Transparency is something that we can all appreciate, especially when it comes to the law. Legislation, however, has gotten so complicated, that even our own government finds itself confusing. Just last year, the President signed the Providing Accountability Through Transparency Act, which requires agencies to include a 100 plain word summary of any proposed rule. And this is not the only bill to regard itself as acting under the guise of “transparency”: just recently, we’ve had the Corporate Transparency Act, the Federal Reserve Transparency Act, and the Lower Costs, More Transparency Act, just to name a few.
Transparency in Litigation Financing
Congress is also seeking transparency when it comes to litigation financing. In 2021, over concerns that foreign governments could wield undo influence in our courts by funding lawsuits for which they are not directly involved, Congress introduced legislation to compel third party litigation funders to reveal themselves. The so-named “Litigation Funding Transparency Act” may have died in (a rather dysfunctional) Congress, or perhaps its name didn’t transparently communicate what it was trying to do, but the issue has continued to be raised in the years since. Just a few months ago, it resurfaced in another bill. Introduced by Sen. John Kenney (R-LA) and Joe Manchin (D-WV), the “Protecting Our Courts from Foreign Manipulation Act of 2023,” would ban foreign governments from funding US litigation and require disclosure from 3rd party funders. Perhaps this bill more transparently communicates what it’s designed to do. Maybe it will even pass.
Still, if this was 12th century England, Common Law would have already forbidden such a practice. Specifically, third party litigation funding would be seen as “champerty,” which forbids outside parties from funding litigation in return for a share of the potential settlement. But as much as champerty, as its un-transparently named cousin “maintenance,” were out of favor up through the 19th century, these practices are largely legal in the Western world today. To be clear, the aforementioned legislation seeking to ban foreign governments from funding US litigation wouldn’t mark a return to Common Law. While a foreign government or sovereign wealth fund wouldn’t be allowed to bankroll a US lawsuit, any other third party would–they would simply have to disclose that they were doing so.
A multi-billion dollar investment industry that has arisen from third party litigation financing. You would be more likely to see this in high profile cases involving large dollar amounts–think a multi-million dollar class action lawsuit, for instance. The funder will then be compensated by a percentage of the proceeds from the settlement, if there is one. If there isn’t one, then they made a bad investment and will generally write it off as a loss. Some firms bet right over 90% of the time, with around 100% returns on each case.
Transparency in Consumer Legal Funding
But there’s a related form of legal funding that gets less attention: Consumer Legal Funding. Here, the third party is not funding the litigation directly. It’s more like a loan, where a claimant in a personal injury or other tort case can get upfront payments to cover living expenses before their case is settled. The funder is generally paid out from the settlement–again, if there is one.
When it comes to the issue of transparency in consumer legal funding, it’s often less of a governmental risk of foreign interference and more of a fee dispute. Lawyers, in particular, are required to be transparent with the fees that they charge their client. The American Bar Association’s Rules of Professional Conduct, which have been adopted by nearly every state bar (minus California) have a rule specifically about “fees.” Rule 1.5 (b) states
“The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.”
In other words, lawyers have a duty to communicate upfront what they are charging a client or else they may be in for an ethics violation from their State Bar (in California, lawyers are further subject to settle fee disputes through arbitration).
In a recent personal injury case, Sean Murtaugh agreed to receive legal funding through Jordan Litigation Funding to cover 6-months of expenses while his case was pending. His lawyer, Mr. Goggins, however, is alleged to have gotten further litigation funding from Jordan, allegedly without informing his client. These funds were then used to cover costs related to the case–$81,000 of costs–which, after interest, came to a total of $137,000 that were then billed to the client as a deduction from his award. In a recent article, Bloomberg Law quotes Eric Schuller, the President of the Alliance for Responsible Consumer Legal Funding, who describes this case as “is a good example why proper regulation on the industry is needed.” Only a handful of states–Maine, Oklahoma, and Vermont, for instance–do.
A transparent pricing agreement between parties is in everyone’s best interest. RapidFunds will provide you with a written proposal that we will honor. You will know exactly what you have sold us, and the purchase price you pay, before you commit and throughout the length of the transaction. There are no hidden charges or upfront fees required.
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