Structuring Attorney Fees vs Accelerating Legal Fees: A Plaintiff’s Attorney Should Understand the Pros and Cons of Each

bronze lady justice holding scales
Plaintiff’s attorneys fight hard in court, and fight even harder to earn a living. Though they can take home a rewarding 30% fee at the end of a case, this is only possible if a favorable settlement, judgement, or verdict has been rendered.

Plaintiff’s attorneys only take home what they win, and if they don’t win, they go home empty handed. The money that they do take home needs to fund current and future cases, keep the law firm afloat, and take care of other important daily expenses. In light of this precarious situation, it is essential that a plaintiff’s attorney understand all of the available options when it comes to handling fees.

Many attorneys take their earned money and reinvest it in their law firm’s operations, and this cycle continues until they retire. Some plaintiff’s attorneys use legal funding to take an advance on the fees they received from one case to springboard themselves into an even bigger case where the anticipated fees are much larger. There are also those attorneys who structure their fees so they get paid in installments instead of taking a lump sum.

All that should matter is whether or not the attorney gets paid, right? Well, it turns out that there are underlying benefits and drawbacks to each of the above methods of compensation.

Structuring Attorney Fees

An attorney who chooses to structure their fees essentially chooses to get an annuity. The largest benefit of structuring fees as an annuity is that the attorney will be allowed to pay a lower tax on the same amount of money. For example, receiving one million dollars all at once might place you in a much higher tax bracket for that year, increasing your taxes, but dividing it up as $125,000 over eight years may result in a lower payment.

One downside of the structured fee is that it occurs on a relatively rigid schedule. While knowing when you might expect your next payment does help with budget planning, this could become difficult in a time where access to capital is slim.

For example, in a situation where the next structured payment is a few months away but the attorney needs more capital to open a new case, pay staff, or perform other operational expenses, a structured fee might be problematic. In order to access the money in the structured fee, the attorney would have to break the agreement with the company that is structuring the fee, which would lead to penalties or further payments.

Another potential issue with structured settlements is that annuities are subject to inflation. This can be avoided if you were to choose an inflation adjusted annuity, but this type of deal is typically more expensive. Similarly, while current interest rates are at the lowest they have ever been, these are expected to rise soon.

If you are interested in structuring your attorney fees, insurance companies and specialized structured settlement companies offer such services.

Accelerating Your Post-Settlement Legal Fees

There are certain instances when a favorable outcome is reached, but due to court approvals, slow-paying defendants, or administrative delays, there is a lag in payment of the attorney’s fee. In such a scenario, an attorney can opt to accelerate a portion of their fee in the form of a post-settlement advance. In the legal finance space, such a transaction is referred to as post-settlement funding.

One potential downfall of post-settlement funding is that finance companies can only accelerate a portion of the attorney’s fee. The funding company will underwrite the advance for longer than the anticipated payment delay in case there are further unforeseen postponements. In addition, the funding company has to make a profit.

There is a lower risk of inflation with post-settlement funding because there is no scheduled payout. Knowing that the value of an accelerated fee will not change over time – and thus, the repayment rates will remain stable – is a huge benefit.

Many legal finance firms offer post-settlement funding in addition to other types of legal financing-such as pre-settlement funding, case-cost finance, and attorney lines of credit-but in different capacities. Some companies offer smaller advances with a short delay in payout. Others will only advance on larger fees or when there is a relatively long anticipated payment delay. If you think post-settlement funding makes sense for your practice, do your due diligence to find the company that best meets your specific needs.

Photo Credit: Golden Lady Justice, Bruges, Belgium by Emmanuel Huybrechts


 

Written by Joseph Genovesi, President of RD Legal Funding. Founded in 1998, RD Legal is one of the few companies that focuses exclusively on post-settlement financing. Their proprietary Fee Acceleration program provides contingency fee attorneys with advances that range from $20,000 to $20 million on virtually any type of case.

Legal Funding, Litigation Financing, and Lawsuit Lending: What’s The Difference?

money plantThere is no difference! According to Wikipedia, legal financing is “the mechanism or process through which litigants (and even law firms) can finance their litigation or other legal costs through a third party funding company.” The terms are interchangeable to the general public like lawyer and attorney.

Since the industry has been around since the 1990s, the way people refer to the industry has changed. So with time, the terms that describe the space have blended together.

The legal finance industry is broad and consists of many different facets, which are associated with the different stages of litigation. Different types of funding include pre and post-settlement funding, case-cost financing, appeal funding, verdict funding, and judgment funding. Although these different types of legal finance have their own definitions and unique properties, as far as the general public’s perception is concerned, they fall under the umbrella of terms such as litigation financing and lawsuit lending.

