REVOLTING, UTTERLY REVOLTING – AT 8:47 A.M. ET: Occasionally we read a story that reminds us of some things that need to be cleaned up in our society. From a well-reported piece in The New York Times:
Large banks, hedge funds and private investors hungry for new and lucrative opportunities are bankrolling other people’s lawsuits, pumping hundreds of millions of dollars into medical malpractice claims, divorce battles and class actions against corporations — all in the hope of sharing in the potential winnings.
We used to invest in building industries and establishing medical practices...and we stayed out of the marital affairs of others. Ah yes, I remember it well.
The loans are propelling large and prominent cases. Lenders including Counsel Financial, a Buffalo company financed by Citigroup, provided $35 million for the lawsuits brought by ground zero workers that were settled tentatively in June for $712.5 million. The lenders earned about $11 million.
This is just disgraceful. We have become the lawsuit society, and now lawsuits are investment targets. And we wonder why Americans are disgusted with Wall Street, the "investment community," and parts of the legal profession. These practices overshadow the genuine good that is done by many, if not most, investment houses and attorneys.
As the story points out, these new practices do have an up side – making it possible for more people to pursue just lawsuits. But the practices also lead to inevitable abuses that drive costs up and produce unexpected shocks for plaintiffs:
But the review shows that borrowed money also is fueling abuses, including cases initiated and controlled by investors. A Florida judge in December ordered an investment banker who orchestrated a shareholder lawsuit against Fresh Del Monte Produce to repay the company’s legal expenses, ruling that the case should not have reached trial.
Such financing also drains money from plaintiffs. Interest rates on lawsuit loans generally exceed 15 percent a year, and most states allow lawyers that borrow to bill clients for the interest payments. The cost can exceed the benefits of winning. A woman injured in a 1995 car accident outside Philadelphia borrowed money for a suit, as did her lawyer. By the time she won $169,125 in 2003, the lenders were owed $221,000.
It's time for responsible bar associations to intervene.
November 15, 2010