Baker: Lawsuit financing debate likely to continue in state legislatures

John O'Brien Jun. 27, 2012, 6:37am


ATLANTA (Legal Newsline) - Legislation aimed at regulating the lawsuit financing industry - or, as critics call it, "lawsuit lending" - has been in introduced in about one-third of states.

But despite all of the bills proposed, only three have become law. Former Georgia Attorney General Thurbert Baker says the battle over litigation financing, a practice in which a company offers money to plaintiffs in lawsuits, is just beginning after both sides struck out in a combined 15 states the past three years.

He says all but one of the bills introduced in 2010 and 2011 were done so on behalf of the industry, but in 2012 six of the nine bills introduced attempted to restrict or prohibit the practice.

"I think that trend is going to continue as more and more lawyers, and certainly more consumer groups and attorneys general around the country who might have a stake in this process become knowledgeable of the problems with the lawsuit lending industry," Baker said Tuesday.

"None of these bills have passed. They've gotten through various stages of the legislative process. I think that's part of the learning process."

Three states - Nebraska, Ohio and Maine - have passed bills that have certain consumer protection safeguards like clear language on contracts and review by an attorney.

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

Oklahoma attempted to pass a ban on the practice this year, but Eric Schuller, the director of government and community affairs at Oasis Legal Finance, successfully campaigned against it on behalf of the industry.

He called the bill "a solution looking for a problem" and said he would be glad to work on some sort of regulation for the industry.

He said companies should not be allowed to intervene between a client and its attorney, but he does not consider the agreements loan because the company recovers nothing if the client does not win its lawsuit.

A Colorado judge disagreed with that argument this year and ruled the agreements are loans, becoming the only judge to make a decision on the issue.

Still, Baker, who now works at McKenna Long & Aldridge, sees state legislatures - not courts - as the more likely future battlegrounds despite a lack of success by both sides.

He noted that the only reason Suthers initiated legal action against Oasis is because the company sued him after it requested an opinion on whether the agreements were loans. When he said they were, Oasis sued and Suthers filed a counterclaim.

"They're not gonna ask that question again (to another attorney general)," Baker said.

"I think we'll see this battle being fought in the legislative arena."

If the Colorado legislature were to act, it would make what is shaping up to be an even longer legal fight pointless. Carolyn Tyler, a spokeswoman with Suthers' office, says Oasis has filed an appeal of Denver District Court Judge Brian Whitney's September decision to the state Court of Appeals.

Tyler said briefing on the issue should begin by the end of the year.

Should the lawsuit gain more attention, Baker said more attorneys general could take notice, but there is no guarantee.

"That is very difficult to predict," Baker said. "As AGs tend to learn from each other... they talk about what's going on in their respective states and learn. I think what General Suthers has done in Colorado can be a model for what can happen in other states."

Even if AGs don't take specific action against the industry, they will still have an impact on the future of the industry, Baker added.

"Obviously, an AG will be involved if the state legislative leadership is asking the AG for advice on if the industry is subject to lending laws," he said.

"I see a continuing role for AGs."

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.

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