A Google search for “lawsuit financing” supports this point, as illustrated in the “Searches Related To” section at the bottom of the search results:

searches related to lawsuit financing

Furthermore, many companies advertise on the internet and traditional media outlets such as radio and television. When the general public is exposed to such advertising or thinks of the industry, they conceptualize what they hear or see, which for most people equates to “money for lawsuits.”

Most importantly, the general public may not realize that if they choose to accept lawsuit funding (assuming that it’s plaintiff pre-settlement funding), it is almost always NOT a loan, rather a non-recourse advance. This means that the plaintiff is not liable to repay the advance should the litigation result in an unfavorable outcome, so the funding company doesn’t get paid.

A loan entails monthly payments. There are no monthly payments associated with a lawsuit advance, which is only paid back if and when there is a settlement or judgment. Even though many legal finance companies use “loan” and “lending” to describe their financial products, such terminology is a misnomer.

The numerous phrases used to describe the legal funding industry can cause confusion due to the pervasiveness of the terminology. It is therefore important to know what kind of funding is appropriate for your specific situation before accepting an offer.

To learn more about the legal funding industry, please read our whitepaper entitled Legal Funding 101. To download the whitepaper, please visit http://ssrn.com/abstract=2387027.

Photo Credit: Money by Aaron Patterson


Written by Lulaine Compere

A U.S. Lobby Against Litigation Funding In The Netherlands?

netherlands flag
This is a guest post courtesy of Sara Liesker, CEO of Dutch-based litigation funder Liesker Legal NV. For updates pertaining to litigation funding in The Netherlands, please follow Ms. Liesker on Twitter.

You’d be surprised how many people have never heard of The Netherlands. I’ve had the joy of meeting quite a lot of people from all over the world, many of whom believed either of the following to be true:

  • It’s a part of Germany (hence the word “Dutch” for the native language);
  • It’s a Scandinavian city;
  • It’s some sort of food or beverage.

Well, it’s actually one of the smallest countries in Europe, neighbour to both the UK and Germany, with its capital Amsterdam speaking to the imagination of many (with a well-deserved reputation I might add). A common joke (and historical fact!) is that the Dutch discovered the continent currently known as North America, chose to exchange it around the year 1660 AC for some tropical islands in the south (Curaçao, Suriname etc.) and thus did not exactly get the best part of the bargain. . . . How many of you know for instance that New York was formerly called New Amsterdam (and Wall Street is derived from the Dutch word “wal” which means “embankment”)!

Anyway, why would an insignificant dot on the global map be of any interest at all to the American Chamber of Commerce (COC)? More specifically: why would the COC conduct a fierce political lobby in The Netherlands, when there is currently only one company in this country active in the field of litigation funding (source)?

The answer is quite obvious. The Netherlands has a very friendly tax climate and has thus attracted many American companies to open up a holding company under Dutch law. Thus these companies have also made themselves subject to lawsuits being filed against them in The Netherlands with the applicability of Dutch law.

Dutch law knows a relatively new regime (known as WCAM) which makes mass claims easier for plaintiffs, with a major consumer-bonus that it’s based on an opt-out regime. On the downside, the WCAM grants companies being sued an early option to either participate in the mass claim settlement or not. The fact that WCAM is based on an opt-out regime makes it quite unattractive for litigation funders anyway because of the so called free-riders. The COC is nonetheless concerned about the WCAM.

The second eyesore for the COC is the upcoming possibility under Dutch law to set up actions for collective redress. This will take away the opt-out option for the defendant. As contingency fees are prohibited for lawyers under Dutch law, litigation funding could be important to provide access to justice for consumers. Improvement of the access to justice is one of the underlying motivations for this law. Fortunately a number of established Dutch law firms have advocated in favour of litigation funding in the consultation on the draft legislation.

One of the main arguments of the COC is the warning that The Netherlands should not embark on the path of “claim culture” that the USA currently knows. It is too far-fetched and actually a sophism (of the slippery slope) to use that argument. Dutch law and culture are based on the assumption that principal damages are for your own risk and account. Dutch people are known for their tolerance and conciseness, Dutch judges are known for their prudence when awarding damages. With a national market for litigation funding just beginning to develop, it would be best to let the market grow and filter on its own merits. The same has happened in Germany where litigation funding is unregulated and has been commonly used for almost two decades (source).

Under the pretext of protecting consumer interests (of Dutch residents nonetheless) it is quite transparent that it’s actually the interest of the multinationals that is being served by opposing to litigation funding in one of the smallest countries in the world on the other side of the Atlantic.

Although Dutch people showed some poor judgment in the 1600´s, we have grown infinitely wiser since. These days Dutch politicians can be trusted to draft their own laws.

