Lawsuit lending has become a lucrative business for profiteers looking to capitalize on dire situations. Hedge fund managers offer plaintiffs upfront cash for immediate expenses during litigation. In exchange, they will get a portion of the final settlement or judgment.
But the cash doesn’t come for free. These loans often bring sky-high interest rates (sometimes over 100 percent) and controversy into litigation. Look no further than the National Football League (NFL) concussion settlement as an example, where lawyers, plaintiffs, and the court are engaged in a legal battle that has nothing to do with the settlement’s purpose.
Lead class counsel Christopher Seeger and Seeger Weiss partner TerriAnne Benedetto represent a large group of former NFL players who have suffered long-term effects from concussions. In September 2017, they began offering Judge Anita Brody, who is overseeing the proceedings, evidence of lawsuit lenders “preying on retired NFL players.”
They pointed to loans with remarkably high interest rates, some over 50 percent. They also found one player who received $312,000 from a lender, but would have had to pay them $568,000 of his award. Their investigation into lawsuit lending brought a long list of abuses into the sunlight. It became crystal clear that the lawsuit lending industry is taking the $1 billion settlement and running it into the ground.
But that turned out to be only the first salvo in a lengthy fight. A few weeks after Seeger’s and Benedetto’s allegations, some lenders punched back. A motion filed by one firm revealed that Seeger himself had recently served as director for a lending firm that was active in the case. However, Seeger had levied his previous criticism only at his old firm’s rivals.
Amid the infighting between lawsuit lenders, Judge Brody ruled last December that all lending agreements were “void, invalid and of no force and effect,” saying that she “has little sympathy for a third-party funder that will not receive a return on its ‘investment.’”
This provoked another response from the lenders, who challenged the judge’s decision in March. That challenge was short lived, as Judge Brody again ruled that efforts to collect on lawsuit loans were an “improper assault on the terms of the settlement agreement.”
But while the funders waited for Judge Brody to invalidate the loans once again, they began to go after the plaintiffs to whom they had loaned money. Thrivest Specialty Funding took action against their clients who thought he no longer needed to pay the firm since the loans had been invalidated. Judge Brody also denied that request.
The NFL concussion settlement is the latest example of the lawsuit lending industry, functioning more as an instrument of enrichment for the lenders at the expense of the plaintiffs, rather than as an instrument for justice as they claim.
Earlier this year, The New York Post ran stories detailing how lawsuit lenders charge their clients interest rates as high as 124 percent. The New York Times wrote how some of these firms are under federal investigation for potential kickback law violations, having allegedly weaved tangled financial relationships with personal injury lawyers to maximize profits.
Most egregiously, the stories detailed how lenders and lawyers teamed up to create an “assembly-line-like system” to coerce women into surgeries some doctors called “dangerous and irresponsible,” just to turn them into better plaintiffs.
In June, the Senate introduced the Litigation Funding Transparency Act, a bill that would pull these secretive deals from the shadows by requiring they be made transparent in class action and multi-district litigation.
The NFL settlement controversy involving lawsuit lending is only the latest example of why this legislation is needed to protect innocent plaintiffs from being victimized by those who seek to profit from their attempt to gain justice through our legal system.
