come at a lower interest rate than pre-settlement funds because of the lower risk involved. Attorney fee acceleration is a variance on post-settlement funding because the legal lending company would purchase the attorney’s unpaid legal fees associated with settled cases.
Payment delays can hurt any business, regardless of the sector. Legal lending provides a way to remedy this situation for attorneys, especially those who operate on a contingency fee basis. Many of the smaller legal finance companies are really brokers for some of the bigger funding companies. This may account, in part, for some of the large application fees that some legal funding businesses require. Attorneys should be mindful of this fact and look for better deals when working with these companies.
The ethical issues of champerty and barratry have been debated, and precautions against those issues have been taken. Organizations who don’t like legal lending will continue to bring these issues up as a way to muddy the waters of the debate. But, as funding issues concerning the judicial system continue and the delays become longer, legal lending will likely become more mainstream, and in the future, may be the go-to option for contingency fee attorneys.
Joseph Genovesi is president of RD Legal Funding based in Cresskill, New Jersey. He is in charge of managing the company’s portfolio and new business development. He oversees the origination, database and underwriting departments at RD Legal Funding. Genovesi can be reached at 45 Legion Dr. Cresskill, NJ 07626 (201) 568-9007 www.legalfunding.com
South Florida Legal Guide 2013 Financial Edition