Photo Credit: Bandera de los Países Bajos by Contando Estrelas

About Liesker Legal:

Liesker Legal NV is a privately owned litigation funder in The Netherlands, funded with private equity. They are the only Dutch-based funder, although international funders do finance some larger cases in The Netherlands. LL was founded in 2011 and currently has over 100 cases under investment mainly funding SME’s, with a claim total of over $140 million. For more information about the firm, please visit http://lieskerlegal.nl.

9 Mind Boggling Facts about Law Firm Websites

dog searching the web
If you’re an attorney looking to generate new clients, you need to get in front of your target audience. That’s of course a pretty obvious statement. That being said, more and more people are looking for solutions to their problems online, via channels such as Google search, Facebook, and Twitter. So having a professional website for your firm is a no brainer. Or is it?

According to an infographic published by Rocket Matter, almost 40% of small law firms don’t have websites-nothing, nada, zilch! That is a shocking number, considering the power of online marketing for lead generation, customer acquisition, and branding. Also of interest is the fact that more than 35% of people looking for an attorney start their search online.

However, just publishing a website online doesn’t ensure that prospects will flock to your law firm. There are some basic web development best practices that must be implemented in order to maximize traffic, lead, and client acquisition. We’re going to discuss three such best practices, and using the stats provided by the Rocket Matter infographic, see how many law firm websites are in compliance.

Best Practice #1: Have calls to action throughout your website

Unfortunately, 70% of law firm websites do not have a call to action (CTA) on their homepage. This is a shame, as your homepage is generally by far your most trafficked page on your website. CTA’s are extremely important, as they convert your prospects into leads. Examples of CTA’s include a “Contact us for a free consultation” submission form, asking visitors to download your whitepaper in exchange for their contact information, or even something as simple as saying “Call Now to talk with an experienced personal injury attorney” (and of course provide your phone number).

Listing your phone number on your website sounds obvious, but 27% of attorney websites don’t have a phone number on their homepage! The best place to have your phone number is prominently displayed in the upper right hand corner of your website-and not just on your homepage, but every page on your domain. This way, prospects can easily contact you if they have any questions. Phone leads generally convert better than form submission or email leads. So make sure your phone number is prominently displayed on all pages of your website!

Along similar lines, 68% of lawyer websites don’t provide an email address on their homepage. To me, this is unbelievable. The legal market is very competitive, as you’re well aware. So it’s crucial to make it as easy as possible for those browsing your site to contact you. Some people prefer email to phone, so by all means, include your email address on not only your homepage and contact page, but on every inner page of your website.

Best Practice #2: Have well written and organized content that is updated on a regular basis

You’ll be surprised how many law firm websites haven’t been updated at all in years. In fact, referring back to those infographic stats:

  • Only 35% of law firm websites have been updated within the past three years.
  • Only 3% of law firm websites provide personalized content.
  • Only 53% of attorney websites have organized site content.

If your website design looks stale and out of date, it most likely provides a poor user experience. It probably is not mobile optimized (we’ll go over this in more detail in a couple of minutes) and comes across as unprofessional. If a prospect comes across a questionable looking website, they’ll likely leave and continue their search elsewhere.

That being said, having a sleek, professionally designed website is important, but it’s only one component of establishing an effective online presence. You can have the most beautiful website in the world, but if it doesn’t generate any traffic, it serves absolutely no purpose.

Page load speed is extremely important. Your site should be coded efficiently so it loads fast (Google takes page load speed into account in their search algorithm). People are impatient and expect sites to load quickly. If yours doesn’t, they’re not going to wait around. They’ll go elsewhere.

Along the same lines, a slow loading website can really kill conversions: a one second delay in page load time can decrease your website’s conversion rate by up to 7%. To see how quickly your site loads along with suggestions on how you can make improvements, visit http://tools.pingdom.com. Ideally, you want your site to load in 2 seconds or less.

Content, which includes text, images, and videos, is the most important part of your website and online presence in general. It describes your firm’s solutions and values. Good content, that is well organized and personalized, will convert visitors into leads. However the majority of websites lack quality content. Your website should empathize with your prospects while providing them with value. A value driven, educational approach is much more effective than a hard sales pitch. After all, people are on the internet to find solutions to their problems.

In terms of search engine optimization (SEO), sites that add fresh content on a consistent basis tend to rank better than static websites. The best way to update your website with new content on a regular basis is to have a blog. This can easily be done with WordPress. Adding content via the WordPress platform, once you get the hang of it, is about as difficult as using Microsoft Word. Make sure that the blog is on your main domain (ex: yourlawfirmsite.com/blog/). This will improve your site’s overall SEO and provide a better user experience, assuming your content provides value.

On-site optimization is an easy win, but often overlooked. This includes having unique and descriptive title tags and meta descriptions on each page of your website, incorporating your main keywords throughout your content (where appropriate), and having proper internal linking that logically directs a visitor through your site in such a way that they can easily consume and understand your content.

