Third Party Litigation Financing---Public Policy Aspects

2. Third Party Litigation Financing---Public Policy Aspects CONFERENCE OF WESTERN ATTORNEYS GENERAL Gail Markels Executive Director American Legal Finance Association Gail.Markels@Americanlegalfin.com

3. Also Referred to as: • Consumer Legal Funding (CLF) • Pre-Settlement Funding • Civil Litigation Funding • Alternative Legal Funding (ALF) • Three Types of Litigation Funding • Consumer • Funds Life needs • Non-Recourse Transaction • ALFA funds CLF • Attorney—Loans to law firms • Commercial—Provides capital to corporate law departments or law firms Third Party Litigation Financing

4. What is the American Legal Finance Association (ALFA) • ALFA, was established in 2004 , and represents companies that provide Consumer Legal Funding, “CLF.” • 1n 2005, NY Attorney General Spitzer investigated one CLF, after a staffer saw a subway ad and found NO improprieties in the CLF transaction. • ALFA working in conjunction with AG Spitzer, voluntarily entered an “Assurance of Discontinuance” and developed a set of Best Practices.

5. What is the American Legal Finance Association (ALFA) • The Assurance of Discontinuance provides for notice, disclosure and transparency of contract terms. • Notice and disclosure of contract terms • Itemization of fees • Total amount to be funded • Percentage rate of return, annualized • Total amount to be repaid every 6 months for 36 months • 5 Business Day Right of Recission • Attorney Acknowledgment on the funding • Contract must be completely filled out • Consumer knows the terms of the CLF when they enter the agreement

6. ALFA Self Regulation • ALFA Best Practices Augment NY AG Agreement • BP require written acknowledgment of consumer’s attorney • BP prohibit Interfering with underlying litigation • BP prohibit intentionally overfunding case • BP prohibit false or misleading advertising • BP prohibit referral fees between attorneys or medical providers • BP prohibit acquiring an interest in the case

7. Who Uses Consumer Legal Funding • ALFA Member Companies Provide CLF to: • Individuals with PI case & counsel, who cannot pay bills • Consumer Legal Funding is used for life needs • Foreclosure 78.26% • Food 9.61% • Car Payments 6.72% • Child Support 3.52% • Credit Card 1.09% • Tuition .80% • CLF allow plaintiffs to get a fair & equitable settlement • Without CLF, consumer may be forced, due to financial pressures, to take a less than an equitable settlement

8. CLF Allows Consumer To Get A Fair Settlement • Case valued at $100,000.00 • Without Consumer Legal Funding • Settles for $50k within 6 months • Lawyer:             $16,666 • Client:               $33,334 • With Consumer Legal Funding at 3% and $350 fees  • Settles for $100k after 1 year  • Lawyer:             $33,333 • Client:               $61,887 • Funding Co.:      $ 4,780 • CLF allows consumer to get a fair settlement

9. How Does Consumer Legal Funding Work • Consumer Legal funding is Non-Recourse • If the consumer loses their case, or if there is not enough to pay back the CLF Company, consumer owes nothing, unlike a loan which must be repaid. • CLF is inherently risky, just like the court case itself. • While the numbers may vary by company, 12% to 20% of funded cases are lost or settle for substantially less than expected. • When a case settles for less than anticipated, adjustments are made, by the CLF Company, so a case can be resolved. • Losses and adjustments combined with the cost of capital and administrative costs result in fees that are higher than rates associated with traditional loans.

10. How Does Consumer Legal Funding Work • 10% Rule—Do not provide more than 10% of the estimated value of case at the time of funding • Plaintiff is represented by counsel and has a bona fide PI case • CLF helps working people, who live paycheck to paycheck pay their bills, when they are unable to work, due to an accident • Banks, lines of credit and credit cards are not usually available to these consumers • Asset has unknown outcome • Asset had uncertain maturity • Asset has no collateral other than the future value of the case, which may not be successful

11. What Consumer Legal Funding Does Not Do • Does not promote frivolous lawsuits • The Consumer MUST have a pending case or action before they receive CLF • The Work of State Courts reviewed litigation growth and found that while contract litigation grew 37% from 2006 to 2007 that tort litigation fell 24% • Cannot blame CLF for non existent increase in tort litigation

12. What Consumer Legal Funding Does Not Do • Frivolous litigation=dismissed/lost cases=bad investments=lost money • Douglas Richmond, Aon Risk Services, Mercer Law Review 2005, Ethics of Litigation Funding,“ Litigation Funding companies exist to make money not throw it away. Funding Companies have no incentive to advance money to plaintiffs with frivolous lawsuits because the chance of recovery is low.”

13. What Consumer Legal Funding Does Not Do • Does not interfere with the attorney client privilege • CLF companies neither request nor obtain privileged or confidential information • Does not interfere with conduct of case or settlement • ALFA Best Practices preclude interfering or participating in litigation • ALFA supported legislation states, CLF cannot interfere • Young industry, supports self regulation and proper regulation • Legislation enacted in Ohio, Maine and Nebraska mandating BP • Efforts to enact additional laws mandating best practices, for non- members as well as ALFA members, killed by opposition from the insurance industry, tort reform groups and US Chamber • Defeat in Kentucky

14. ALFA Is In Good Company • The US Chamber Institute for Legal Reform presented testimony on May 24th, 2011 before the Subcommittee of the Constitution of the Committee on the Judiciary before the US House criticizing both State Attorneys General retaining outside contingency fee counsel and Consumer Legal Funding and called for both to be strictly regulated or banned

15. Did the Chamber Really Say This? • http://www.uschamber.com/legalreform • Target lawsuit abuse in states and jurisdictions in need of reform: • ILR works to rein in overreaching state attorneys general who initiate crusades against one industry after another, often working in tandem with personal injury lawyers “deputized” to file lawsuits on behalf of state governments. • The Chamber doesn’t like CLF either.

16. ALFA Is In Good Company • No secret that the US Chamber opposes CLF • Chamber testimony full of misstatements about CLF • CLF does not increase frivolous litigation • CLF does not increase cost of litigation, however, a fair settlement will cost more than an unfair settlement • If a consumer loses their case or the case settles below the cost of the funding, adjustments are made. The consumer is not worse off • Douglas Richmond, Aon Risk Services, Mercer Law Review 2005, Ethics of Litigation Funding, “ LF may even promote settlement & discourage prolonged litigation by forcing a recalcitrant defendant to approach a case reasonably…in light of the fact that its adversary has the resources to meaningfully prosecute the matter.”

17. Work With ALFA To Adopt Best Practices • CLF industry is growing and maturing. We have worked with AGs across the country who have supported our self regulatory efforts. • ALFA is interested in working with your offices to adopt a set of Best Practices in your state. • Several of you have told us that there have been no complaints hence no need for an MOU • Since ALFA’s efforts to enact Best Practices laws have been defeated by the Chamber and Insurance industry, we hope that we can work together to adopt a set of Industry Best Practices with your offices