New York, NY – The American legal system, symbolized by the iconic Lady Justice statue, is intended to be a fair and even playing field. However, the reality is far more complex, with various factors that favor those with power and resources. One of these factors is the rapidly growing lawsuit lending industry, a shadowy and unregulated practice that poses a threat to the equilibrium of the legal system.
Third-party litigation funding (TPLF) is more than just a financial aid for disadvantaged plaintiffs – it has evolved into a dubious influence that often dictates the outcomes of cases to the detriment of justice. According to a recent analysis by the law firm Kahana Feld in New York, the underbelly of lawsuit funding is dark and has a negative impact on the state’s courts.
Lawmakers must step in and establish reasonable regulations for this out-of-control industry, which generates billions of dollars for investors at the expense of vulnerable individuals. Sensible reform can ensure a critical source of funding for plaintiffs while protecting them from unscrupulous lenders who manipulate the legal process.
The exorbitant fees and interest rates charged by lawsuit funders have a troubling consequence – they incentivize plaintiffs to reject reasonable settlements in pursuit of larger recoveries to cover these out-of-control costs. This not only prolongs litigation but also hampers the possibility of timely and fair settlements.
Transparency, a pillar of justice, is notably absent in current TPLF practices. Defendants and even the courts themselves are often left in the dark about the existence and terms of these funding agreements. This lack of disclosure impairs defendants’ ability to accurately assess and settle cases, undermining the fairness of the legal process.
The Kahana Feld analysis highlights several concerning examples that emphasize the urgent need for reform. In one case involving medical malpractice in the Bronx, the plaintiff’s attorney referred the case to a funding company owned by his brother without disclosing the relationship. In another instance in Buffalo, two principals of a plaintiff firm were sanctioned for extending loans to a client through a company they owned.
These examples are not isolated incidents but rather indicative of a broader pattern of undisclosed conflicts of interest and compromised transactions between attorneys and funders. Additionally, predatory lenders are exploiting vulnerable individuals who have no alternative options for financial assistance, such as wrongfully convicted former inmates who are likely to receive significant civil settlements.
Furthermore, some TPLF companies are engaged in fraudulent activities, including financing staged accidents and participating in illicit schemes. These criminal dimensions add another layer of concern to an already troubling issue.
To address these challenges, a simple interest rate cap and greater transparency, disclosure, and early judicial review of TPLF agreements are necessary. While awaiting action from lawmakers in Albany, New York courts can take proactive measures to expose potentially predatory funding agreements, fraud, conflicts of interest, and the erosion of plaintiffs’ control over their lawsuits. Implementing routine disclosure of these agreements in the discovery process would be a significant step towards reform.
It is evident that TPLF, in its current form, presents a significant threat to the integrity of New York’s legal system. Both court officials and lawmakers must fulfill their responsibilities by implementing clear disclosure rules and enacting consumer protections. Only then can we preserve the civil justice system and ensure that vulnerable plaintiffs are not exploited by sophisticated legal lenders and the hedge funds that support them.
In conclusion, the call to shed light on the predatory practices of lawsuit lending and protect the most vulnerable individuals resonates. As Justice Louis Brandeis famously said, “If the broad light of day could be let in upon men’s actions, it would purify them as the sun disinfects.” The time for meaningful reform is now to restore fairness and integrity to our legal system.