Best Practice #3: Make sure your website is mobile optimized

This is so incredibly important, yet only 1 out of 3 law firm websites are optimized for mobile. Sites that aren’t mobile optimized are difficult to read and navigate, providing a poor user experience. Not only that, but as of April 21st, 2015, Google is taking mobile optimization into account in their ranking algorithm (so if your site isn’t mobile optimized, expect it to rank lower on mobile search).

To see how your law firm’s site looks on various mobile devices, visit http://mobiletest.me. If your website uses adaptive design, it probably won’t display correctly with this tool. Another option for a mobile preview of your site is Google’s Mobile Friendly Test, which provides a screenshot of your website as Googlebot sees it (please refer to the below image, which shows how www.legalfunding.com appears on a smartphone).

Hopefully, you are greeted with “Awesome! This page is mobile-friendly.” However, if you get a red “Not mobile-friendly” message, click on Pagespeed Insights for details on what elements need to be fixed and instructions explaining how to fix them (relay this information to your web developer).

Google Mobile-Friendly Test Screenshot for www.legalfunding.com

 

There are a few ways to ensure your site is mobile friendly. You can have a mobile only version of your site (such as m.yourlawfirmsite.com). This works well for some businesses, but you have a separate website that must be updated independently of your main site (which can be very time consuming, depending on the size of your site).

The other options are utilizing responsive or adaptive design. Both of these design types are coded in a way so that your website adjusts according to the screen size of various devices. If done properly, your site will look good on all devices-desktop, tablet, and mobile. Plus all your content is on the same url, so when you update your website, you only have to do it once (for a detailed explanation of the technical differences between responsive and adaptive design, read this article).

I personally prefer responsive design to adaptive. Most newer WordPress themes incorporate responsive design, so it’s relatively easy and cheap to have a web development firm customize a mobile responsive WordPress theme. If you’re doing a complete redesign, I’d recommend building your site with WordPress, using Genesis framework by StudioPress. This provides a clean, light weight framework for your theme, which will improve page load times.

In early 2014, mobile traffic surpassed desktop traffic. This trend is only increasing, so if your site isn’t mobile optimized, now is the time to get it done. This will not only provide a better user experience, but will preserve or increase your rankings in the search results. Plus mobile generated leads often have a higher conversion rate compared to desktop, as people frequently use their smart phones to search for a fast solution to a problem.

The fact that so many law firms have less than stellar online presences is shocking. However, this provides you with an opportunity to digitally dominate your niche. The above best practices may sound complicated, but for any competent digital marketer, these strategies are easy and relatively inexpensive to implement.

Photo Credit: Image by Konrad Förstner


Written by David Smethie, Senior Analyst, Origination at RD Legal Funding, LLC. You can connect with him on LinkedIn, Twitter, and Google+.

$5 Million GM Defective Ignition Switch Settlement

General Motors has settled with the family of Brooke Melton, a 29 year old nurse from Georgia who died due to a defective ignition switch in her 2005 Cobalt. Her parents accepted an undisclosed amount from GM’s compensation fund, in addition to $5 million that GM paid the family to settle a prior lawsuit.

Melton’s death played a pivotal role in triggering widespread ignition switch recalls. In early 2014, after concluding that millions of older vehicles contained faulty switches, GM began launching recalls.

According to Lance Cooper, the family’s attorney:

“The Meltons’ work is done,” . . . the parents, Ken and Beth Melton, were “emotionally exhausted” and felt satisfied that GM acknowledged through a payout from its compensation fund that their daughter’s death was caused by the faulty ignition switch (source: wsj.com).

Several of the victims’ families have received payouts from the GM compensation fund. The fund’s administrator, Kenneth Feinberg, is known for his work with compensation funds setup for BP, 9/11, and the Boston marathon bombing.

While this specific case was resolved, there are several GM ignition switch related class action and state lawsuits slated to begin this upcoming May.

After a contentious hearing on Capitol Hill, the company set aside between $400 and $600 million to payout the claims. To date, GM has reportedly paid out 67 death claims filed against the fund.

To read the full article on The Wall Street Journal website, visit http://www.wsj.com/articles/family-of-gm-ignition-switch-victim-settles-for-more-than-5-million-1426529612.


Written by Lulaine Compere

Delaware Court Protects Litigation Funding Under Work Product Doctrine

small court of law
An international discovery dispute has led to the Delaware Court of Chancery to accept litigation funding as part of the litigation process. Despite the fact that none of the other issues in the dispute were resolved, Vice Chancellor Donald F. Parsons made the unprecedented decision to protect litigation funding.

It’s a happy ending for the litigation funding industry, but how did we get there?

The case had three main players, participating in two simultaneous lawsuits: the Carlyle Capital Corporation (CCC), of the Bailiwick of Guernsey; the Liquidators of the CCC (Liquidators), also of Guernsey; and Louis JKJ Reijtenbagh, of Delaware.

