Is Your Lawyer Ripping You Off?

I get an email once a week asking me if I need funding for my clients. What that means is that wealthy bankers want to loan me money at a high rate and for me to then charge client at the end of the case. This really happens. Lawyers who don’t have enough money to properly prosecute a case are offloading risk. They are entering into agreements for their clients they would not enter into themselves. This blog post discusses Litigation Cost Funding.

Angry Client Who Found Out Lawyer Offloaded Risk

What Are Case Costs?

When you sign with a personal injury lawyer the contract says the “costs” of the file are to be paid by the client at the resolution of the case. Costs are different than the fee. Costs include things like filing fees and expert witness fees. They can range from a hundred dollars to over six figures depending on how complicated of a case. It used to be the lawyer fronted his or her own money as costs and then took them out at the end of the case. If the case was lost the lawyer ate the losses. But finance people are clever. They figured out some lawyers aren’t willing to put their money where their mouth is and developed Litigation Cost Funding. It is bad for the client.

Instead of the lawyer using his or her own money bankers come in and offer to front the money at a high interest rate. That money is then taken by the lawyer and spent on behalf of the client. The money isn’t free. It is a high interest rate loan. The client ends up paying the interest at the resolution of the case.

Is Litigation Cost Funding Different Than Client Funding? Yes.

I want to be clear. Cost Funding is different than Client Funding AKA loans for the client wherein clients take non-recourse loans against the case. In Client Funding the client directly pockets some money to help with living costs as they recover (I don’t have a large problem with that). Alternatively, Litigation Cost Funding helps lawyers pay for the prosecution of a case. It avoids the lawyer directly paying for a the client costs and instead has a third party pay for the costs at a high interest rate.

Litigation Cost Funding for the purposes of this post is bankers and lawyers working together at the expense of the client which in my opinion is absurd.

How Does This Hurt The Client?

Litigation funding occurs when a lawyer needs to hire an outside person or charge money to the file. For example, lets say I need an orthopedic surgeon to testify or evaluate a case on behalf of my client. For a basic opinion that can cost $2,500.00. Full blown trial testimony it can run $25,000.00 It should work like this: I have confidence in the case so I put up the money and then take it out on the back end. The new way of doing this through litigation funding is I ask a banker to fund the costs of the orthopedic surgeon. They front the money and charge a high rate to pay it back. The lawyer then charges this to the client at the end of the case. This helps the lawyer at the expense of the client.

Are There Any Exceptions?

If the client is paying the lawyer an hourly rate and the case is particularly difficult I don’t have a problem with Litigation Cost Funding. I have a problem when the lawyer agrees to take a straightforward injury case and won’t back the cost him/herself. This says to me the lawyer 1) doesn’t have strong belief in the case and 2) is willing to put his clients interests behind their own which is a big no-no. I also think the rate the lawyer is charging is relevant to this analysis. If the rate is low than I wouldn’t be as offended by Litigation Cost Funding.

Does Dettman Law Use Litigation Cost Funding?

I do not use litigation cost funding. If I’m willing to take on a case I will put my own money up for costs. If I lose the case the costs are my problem. I see it as part and parcel of the contingency fee arrangement. Lawyers and bankers are smart. You should watch out for these agreements in contingency fee agreements and ask for documentation from your lawyer to make sure the rates are not usurious.

Happy to answer any follow up questions: bdettman@dettmanlawgroup.com

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