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Monday, February 4, 2008

When a plaintiff is short on cash

Minnesota Lawyer this week has an interesting article on companies that loan money to plaintiffs who are desperately in need of funds. ("The cash advance conundrum.")

I have mixed feelings about these companies. On the one hand, they provide a service that is needed. On the other hand, the fees they charge seem exorbitant to me. Of course, you could make the argument that only people who deem the trade off worthwhile will borrow the money. (Paging Adam Smith: your free-market theory is being tested.) And, of course, the companies are taking quite a risk (i.e. they only get paid back if the plaintiff wins).

Minneapolis attorney Peter Riley sagely points out in the piece that such an arrangement makes sense in some cases, but it should be used only sparingly and where the fees for the service are not unreasonable.

I recall a wrongful-death case on which I worked as a law student where the widow had lost all the insurance proceeds she had received from her late husband's policy through bad real estate investments. The defendant, a product manufacturer, was dangling a settlement of $600,000 for a case that was easily worth seven figures. Faced with mounting financial pressures, the widow seriously considered taking it. It occurs to me that a legal-funding company may have been the answer. It could have provided our client with the short-term cash she needed without requiring her to sacrifice her long-term interests. But I would only recommend a client deal with one of these companies as a last resort.

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