CCC had lost the majority of its capital in the financial crisis, and in March 2008 was placed into Liquidation. The Liquidators, responsible for wrapping up the affairs of CCC, determined that the only valuable assets that CCC had were any claims against the business. As such, in the first litigation – also referred to as the Guernsey litigation – the Liquidators are the plaintiffs, CCC the defendants.

On the other side of the sea, CCC are in a legal battle with Louis JKJ Reijtenbach (Defendants), former stakeholders of CCC. The Defendants allegedly violated certain releases held between CCC and himself by offering litigation financing to the Liquidators.

CCC claimed that, in order to pursue their case against the Defendants, they needed to see the litigation funding documents signed between the Liquidators and the Defendants. Here, the Liquidators intervened.

The Liquidators asserted that if they were to provide the requested documents as discovery materials, the Guernsey litigation would be impacted. They claimed that the information was privileged and was protected by attorney privilege (English law), or work product privilege (American law).

After determining that there was no precedent for this matter in English law, which mainly dominates in the Bailiwick of Guernsey, VC Pastor was set to answer the following question: are litigation funding documents protected by work product privilege?

Work product privilege is determined by applying the problem at hand to one of following questions:

  1. Was the product created because of litigation?
  2. Was the product created explicitly for litigation?

Delaware courts prefer to use the broader method of determining work product privilege, or the “because of” method. This method allows that a document may have been created for more than a single purpose – for example, in the case of the litigation funding documents in question, a document may serve both a business purpose and a litigation purpose.

As Pastor expressed in his opinion,

“In the litigation funding context, this analysis becomes blurry because the litigation itself arguably is part of the business. Potentially every document a third-party litigation funding company creates is created “because of litigation” in that the company is in the business of funding litigation.”

With this in mind, Pastor recognized that litigation funding is both a business transaction and a litigation transaction. In order to demonstrate to a litigation funder that a case is worth financing, the litigator must discuss certain aspects of the case with the funder.

“The negotiations between those two parties almost certainly would involve the ‘lawyers mental impressions, theories, and strategies about’ the case, which ‘were only prepared because of’ the litigation.”

By this train of thought, Pastor determined that litigation funding documents are protected by work product privilege, because they were prepared in preparation for or in anticipation of litigation, and that they also most likely contained discussions of the merits of the Guernsey case.

While this is good for the Liquidators, who do not have to jeopardize their ongoing litigation for the purpose of a different case, it’s even better news for the litigation finance industry.

Legal funding is not a loan or a hand out — it’s a financial transaction specifically tailored to the needs of attorneys, crafted by the legal funding firm after careful examination of an attorney’s case history and current case files. Every funding agreement is unique to its case and its attorney.

By applying work product protection to litigation funding, VC Pastor has acknowledged that litigation finance is a very real part of the litigation process for many attorneys. As Pastor himself noted,

“In those instances where a claim cannot proceed without third-party financing, one element of preparing a client’s case for trial will be securing the requisite funding, which probably will require discussions of a case’s merits in an effort to convince the third party to supply the needed funds. No persuasive reason has been advanced in this case why litigations should lose work product protection simply because they lack the financial means to press their claims on their own dime.”

I couldn’t have said it better.

Photo Credit: Image by Tracie Hall


Joseph Genovesi is President of RD Legal Funding, LLC, a leading provider of post-settlement attorney advances. You can connect with him on LinkedIn, Twitter, and Google+.

The Ups and Downs of Self Financing Your Law Practice

finance magnets
Out of the many forms of traditional financing out there, self-financing sounds like the most ideal. It’s just you, yourself, and your money, independently making your law practice run like a dream.

If you were to self-finance your law practice, you’d be using your own capital. This means that you might have to convert some of your assets into a liquid form. For example, if you were the owner of a collection of antique porcelain dolls, you may want to sell them at a high price, and combine that high value with money from your savings accounts in order to finance your practice.

Unlike all of the other financing options, this type of investment only requires the input of a single individual (or multiple individuals, if multiple partners contribute their own capital to finance the law practice). It doesn’t get the bank involved, it doesn’t require any interest payment, and there’s no reason to deal with investors. And, of course, you will never have to pay late fees!

However, as with all types of financing, there are a few disadvantages.

The first – and potentially largest – downside is the lost opportunity cost. Because you’ve invested all of your personal capital in one project, it’s literally impossible for you to put it anywhere else.

This also means that you can’t invest it in securities and potentially gain interest — in fact, the capital you invested in your firm may actually lose value due to inflation.

Of course, just because all of your capital is in a single place does not mean all of your capital is in a bad place. You very well may see a high return on your capital; this all depends on how you invest it. The same principle would apply if you were investing your own money or if you were investing a loan.

