Originally Published July 31, 2015
An interesting fact about plaintiff financing, sometimes incorrectly called a lawsuit loan, is that a plaintiff’s financial history usually has no bearing on whether he or she can be financed. Unless a company is investing hundreds of thousands or millions of dollars in a case — which is almost always only in commercial cases — rarely if ever do they check a plaintiff’s credit or criminal history before financing. In fact, the case is the only thing that matters when a plaintiff financing company evaluates an investing opportunity.
Of course, “the case” isn’t always black and white. It can be hard for a third party financing company to evaluate the merits of a case due to a wide variety of factors — including who the defendant is, how clear the liability is, whether either party has insurance, and more. Investors need specialized knowledge, loads of experience, and access to case documents before they can make a decision.
There’s also one more factor that some may overlook — but which lawsuit financing companies value highly: the plaintiff’s attorney. In fact, an underwriter’s time is better spent looking into an attorney’s history than a plaintiff’s — for a variety of reasons. Because the attorney has a much closer view to a case than a third party financing company could probably ever have, a lot of deference is paid to when a reputable lawyer with a good track record likes a case. Financing companies pay attention to who the lawyer is, where they went to law school, if they’ve had any disciplinary action taken against them, and more. A good lawyer with a good history is a great bonus for a plaintiff’s application for financing.
AN UNDERWRITER’S TIME IS BETTER SPENT LOOKING INTO AN ATTORNEY’S HISTORY THAN A PLAINTIFF’S.
What also matters a great deal to companies that finance plaintiffs is an attorney’s track record with lawsuit financing, in particular. If an attorney has successfully tried multiple funded cases, it stands to reason that the odds of his doing it again increase. Conversely, if an attorney’s financed clients have lost all or most of their cases, a financed company would have reason to take pause. Some attorneys, in fact, have such bad reputations that plaintiff financing companies have stopped even considering financing their clients — no matter how great a case looks on paper. As the saying goes, sometimes you’re just guilty by association.
Great attorneys with good case histories and positive prior interactions with lawsuit financing companies will almost certainly be positive factors if and when their clients need a cash advance. And that can definitely matter when a plaintiff financing company decides how much a plaintiff is approved for, and at what rate of return — or if they’re approved at all.
We often like to compare the process of financing plaintiffs to venture capital — in that just as companies often need investments to maximize their value, so do lawsuits. We might, then, think of an attorney as the CEO of a lawsuit — the person driving the ship. As any venture capitalist will tell you, a company’s CEO highly matters when making an investment decision — so it stands to reason that the same is true for the process of financing plaintiffs. Your lawyer is the CEO of your lawsuit — and if you need an investment, you better hope you’ve picked a good one.
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