Frivolous lawsuits may now go to highest bidder

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By ROBERT TRIGAUX

© St. Petersburg Times,
published June 27, 2001

In the law, the only thing certain is the expense.

-- Samuel Butler

A new industry cropping up in Florida boasts Las Vegas roots and gives a new twist to the phrase legalized gambling.

It's called advanced litigation funding, which is a fancy way to say specialized businesses are starting to invest in pending personal injury lawsuits.

Heads! The suit wins and the funding business shares in any financial judgment or settlement.

Tails! The suit loses and the business forfeits any funds it has advanced.

The industry is catching on nationwide and spreading across the Sunshine State. Last week in Orlando, the ethics committee of the Florida Bar Association gave its tentative blessing to litigation funding.

How? By saying it is okay for attorneys to act as matchmakers and help clients obtain advance money from companies that seek a percentage of their legal winnings.

It was the Bar's first official endorsement of the controversial practice. But it surely won't be the Bar's last confrontation with such a bizarre concept as bankrolling a lawsuit based on gaining a stake in a potentially lucrative payoff.

For the Little Guy who is low on dough but has a big reason to sue, the rise of litigation funding could be a dream come true.

Dozens of companies have advanced funds to plaintiffs to cover personal, medical and legal costs while their lawsuits are pending.

In Florida, companies with names like Pan American Funding Corp., Prefund Financial Corp. and Advance Settlement Funding may be only too happy to ante up some upfront money -- if the facts of a personal injury lawsuit look promising and the lender's stake in any potential recovery is big enough.

If the field of the personal injury lawsuit gains access to such funding power, who knows how much fresh litigation could hit the courts?

Amid longstanding complaints about the high volume of frivolous lawsuits, additional litigation financed by third parties could get real ugly, real fast.

Or will we see the same market discipline emerge in funding lawsuits that is already used by America's venture capitalists looking to fund the next start-up company?

What if, in a hypothetical example, Florida-based XYZ Funding Co. announced it had $10-million available to invest in the best 25 personal injury lawsuits it could find? XYZ would schedule a day when all wanna-be plaintiffs could gather and each -- in five minutes or less -- pitch XYZ on the merits (and payback potential) of each proposed lawsuit.

Would lawsuits thus determined least likely to offer a decent payoff to investors end up unfunded and tossed aside?

A zany scenario that once would have inspired a Woody Allen comedy is now nearing legal reality.

Last week's opinion by the Florida Bar's ethics committee, approved 17-14, should give the litigation funding business a credibility boost in the state.

But there are still many questions:

Some lawyers are worried about the potential conflicts and loss of control when clients hook up with funding companies.

What if a lawyer thinks it is best for his client to settle for a certain sum, but the funding company (who gets a percentage of the take) insists on holding out for more? And with another player demanding a piece of any financial judgment or settlement, how much will be left for the plaintiff?

Are litigation funding companies lenders or investors? Some aggressive companies provide advance money at high interest rates (from 7 percent to 20 percent a month) that, on an annual basis, can top 100 percent. If these companies are eventually determined to be lenders charging illegally high rates, they could face civil or criminal enforcement action.

The young litigation funding industry is big on entrepreneurs but still thin on standards.

A school for lawsuit funding, based in Las Vegas, is churning out graduates. The school is run by an industry lender named Perry Walton, a one-time rock musician and mobile home park developer from North Carolina.

According to the New Jersey Law Journal, Walton acknowledged he was convicted three years ago in Nevada of extortionist collection of a debt while running a finance company called Wild West Funding.

"Pretty much everybody who got their start in the industry got it from me," Walton told the Law Journal.

Apparently, this won't be the last time we'll hear about the adventures of the advanced litigation funding business.

Viva, Las Vegas.

- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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