Oklahoma could ban lawsuit financing

John O'Brien Mar. 13, 2012, 10:00am


OKLAHOMA CITY (Legal Newsline) - A year after the lawsuit financing industry tried to have its legislative agenda passed in nine states, a bill that would ban the practice is pending in the Oklahoma Senate.

Oklahoma Senate Bill 1780 would make it against the law for a company to make a loan to a plaintiff that would be paid back from settlement funds or a jury award. It would apply to any case pending in an Oklahoma state court or any federal court in the state.

The bill makes lawsuit financing a violation of the Consumer Protection Act.

"I think a ban on some of the practices we're seeing around the country is an appropriate measure to take," said Thurbert Baker, the former attorney general of Georgia. "It's very difficult to contain a lot of the problems we're seeing around the country with lawsuit lending."

Baker, a Democrat who was a state lawmaker before becoming AG and now works at McKenna Long & Aldridge, says a previous agreement between the industry and former New York Attorney General Eliot Spitzer did little to curtail abuses in the industry.

In lawsuit financing agreements, a plaintiff is given an amount usually between $500 and $5,000 with the promise of paying the company back with funds from a settlement or jury award. If the plaintiff loses, nothing is owed.

Critics say it encourages frivolous lawsuit and jeopardizes the integrity of the judicial system, while proponents say it helps plaintiffs handle everyday expenses in tough times.

"The interest rates are certainly first and foremost," Baker said. "What we're seeing in lawsuit lending, the lenders are coming in and charging exorbitant rates to those who take them up on their offer.

"And in many instances, those rates are not regulated and do not fall under the lending laws of that state. They are usurious in nature."

Eric Schuller, the director of government and community affairs at Oasis Legal Finance, said bills proposed last year would have addressed those concerns. The amount a consumer would have to pay back would be capped after three years in those bills, he said.

Schuller was in Oklahoma on Tuesday to fight the bill. He complained that Oasis didn't know about the bill until it unanimously passed the Senate Judiciary Committee in late February, though he said it was premature to say if it would be grounds for a challenge to the bill if it passes.

"If the bill does come out of the senate, and then go over to the house, then we will have the proper opportunity to have an honest discussion on the merits of the bill," Schuller said. "There needs to be proper hearings on the situation."

Schuller said he agrees that there are some problems within the industry, starting with companies that intervene between the client and its attorney in litigation. He said the agreements are not loans because there is no guarantee of repayment.

The industry's bill was introduced last year in Alabama, Arkansas, Indiana, Kentucky, Maryland, Nevada, New York and Tennessee.

Baker said even trial lawyers are concerned about the industry, pointing to a case in South Carolina when a plaintiff refused a settlement offer on the advice of the lender and proceeded to trial, only to lose.

"Those are the kinds of problems we see when third-party lenders get in the middle of privileged lawyer-client relationships and somehow or another affect the outcome of a case," Baker said. "Trial lawyers can see that as a problem."

The bill was authored by Republican Sen. Brian Crain, who did not return a message seeking comment.

"It's the first this issue has come up here," Schuller said. "We've had no complaints here, no complaints from the Attorney General's Office or anywhere. It's a solution looking for a problem."

Baker doesn't see it that way. He says every state legislature should be taking a look at the industry, and that he'll be talking on a number of panels on the issue in the next year.

"Obviously the industry would like to have a piece of legislation that authorizes their practice in a particular state," Baker said. "In all of these states - and we'll probably see more of this - it is very questionable whether or not they can actually engaged in that lending practice.

"The effort seems to be to authorize and legitimize their practices in states they introduce their legislation."

Baker spoke about the industry at the U.S. Chamber of Commerce Institute for Legal Reform Summit last year and passed out a white paper detailing the ILR's concerns with the industry at a meeting of the American Bar Association.

The ILR owns Legal Newsline.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.

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