3. Conference of Western Attorneys General Kona, Hawaii July 10-13, 2011 Presented by: Barbara Buckley Executive Director, LACSN Former Speaker of the Assembly

4. Litigation Finance: Victimizing a person down on their luck or helping those with no other place to turn?

5. Let’s examine a case: Client borrows $86,250. How much are they required to pay back? $100,000? $300,000? $500,000? $700,000? $900,000?

6. $964,055

7. How does an $86,250 loan become a $964,055 obligation? Loan Amount Amount Company to Client to Previous Fees Interest Rate/Minimum to be paid Lender #1 $10,000 $1,350 4.99% compounded monthly; minimum to be repaid $14,000 Lender #2 $26,000 $14,000 $8,525 4.99% compounded monthly Lender #2 $10,000 $2,525 4.99% compounded monthly (additional loan) Lender #3 $15,000 $81,766 $32,835 *If repaid in 6 months; otherwise $129,601 subject to 4.99% interest rate compounded monthly Lender #3 $10,250 $3,479 *If repaid in 6 months, otherwise (additional loan) $12,729 subject to 4.99% interest rate compounded monthly Lender #4 $15,000 $143,581 $770 60%, compounded daily TOTAL $86,250

8. Loan Terms WAIVER OF RIGHT TO JURY TRIAL GOVERNED BY LAW OF DIFFERENT STATE FROM WHERE CONSUMER LIVES ARBITRATION CLAUSE

9. “[A] person who is the victim of an accident should not be further victimized by loan companies charging interest rates that are higher than the risks associated with the transaction.” Judge Chris W. Altenbernd Florida Second Dist. Ct. of Appeals Fausone v. U.S. Claims, Inc. 915 So. 2d. 626 (2005) Critics of Litigation Finance

10. “Our justice system encourages mediation and settlement. The policy concern behind allowing litigation firms to provide high-interest loans to plaintiff – based on the outcome of their lawsuits – is that plaintiffs will hold off for a higher settlement in order to keep a greater amount after paying attorneys fees and paying off the loan.” Barksdale, Courtney R., “All That Glitters Isn’t Gold: Analyzing the Costs and Benefits of Litigation Finance,” 26 Rev. Litig. 707, 732 (2002). Litigation Finance Interferes with Settlement

11. Legal Issues with Litigation Finance Rancman v. Interim Settlement Funding Corp. Supreme Court of Ohio 789 N.E.2d 217 (2003) “[A] contact making the repayment of funds to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance. Such an advance constitutes champerty and maintenance because it gives a nonparty an impermissible interest in a suit, impedes the settlement of the underlying case, and promotes speculation in lawsuits.” Justice Maureen O’Connor Supreme Court of Ohio

12. Legal Issues with Litigation Finance continued… Usury Defenses in Contract (Duress & Unconscionability) Void on ethical grounds (fee splitting with non- attorneys & interference with attorney-client relationship) UDAP

13. Odell v. Legal Bucks, LLC Court of Appeals of North Carolina 665 S.E.2nd 767 (2008) “[O]ur Courts have held for at least a century that an outsider’s involvement in a lawsuit does not constitute champerty or maintenance merely because the outsider provides financial assistance to a litigant and shares in the recovery. Rather, ‘a contract or agreement will not be held within the condemnation of the principle[s]... unless the interference is clearly officious and for the purpose of stirring up ‘strife and continuing litigation.’” -Judge Linda M. McGee Court of Appeals of North Carolina Litigation Finance Does Not Constitute Champerty and Maintenance

14. Legislation - Key Issues Private right of action Prohibitions against arbitration clauses and forum selection clauses Interest rate caps – Nevada – at best 96.59% APR ; at worst, 215% APR Rollovers Under model legislation, $95,000 loan cost $804,000 after seven years and nine months of litigation

15. Policy Issues Harmful to consumer, sometimes at a time when their judgment is impaired Harmful to integrity of court system when someone holds out for too much money because of a loan on their case Harmful to integrity of court system when someone settles for too little money because they won’t get any of it anyway Harmful to attorney client relationship Interest/fee gouging

16. Resources Copyright 2003 Oklahoma City University Oklahoma City University Law Review 28 Okla. City U.L. Rev. 753 “THE ECONOMICS OF USERY AND THE LITIGATION FUNDING INDUSTRY: RANCMAN V. INTERIM SETTLEMET FUNDING CORP” Copyright 2004 Fordham University School of Law Fordham Journal of Corporate & Financial Law 10 Fordham J. Corp & Fin L 55 “THE LITIGTION FINANCING INDUSTRY: THE WILD WEST OF FINANCE SHOUD BE TAMED NOT OUTLAWED Copyright 2006 The Trustees of The University of Pennsylvania University of Pennsylvania Law Review 155 U. Pa. L. Rev 503 “IT’S ABOUT TIME: A SYSTEMS THINKING ANALYSIS OF THE LITIGATION FINANCE INDUSTRY AND ITS EFFECTS ON SETTLEMENT” Copyright 2007 The University of Texas at Austin School of Law Publication The Review of Litigation 26 Rev. Litig. 707 “ALL THAT GLITTERS ISN’T GOLD: ANALYZING THE COSTS AND BENEFITS OF LITIGATION FINANCE”