I mentioned I was going to start a series on this topic, specifically, the threat posed to the settlement industry by the increasing power and leverage of the legal funding companies. I will confess I was largely naive to this market until recently when I had the opportunity to interview several over the last year, and to even work with a couple as part of my role obtaining advertisers for The Legal Broadcast Network. That said, I want to make sure that while I have some strong opinions about the impact of these alliances, i'm not implying that all the Legal Funding companies are doing anything inherently wrong. As we all know, every business has it's stars and it's dogs. However, I do want to point out that these firms are quickly evolving into one of our primary competitors in dealing with trial lawyers.

Here is my theory, which I will throw open for debate:

1. Legal funding companies, in their many and various forms and niches have exploded in size, importance and economic power inside the trial bar. The reluctance of "traditional lenders" to finance contingency fee attorneys and litigation created a thriving third market of lenders, many of whom actively participate in the ultimate recovery of the trial lawyer when the case is settled or tried to conclusion.

2. As anyone who owes a bank, credit card or finance company money will tell you, your lender has mucho leverage and influence over you and your business decisions. They become in many cases your financial life line, and the last thing you want to do is tick that person off, or lose access to that cash. This truth was the foundation of our laws against extortionate lending, cross selling of products tied to loans, etc.

3. Many of the legal finance companies have begun to make entree's and form alliances with several structured settlement firms, or individual brokers. This is not widely known or spoken of, but in the legal finance circles they have clearly identified their ability to "direct business" to a structured broker or subsidiary, due to the unique leverage they have as lender. Lets face it, your banker says, I want you to talk to my guy, you would think twice before you say no.

4. I personally had a client, a trial lawyer who used one of the firms for a loan, get approached at the end of the case to try and get him to toss me over the side in favor of their own broker, in return for a better deal on his loan. I'll leave the comments as to the legality of this manuver to others, as my client reported the offer to me and declined their "deal". However, it drove home to me just what a potential disaster this could be, and one that I needed to put out to the larger community for discussion. The competition for the trial lawyers hearts, minds and wallets is increasing by the day, and as an industry and as professionals we need to have a plan of action. Your thoughts?

I was approached by Law Cash. They were offering 40% of the commission take and had to use their stationery etc. The % is too little and restrictions too severe to make it worth any substantial structured settlement brokers time. Look you dont need to have all the business! Check your ego at the door and work with a smaller group of loyal good quality clients. Do you want your first entre to a law firm to be their or client's glorified "loan shark" or do you want to get in on a great referral for a job well done from a fellow trial lawyer?

Alot of these companies are owned by trial lawyers, one even a disbarred lawyer, who advance money on their pals cases since they can't do so to their own clients. What's interesting is that up here in Buffalo there was a huge firm, formerly Cellino & Barnes which got heavily sanctioned for loans by a related company to a client and now all these other lawyers are participating in it with no recourse through this internecine web.

Tim,

Thats my point exactly. What was once an activity that invited sanctions from the bar or the DA, is now largely ignored, despite the huge growth of these firms. No one is minding the store on this activity, but I can tell you it's a hot topic among trial lawyers in that they realize there is money to be made through creating these finance companies.

And then those lawyers and/or financing cos make big money donations to politicos or judges so the whole system stays greased.

Here's a link to an interesting article that I found on Findlaw about pre-settlement funding in relation to an April 2005 decision in New York Supreme. Does anyone know what if anything has happened since?

http://writ.news.findlaw.com/sebok/20050418.html

John,

Interesting article. I'll check with a couple of my contacts at the legal funding companies to ask what if anything became of this decision. My guess, given the increasing power and prevelence of the funding firms is it was either over turned or still on appeal. I'll look into it but the judges decision in that matter, and his logic regarding usary laws does raise some interesting points.