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Presettlement Financing Lets Plaintiffs Collect Before Case Reaches Court

Scheck, Anne

doi: 10.1097/01.EEM.0000361667.58799.80
Articles

Here is a multiple-choice question to test your knowledge of litigation. How might presettlement financing for plaintiffs in personal injury cases compromise the legal process?

  1. A. By providing plaintiffs a new way to get money early in litigation when they sue doctors.
  2. B. By providing money to them at such high interest rates that it severely reduces the net settlement they ultimately recover.
  3. C. By providing a disincentive to them to consider reasonable offers of settlement, due to the potentially severe reductions in their share.
  4. D. All of the above.
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If you chose the last option, you are in good company. Physicians who are familiar with this lending practice label it bad from every perspective. And if you picked “C” or “D,” you are in agreement with a group of very vocal Massachusetts lawyers fighting this relatively new development in loan-making on a universal battlefield, the Internet. As attorney Eric Parker declared: “It should be outlawed.” In fact, that is what he hopes the outcome will be, although he calls it legislative relief when asked to describe how that could come about.

Emergency physicians and other doctors are bound to be harmed by this practice. “They will see a negative impact from this,” Mr. Parker said. With the current financial crisis, more plaintiffs will be taking on this kind of indebtedness, and the result will be longer litigation, more court time, and potentially fewer cases being settled early in the process, he predicted.

Mr. Parker is the managing partner of Boston-based Parker Scheer LLP, where he serves as director of the firm's tort litigation practice group. He asserted that these presettlement agreements constitute a kind of predatory lending practice even though the arrangement offered by these services technically isn't considered lending because the loans are deemed “non-recourse,” meaning the financing agency agrees to take nothing if the client doesn't get a settlement or jury award.

Scores of these companies offer their financial products online with applications that can be electronically filed. A typical settlement-financing web site points out that the company is not a bank and does not make loans. Instead, for qualifying plaintiffs, a “cash advance” may be offered against the proceeds of the settlement. In fact, online applications may ask for an estimate of the settlement amount and advise that the attorney in the case will be contacted as well.

When one such toll-free number was called to inquire about the ramifications of this — in light of attorney-client privilege — the company representative indicated that in many cases the plaintiff's attorney and the loan evaluator simply confer by phone.

How have the courts dealt with such arrangements? They haven't really, at least not frequently. Six years ago, the Ohio Supreme Court in Rancman v. Interim Settlement Corp. voided a contract when a plaintiff given a $7,000 advance was obligated to pay $19,600 from a $100,000 settlement, an interest rate of 180 percent.

Writing about that case and presettlement arrangements in general, Jennifer Gregory, a Chicago attorney who specializes in intellectual property, noted that the law is fuzzy on the issue in Illinois. “These funding sources unquestionably make some lawsuits feasible, especially when plaintiffs face defendants with vast resources,” she stated in an essay last year in the CBA Record, the newspaper of the Chicago Bar Association. Such arrangements raise ethical questions, though, because a potentially for-profit transaction by third parties not directly involved in the lawsuit “can exploit plaintiffs who unwittingly agree to exorbitant repayment sums out of their litigation proceeds.”

Robert C. Solomon, MD, a past chair of the ACEP Ethics Committee, agreed. “This diverts still more of the money away from deserving plaintiffs, which is already a big problem in the system we use for resolving claims of medical negligence,” said Dr. Solomon, an emergency physician at Trinity Health System in Steubenville, OH.

This kind of presettlement financing does little to aid legitimate plaintiff claims, he said, adding there are cases in which a plaintiff may have a good cause of action but is unlikely to prevail with a significant monetary award. This lending arrangement seems to do nothing to improve that plight. “There are all sorts of potential conflicts here,” he said.

© 2009 Lippincott Williams & Wilkins, Inc.