The ugly under-belly of lawsuit financing
Several companies now offer lawsuit financing to injury victims while their cases are pending. Sometimes such a loan is necessary to help a family keep its "head above water," however, these loans are by no means an altruistic gesture. In Lawsuit Financing, Inc., and Rainmaker USA, LLC v. Elias Muawad, the Court of Appeals allowed a glimpse into the problems these loans can create. The Plaintiff loaned Lawsuit Financing loaned one of Muawad's clients $10,000.00 under a "Purchase Agreement" pursuant to which the client was obligated to pay the lender $50,000.00 when the case settled.
When the injury case did settle, presumably months later, the client refused to authorize the attorney to pay this usurious charge, and Muawad sought the Court's approval of a distribution of the settlement proceeds to the client, in breach of the promise that Muawad had made at the time the "Purchase Agreement" was executed. Muawad and the client argued that the agreement was a usurious loan, and apparently the trial court agreed and authorized distribution. Lawsuit Financing then sued the attorney and four years later, the case is still pending.
These companies now advertise heavily on television, and they do that because when a desparate claimant can be hooked, the potential profit is enormous. While the exorbitant recovery is frequently justified by the "risk" that the lender is assuming by financing the litigation, in fact, these companies don't make loans on cases that represent significant risk. In any event, no amount of risk justifies a "loan" carrying what may exceed 400 percent interest. This is a proper matter for Court supervision.