Investing your own capital in your law practice has its risks and it has its rewards. Certainly, this practice is not for everyone; and as with all types of funding for law firms, self-financing can be used in addition to other forms of law firm funding.

To learn more about financing options for your law practice, take a look at Legal Funding 101, our definitive guide to law firm funding practices for attorneys.

Photo Credit: Image by Rental Realities


Shayna Keyles has been keeping the world informed on the latest legal finance with RD Legal Funding, LLC since 2012. She offers writing and content marketing tips at her website, www.contentliaison.com, and tweets at twitter.com/skliaison.

3 Myths About Legal Funding

lady justice holding scales of justice
If you were to stop a random pedestrian and ask them about legal funding, you likely wouldn’t find out much relevant information.

This is because legal funding is such a new industry, and many people are unsure of what it actually is, or have a somewhat distorted idea.

Listed below are the three most common myths about legal funding, and rebuttals to each of the myths.

Next time you’re stopped on the street and asked about legal funding (I’m sure it happens to you all the time!), you’ll be able to give an accurate and informed answer!

Myth #1: Legal funding exploits plaintiffs

This is perhaps the biggest myth about legal funding, and it’s absolutely the most inaccurate statement.

Legal funding does not exploit plaintiffs. It empowers them.

Many plaintiffs who enter litigation have taken a very calculated risk. They know that litigation is expensive, and they know that lawsuits can take a long time to reach completion. Nonetheless, plaintiffs are willing to put time on the line to fight for their rights.

During this time period, plaintiffs may accumulate fees and debts related to their litigation. For example, a personal injury plaintiff may see a mounting pile of hospital bills; a medical malpractice plaintiff may receive endless phone calls from insurance companies. On top of these associated costs, plaintiffs are still acutely aware of their daily expenses and future legal fees.

Legal funding allows these plaintiffs immediate relief in the form of a cash advance.

With this money, a portion of the future expected settlement (the industry terminology for this specific type of legal finance is pre-settlement funding), plaintiffs can live a less stressful life. Moreover, they will not be burdened by the pressure of loan repayment.

This last point brings us to our next myth…

Myth #2: Legal funding is a loan

Legal funding may possess some loan-like features, but that does not make it a loan.

For example, through legal funding, plaintiffs and attorneys can access large sums of capital that can be used immediately to better their daily lives. A loan can provide a similar benefit.
However, much unlike a loan, the money that legal funding companies grant to plaintiffs and attorneys comes directly from future fee or settlement proceeds.

To put things more simply:

An attorney who receives legal funding will receive a cash advance on a portion of their future fee.

A plaintiff who receives legal funding will receive a cash advance on a portion of their future award.

Plaintiffs and attorneys who receive legal funding are receiving cash advances on their own future earnings.

In other words, a portion of the settlement, or attorney’s fee, is purchased by the legal funding company and paid in advance to the recipient of legal funding.

Because legal funding companies accept a greater risk than traditional lenders do, their fees are generally higher compared to traditional lenders. Many legal funding companies offer non-recourse advances; meaning that if a settlement does not pay out for some unforeseen reason, the funding company will accept full responsibility and repayment is unnecessary.

So, as you can see, though there are some similarities between loans and legal funding, there are also a great many differences.

This leaves us with one last myth…

Myth #3: Legal funding is actually…kind of illegal

Many critics to legal funding believe that the industry promotes champerty and maintenance. These (literally) medieval legal concepts make it illegal for non-lawyer parties to be in the courtroom or otherwise influence litigation. By this principle, the argument goes, legal funding should be considered illegal.

Of course, if courtrooms were to fully obey the rules of champerty and maintenance, many other parties would be forbidden from influencing litigation.

For example, insurance companies often cover the costs of certain defense cases; this would no longer be permitted. Friends and family often chip in to help pay for counsel; this would also be forbidden. Only the wealthiest potential litigants would be able to use the legal system, which would completely go against this country’s principles.

 

To avoid illegal and unethical actions in the land of legal funding, many states have passed independent measures to regulate the industry. Moreover, many legal funding firms have united to create ALFA, the American Legal Funding Association. The goal of this organization is to set an industry standard, and guarantee fair and ethical practices across the board.

Now you know the truth about legal funding!

But there’s always more to learn.

Check out our white paper on legal funding to get the full scoop on the industry – different types of funding, when to use them, and how they might be right for you.

If you thought this post was helpful or have any other myths you want to talk about, leave a message in the comments below!

Photo Credit: Themis by Rae Allen


Shayna Keyles has been keeping the world informed on the latest in legal finance with RD Legal Funding, LLC since 2012. She offers writing and content marketing tips at her website, www.contentliaison.com, and tweets at twitter.com/skliaison.

