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Help, but the price is steep

By SCOTT BARANCIK, Litigation Nation
Published September 1, 2007

Poor Joe Shmoe.

Ever since a car slammed into his bicycle, he's been unable to work, gotten behind on his mortgage and run up huge medical bills. Settlement talks have gone nowhere, and the driver's insurer knows he's in no position to negotiate. If only someone would give him a loan.

Would you take that bet? Banks won't, but for the right price, companies like Miami-based Fast Funds Inc. or Injury Funds Now of Miami Beach just might. In exchange for high-interest fees or a large chunk of any settlement, these firms wager cash advances on personal-injury plaintiffs and lawyers with promising cases. If a client loses, he repays nothing.

Ever so quietly, financial services companies have become a force in America's courtrooms. Largely unregulated, they fund lawsuits, use annuities to spread settlement payouts over many years, offer advances on settled cases, and buy settlements for cash. The ideas aren't necessarily new. In 1962, for example, the Florida Bar ruled that it would be a conflict of interest for trial lawyers to bankroll needy clients via a not-for-profit loan program.

Do such companies do more good than harm? The jury is still out. Rapid Funds, the trade name for White Plains, N.Y.-based Cybersettle Financial Services LLC, serves a tiny niche: victorious plaintiffs who can't survive the time it takes a defendant to pay. The company says it can cut a check within 24 hours, minus a 6 to 8 percent commission. If the defendant fails to pay, Rapid Funds takes the loss, president Peter Speziale says.

Companies that buy multi-year settlements for cash do a brisk business. Say our imaginary friend Joe Shmoe settles with his opponent's insurance company for $1-million, spread out over 20 years so that he always has enough cash for a home nurse. Five years later, however, doctors discover his young son has a serious illness and treating it won't be cheap. Joe's only option may be to sell the annuity at a deep discount.

Settlement purchasers haven't enjoyed a sterling reputation. "In the mid-1990s, when this practice started, there were a lot of very shady dealings," says Randy Dyer, executive vice president of the National Structured Settlements Trade Association. "People were sort of left to be victimized." Since then, industry leaders like J.G. Wentworth of Bryn Mawr, Pa., have made voluntary reforms, and the industry consented to judicial review. Today, all proposed transfers in Florida must be approved by a judge.

Still, the industry is loath to call its products "loans." Doing so would invite regulation.

So should people seek out lawsuit funding? No doubt, they're in a bind: injured and needy plaintiffs whose "lawsuit is their only asset," as Hillsborough County Circuit Court Judge James Barton puts it. To them, such funding "can be attractive, and in some cases even irresistible."

Still, St. Petersburg lawyer Kent Whittemore won't recommend lawsuit funding to his clients. "The interest rates are extremely high, they continue to accrue, and in many cases it gets to the point where there's not enough money to pay back the loans," he says.

Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

[Last modified August 31, 2007, 22:55:28]