Much has been written lately about the non-recourse funding industry, much that evidences a misconception both about non-recourse funding and about the people and companies that offer it. This has resulted in a public perception problem that most lawyers, especially trial lawyers, should be familiar with. Providers are seen as profiteers, capitalizing on the plaintiff’s hardship. Just like trial attorneys, however, non-recourse funding providers offer their clients support - albeit financial rather than legal - at a time when they need it the most.

Today, non-recourse funding providers are responding to many of the same criticisms trial attorneys faced just a few decades ago when they fought for the recognition of contingency fees. Unfounded claims regarding cost, conflicts of interest, and champerty permeate the discussion. Now, as then, opponents seek the moral high ground, claiming they are here to protect the plaintiff. In truth, they seek to protect the status quo.

Not surprisingly, while critics sling baseless barbs at the industry, courts have routinely upheld the validity and legitimacy of the non-recourse funding transaction. As the Supreme Judicial Court of Massachusetts noted in 1997, “We have long abandoned the view that litigation is suspect, and have recognized that agreements to purchase an interest in an action may actual foster resolution of a dispute.” Saladini v. Righellis, 426 Mass. 231, 236, 687 N.E.2d 1224.

Individualized Tort Reform

In fact, as the Saladini court implied, in many ways, non-recourse funding is individualized tort reform. Our legal system brings with it an inherent inequity, cost. Having time and money on your side can be equally as important as having the facts and law. As an insurance defense attorney, I learned that if the facts are in your favor, argue the facts, if the law is in your favor, argue the law, and if neither one is in your favor, delay, delay, delay. Often, the plaintiff’s financial circumstances can mean the difference between settling for peanuts or policy limits.

Contingency fees removed some of the financial inequities from the process; non-recourse funding further levels the playing field. It addresses the financial pressures that many plaintiffs, especially injury victims, deal with outside the courthouse walls. When a plaintiff has to choose between accepting a paltry settlement and losing house, car, or life savings, justice is not served. Non-recourse funding takes the financial advantage away from the insurers and deep-pocketed commercial defendants. As a result, it is no surprise that the business lobby has been the most vocal opponent to the growth of this industry.

Moreover, the need for these services is undeniable. In the past two years, leading providers have received hundreds of millions of dollars in funding requests from plaintiffs. Of course, these transactions are expensive and complicated, and should not be entered into lightly. A client’s due diligence in selecting a provider is as important as the provider’s due diligence in underwriting the application. Like most professions, including law, there are some unscrupulous people, motivated strictly by greed, involved in this business and they must be avoided.

Luckily, one of the unique features of non-recourse funding is that the attorney has the ability to act as gatekeeper. Attorneys should work with the client to identify a provider who truly has your client’s best interests in mind. The provider should be able to intimately discuss the applicable legal and ethical precedents in a particular jurisdiction. Moreover, he should be willing and able to work with the client to determine the client’s financial needs, to minimize the client’s exposure, and to underwrite the client’s application with an eye for the win-win-win transaction.

In the win-win-win transaction, the provider’s financial assistance will allow the client to meet pressing financial needs, to wait for a just and equitable settlement, and, in the final analysis, to net more from his settlement than would have been possible without the provider’s assistance. The client wins, the attorney wins, and the provider wins. And so does justice.

Andrew T. Savage is CEO and general counsel of LawFunds, a Massachusetts-based provider of non-recourse financing.