How Legal Funding Can Save You Time and Make You Money

lady justice
A contingency fee attorney does not lead an easy life. This is a fact.

Unlike their billable hour counterparts, contingency fee attorneys don’t start off with plenty of cash, and there’s no guarantee they’ll end up with it either. That’s the whole basis of the term “contingency” – this noble, self-sacrificing purveyor of justice forgoes any form of payment unless the case in question ends favorably for the client.

Of course, a favorable trial outcome does not ensure payment. As with all institutions, the court system is rife with built-in bureaucratic processes, many of which result in procedural delays and stoppages. These stoppages can have profound effects on settlement and verdict payouts, causing delays of a few months to a few years.

Let’s not forget the enumerable hours of discovery and preparation that occur before verdict or settlement can even be considered; the witnesses and experts that all must be consulted; travel and lodging and all other assorted tasks associated with setting up a successful case. All of these things must be budgeted and paid for by none other than the attorney or her small firm.

And let’s keep in mind that an attorney without proper funds has to waste time trying to acquire a stable cash flow, when that time could be spent preparing for the next big case.

You might say it’s a lifestyle of “all work, no pay.”

You might, but the truth is, plenty of contingency fee attorneys are doing just fine. They have lucrative practices in which they represent – and win for – countless clients each year, and they do so without taking a break and without breaking the bank.

What keeps these successful attorneys afloat?

The Secret of The Super-Attorney

All successful attorneys recognize one simple fact: in order to make money, you need to have money. This one sounds like a no-brainer, right?

Consider the example we looked at earlier:

  • Contingency fee attorneys need to invest in discovery tools, travel expenses, and day-to-day finances in order to try a single case.
  • Those expenses can add up to the thousands or ten thousands.
  • This case may not see a full return on investment.

Now imagine how many cases a contingency fee firm might try within a month, or a year, or a decade. The dollars add up.

So we know that running a successful legal practice requires money. But where does this money come from? Well, that depends on where you look.

The easiest solution is relatively rare for your average attorney: this would be a large, personal cash reserve. If a single case doesn’t pan out, not all hope is lost, because the bank is still relatively full, and hopefully the next case will bring in the bucks. Sounds good!

Of course, not all attorneys necessarily hit it big on Wall Street or in Vegas (or otherwise experience some remarkable bank-filling event) prior to opening a law practice.

What about the super-attorneys with average bank accounts? How do they maintain a steady cash flow?

One option here would be pursuing some sort of traditional funding, such as a loan or a line of credit. Both of these options, the former of which is granted in a single lump sum and the latter of which can be paid out in installments over a prescribed amount of time, are available through banks and lending institutions. Interest can vary depending on the loan amount and the agreed upon repayment schedule, as to be expected in any lending agreement. There’s nothing not to like about this arrangement.

Except for the fact that it is incredibly difficult for an attorney to be approved for a traditional loan or a line of credit.

Credit lines and personal loans typically require some form of collateral in order to be considered secure, which can pose a problem for many attorneys. Collateral, as accepted by most banks and lending institutions, is a physical piece of property – a car, a house, a 4,000-year-old diamond from Peru.

Contingency fee attorneys, many of whom are already strapped for cash, often do not own forms of collateral that would be accepted by a bank. For example, while an office could be used as collateral, many contingency fee attorneys share or rent office space, which would disqualify that office as collateral.

Without collateral, it’s nearly impossible to secure a loan.

Fortunately, there’s more to life than loans.

A Case Full Of Cash

Attorneys may not have the physical collateral needed for loans or lines of credit, but they do have a unique form of collateral that can grant them access to a super-unique, super-effective form of financing – legal funding – that was specifically designed for attorneys.

Unlike most other business owners, attorneys have the ability to use their legal receivables, all of which have potential future value, as non-physical collateral. This means that a single specific case, an entire caseload, or the value of an entire law firm can be considered collateral.

For example: a bicycle accident case might have an expected payout of $1.3 million in damages; a medical malpractice class action might have an expected payout of $400 million; a slip and fall might have an expected payout of $580,000. The expected value of each case, or an entire grouping of cases, is viewed as collateral.

Because an attorney’s collateral, in the form of legal receivables, can exist in a variety of forms, legal funding has also been developed to exist in a variety of forms.

For example, a lawsuit can have five or more identities.

  • Early, research-and-discovery form;
  • During prosecution;
  • After a settlement agreement has been reached;
  • During an appeals process;
  • After a judgment has been reached.

Each of these different iterations of a case can be financed with a different type of legal funding, none of which require physical collateral.

The fact that legal funding firms accept legal receivables as collateral sets them apart from traditional lenders. That’s a pretty big deal for attorneys, who often struggle to meet the harsh standards of banks and lending institutions.

