JEFFERSON CITY – The executive director of a nonprofit organization devoted to the passage of tort reform legislation in Missouri is advocating for the regulation of the litigation finance industry.
Missouri Civil Justice Reform Coalition Executive Director Richard AuBuchon said litigation financing in the Show Me State, it “has kind of exploded” in recent times.
Litigation financing, by definition, refers to third-parties who finance civil litigation, such as a class-action lawsuit, in return for a percentage of the jury award.
AuBuchon said that one of the biggest concerns with this lending practice is the amount of money it takes from the individual who has been harmed in some way, and the exorbitant rates that are owed to the lender.
“Of course, the attorneys that are involved don’t like it by most accounts," he said. "And then all of a sudden, you have this third-party involved in a case that is ultimately going to take upwards of 40 to 50 percent of whatever the proceeds of the judgment you might ultimately get. It becomes an exceptionally big issue … it makes it (the litigation) last longer.”
Missouri is one of the states in which major litigation financing company, Oasis Legal Finance Operating Co. LLC, does business. Last April, two Missourians sued Oasis in the U.S. District Court in the Eastern District of Missouri over claims the defendant charged exorbitant interest rates, according to a May 2 Legal Newsline article.
AuBuchon said litigation financing reform has drawn some interest in Missouri House of Representatives, but proposals to regulate the industry, like banks are, have not advanced.
In February, lawmakers on Capitol Hill introduced the Litigation Funding Transparency Act in an attempt to get parties who have accepted outside financing, to disclose such arrangements.
“It needs to have some regulation,” AuBuchon said. “Frankly, these industries are existing – the modern day bookie in many respects – they’re able to exist as a loan shark of sorts, charging exceptionally high rates for individuals who are pressed [and] very stressed in life … and forced to make bad decisions … I would hope that any legislation that passes, it will ensure that those companies that do this work are regulated and that those individuals they contracted with for these loans are given the opportunity to back out.”
AuBuchon further stated that loans issued by litigation financing companies “are deemed non-recourse.”
“They would argue, by and large, there’s no promise to repay unless they win,” he said. “These loans are not issued for individuals who don’t have solid cases. By the time the loan is issued, they’ll have talked to the attorney involved, they’ll have made their own case assessment, and they have a pretty solid idea of whether the individual will be able to recover, as such that they’ll be able to repay their loan.”
The Missouri Chamber of Commerce called on more transparency in relation to third-party litigation lending, the St. Louis Record reported.