St. Louis Record

Saturday, November 16, 2019

Transparency is key to resolving problems in third party litigation funding industry, business leader says

Reform

By Colin Froment | Jul 18, 2019

Mattpanik

JEFFERSON CITY – Third party litigation lenders prey on Missouri’s most-vulnerable residents by promising immediate money in exchange for an interest in any future recovery, says the Missouri Chamber of Commerce and Industry. And, the best way to ensure consumers are protected is with transparency, an official of the organization said. 

“Litigants in Missouri courts should have all information relevant to their cases to make the most-informed decisions possible," said Matt Panik, vice president of the Chamber's Governmental Affairs committee. 

"If litigation lending continues to play a role in our civil justice system, the process must be transparent and open to the court."

The Chamber backs reform proposals that protect both lawyers and their clients from abusive practices that tend to favor litigation investors. The industry was conceived about 20 years ago as a way for outside interests to provide financial assistance in exchange for a percentage of funds obtained through settlement or verdict. It particularly helped smaller firms with fewer resources to be able to pursue big cases, such as class action lawsuits. 

Problems have arisen when bad cases, or ones of little value, don't produce the type of return the lender expects, and when the lawyer or firm in receipt of a lawsuit loan places a priority on making money for the investor over the needs of the client. 

“Leveraging civil judgments as a means of financing lawsuits is damaging to Missouri’s businesses, consumers and civil justice system,” states the Missouri Chamber's legislative agenda. “Litigation lending companies prey on Missouri’s most-vulnerable residents by promising immediate money in exchange for an interest in any future recovery. This practice inevitably increases the duration and expense of lawsuits and often leaves plaintiffs in worse financial shape than when they started.”

Some recipients involved in litigation funding would say it provided positive results, such as in The Gillette Co. v. Provost, et al. that took place in Suffolk County Superior Court in Massachusetts. Gillette sued former Gillette employees who began to work for rival then-startup company ShaveLogic for developing and patenting technology for more-efficient shaves. The defendants received financial support from Gerchen Keller Capital (later acquired by Buford Capital, now the biggest litigation funder) that allowed the case to conclude with a quick settlement in 2017.

As for reform in Missouri, Panik said that reasonable parameters around the lending should be in place, such as determining appropriate interest rates on loans and contract language. 

"Litigation continues to be an expensive endeavor and reigning in litigation lending could help keep costs down for all parties," Panik said. 

In February, a group of Republican Senators reestablished the Litigation Funding Transparency Act that would require plaintiffs to publicly share when they have received third party funding for only class actions and multidistrict litigation. The measure stalled in the Spring legislative session. 

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