As an attorney myself, I know sometimes we immediately regret things we say to clients. But sometimes it takes months to rue our words. Since plaintiff financing (aka litigation finance) is still a novel concept and contingency clients can be anxious to begin with, here’s a list of the top eight things you should avoid saying about plaintiff financing:
Maybe. Maybe not. And in the case of an advance before settlement (which is how plaintiff financing works), it’s a short-term solution that may not always be appropriate. Be meticulous about the client profile before you recommend plaintiff financing. Educate yourself more using Mighty’s Plaintiff Resources.
There’s always the risk that the client will regret the decision to use third party plaintiff financing, forget that the money needs to be repaid with a high rate of return, and be angry at you in the end (decreasing referrals). So while it’s true that plaintiff financing advances are not paid back to the investor if there is no recovery, if the suit is successful the money is due plus a large rate of return.
If you’ve been in practice long enough, you know never to be so direct. Sometimes it may be in a lawyer’s best interest for the client to get financing, so your client doesn’t take a quick, under market settlement that will hurt your fees. But your responsibility is to the client first – not to your fee. So maybe what you really mean is “I think you need to do this so we can get through this litigation and here’s why.” Whose pain is it anyway? Make sure the pathway to decision-making is 100% client directed.
This is only if you lose your case, which hopefully won’t happen. More likely, you win and you have to pay it back, plus a nice return for the investor. In truth, you can never say “you’re going to have to pay the investor if you win” enough and, of course, constant reminders in writing are good insurance against pushback. Remember, too, there’s always the appellate process. If a plaintiff loses at trial but wins on appeal and is awarded a judgment, advanced funds may be owed (plus a healthy rate of return) years after payment.
While this is true from the perspective of the plaintiff financing company, it should always matter to you as the attorney because folks with bad credit can be a huge headache when the settlement sheet comes out. Plaintiff financing helps desperate people. Keep that profile in mind for your own peace of mind.
Oh, is that all? The underwriting process for plaintiff financing is often grueling because the investor is taking a substantial risk. Especially in commercial litigation, “getting past underwriting” is no walk in the park.
Until the end, when the pressure to repay is back on again. Never allow your client’s focus to waver from the fact that plaintiff financing is an advance, not an unconditional gift. It may ease initial financial concerns but pressure is never “off” in terms of repayment. This is another reason to encourage clients to only take what they need. The more they take, the less they get in the end.
In more complicated cases, such as commercial cases, the plaintiff financing company may certainly have some questions and concerns. Just like an insurance company funding a defense, a plaintiff financing company may watch the process carefully and may interject at times. Prepare your client for this.
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