Many Legal Funding Transactions are Advances, Not Loans

To put it in the most basic terms, legal funding is simply the factoring of legal receivables. Legal finance firms take the collateral into account – the legal receivables – and purchase an amount of the projected case outcome, which for the attorney typically means the projected case fee. The legal funding firm can then advance this purchased amount to the attorney in question.

Repayment rates vary based on whether the funding is pre-settlement, post-settlement, appeals, or judgment / verdict.

To clarify the concept, legal funding firms make an investment in legal cases. They do this by purchasing a portion of projected earnings of the firm or case, and advance this portion – now owned by the legal funding firm – back to the attorney or law firm. Successful cases result in a monetary gain for both the attorney and the legal funding firm. Often, legal funding firms do not demand repayment in the event of an unsuccessful case.

So let’s say you’ve just settled a case for $6 million but don’t expect to see your fees for another year due to processing delays. You figure you might as well try out this legal funding thing and see what happens.

  • Using a type of post-settlement funding called fee acceleration, you receive a portion of your fee up-front.
  • You have the capital to invest in a new case that just came across your desk (without the advance, you’d have had to pass it up).
  • You have no worries about everyday life. Your advance allows you to continue paying your bills, your mortgage, and your office fees.
  • As expected, your fee is paid about a year later. Because you only sold a portion of your fee to the legal funding firm, the rest of the fee is all yours, except for the amount you use to pay off the discount rate of the advance.

As a refresher, traditional lenders dish out a lump sum or series of payments over a period of time and then ask for repayment with interest at a later date. These lenders require physical collateral, which makes a successful loan application difficult for many contingency fee attorneys.

That’s Why Funding Is Fundamental!

Now you know the real secret to the super-attorney’s success. A constant cash flow means that there’s plenty of time to get everything done, and legal funding is a great way to ensure a constant cash flow.

Have a super legal funding success story to share? We love to hear those! Leave a note in the comments!

Photo Credit: Figures of Justice by Scott Robinson


Shayna Keyles has been keeping the world informed on the latest in law and litigation finance with RD Legal Funding, LLC since 2012. She offers writing and content marketing tips at her website, http://www.contentliaison.com, and tweets at http://twitter.com/skliaison.

WECLAIM: Mass Litigation at Hand

weclaim

In 2014, the French mass litigation landscape changed radically with the “Hamon Law,” which was passed by the French Parliament on March 17th, 2014. Prior to that, the European Commission published a non-binding recommendation (http://europa.eu/rapid/press-release_MEMO-13-531_en.htm) on June 11th, 2013, indicating that all EU Member States should, within two years, adopt mechanisms for “collective redress” which allow multiple claimants to seek damages or injunctive relief on a collective basis or through a representative claimant.

The bill granted 16 government-approved consumer associations with the monopoly to introduce legal action on behalf of an unlimited number of consumers.

Unfortunately, this bill hasn’t established an efficient system for the following reasons:

  • A narrow scope (issues related to health and the environment are excluded)
  • Unlike class actions in the US which provide for an “opt-out” procedure, class actions in France are based only on an “opt-in” system
  • The government-approved consumer associations have limited human, financial, and technology resources
  • A complex four step procedure

The Lift of the Client Solicitation Ban for Attorneys: An Opportunity

Ironically, article 13 of the Hammon Law also transposed a specific provision from another EU Directive (the Services Directive or Directive Bolkenstein), published on December 12th, 2006, which provides that lawyers should be allowed to advertise. The lift of the solicitation ban was an opportunity that we decided to seize, in order to transform the inefficient opt-in regime to an efficient one.

Weclaim was born on the idea that despite the lack of a proper opt-out regime, we could still build a market alternative to run class actions effectively. We created a web platform that combines technology, straightforward and intuitive business services, cloud solutions, litigation financing, automated claim procedures, and the latest in IT services that enables victims to join a lawsuit launched by attorneys.

Litigation Funding is Key to Success

Why is litigation finance key to the success of Weclaim? Since French attorneys (and most Europeans) are prohibited from running a case on a contingency basis, legal fees would have been a strong deterrent to claimants.

How Does it Work?

Any lawyers across Europe or the world can now submit a class action proposal by visiting https://www.weclaim.com. We run due diligence of the proposed class action and fund it if the case is viable (strong legal merits and defendant creditworthiness). Once a claim is launched and funded, claimants have the opportunity to join online.

Weclaim’s Remuneration

Weclaim is working on a no win, no fee basis. If the claimant does not get paid, we don’t get paid either. Assuming a favorable outcome, we take a percentage of the damages awarded. We have the ambition to make justice as swift and efficient as possible across the globe.


The above is a guest post courtesy of Frédéric Pelouze, founder of Weclaim. Mr. Pelouze also co-founded Alter Litigation, the first French legal funding company.