Have you ever heard of investing in and brokering future lawsuit settlements? If not, you’re not alone. It may be one of the least-known investments around.
Don’t confuse this with structured settlements. This lesson looks at one company, LawsuitFinancing.com, started by two Beverly Hills podiatrists, Dr. Melvin Present and Dr. Michael Bilinsky. Some of their patients were in personal injury and other lawsuits, and the doctors saw how long cases can drag on before trial or settlement. Patients in urgent financial need were being forced to accept much lower settlements than they could have received if they’d held out. (Settlement offers usually rise as trial gets closer and defendants weigh the cost of a trial against a settlement.)
Here is how the company described its business, in question-and-answer form.
What lawsuit funding is
Q: What is this investment all about?
We provide money to plaintiffs in lawsuits who need it. Say someone has been injured and is suing the company responsible. They may need money to live on before the case settles. Their attorney thinks they can get $100,000, but not until the defendant faces the threat of trial, about a year away. Rather than accept a quick, low offer because they need money today, the plaintiff can come to us and hold out for a larger settlement (fair market value) later.
Other needs include expert witness fees, attorney fees and appeal financing. We try to help make the case more valuable.
Q: So you are lending money to the plaintiffs?
No. This is not a loan. It’s a non-recourse investment. We take a lien on the potential settlement. If the case goes badly and there’s no settlement or judgment, the plaintiff owes us nothing. Unlike a loan, there’s no application fee, credit check or monthly payment. The essential difference is that there’s no absolute obligation to repay.
A note of caution from the original editor: although the company had legal advice that its structure is not a loan, and so is exempt from usury, disclosure and other requirements, that theory had not been tested in court.
Which cases get funded
Q: Why would anyone invest in a settlement that may never happen?
Over 90% of all lawsuits settle. We screen out a fairly high share of the other 10%. Some of those go to court, and an occasional one is lost. Overall, the company said, it has been profitable for its investors and its brokers.
Q: Are these all personal injury cases?
About 70% of the cases we fund are personal injury, but it can be any type of case. The other 30% come from many fields of law: commercial litigation, employment cases, product liability, malpractice, workers’ compensation in certain states, sexual harassment and others.
What the plaintiff and the investor get
Q: What is the return, and how does the process work?
The return is predetermined and agreed: 15% per month. Take the example above. Someone is injured by another’s negligence, and it will take about a year to get to trial. The plaintiff’s lawyer thinks they can get $100,000 if they hold out. The defendant is offering $50,000 now. The plaintiff needs $5,000 immediately; otherwise he’ll have to take the $50,000 and give up the chance at another $50,000. His attorney refers him to us, and we provide the $5,000.
