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PI lawyers face issues with loans

Patience is a virtue, and that is especially true in personal injury cases, notes veteran attorney D. Michael Guerin.

But as the recession drags on, cash-strapped victims are increasingly turning toward companies that offer advances to pay bills while their cases are pending.

“I’m seeing this more and more with clients, and I dread it,” said personal injury attorney Victor C. Harding.

Companies like Illinois-based Oasis Legal Finance, LLC, allow plaintiffs in personal injury cases to receive between $500 and $500,000 in as little as 24 hours. CEO Gary Chodes said the quick cash provides financial flexibility that allows people to wait for potentially more lucrative settlements.

“We allow consumers the ability to maintain their case for a reasonable period of time and if there is no money for the plaintiff, they don’t have to pay us back,” he said.

According to Chodes, about 2 percent of the company’s business comes from Wisconsin. Oasis is one of several national companies that offer legal lending; other providers include Global Financial Credit LLC in New York and AnyLawsuits.com.

But Guerin, of Gimbel, Reilly, Guerin & Brown, said that while the idea may sound good on the surface, in his experience, legal service lenders are a bad bargain for most clients because if a case does settle, the legal service lender gets its money first.

And Harding claims that because some legal service lenders charge interest rates as high as 50 percent, clients are tempted to prolong the litigation process in the hope of obtaining a bigger settlement.

Harding, of Warshafsky, Rotter, Tarnoff & Bloch SC, said he settled a case in June for a client who was approved for $13,500 in funding from Oasis last year and ended up paying more than $32,000 back.

That case settled for $320,000, so the client will receive a portion of the proceeds. But Harding anticipates that some clients may elect to take their chances in court rather than settle if their loans outgrow the estimated value of a case.

“Suddenly the risk-benefit analysis changes,” he said. “There might be money on the table and none will go to the client, so they say, ‘If I’m not getting anything, why not go forward and try and hit the jackpot?’”

Weak Cases to Trial?

Guerin added that legal service advances create problems for personal injury attorneys too, forcing them to potentially take weak cases to trial.

“It can put a lawyer in a position where the client has borrowed and owes more money that can be reasonably obtained in a mediation process, short of litigation,” he said. “It ends up that crummy cases are the ones going to trial.”

But Chodes said that Oasis does an evaluation of each case prior to approving a consumer’s loan application and that a client’s attorney must sign-off on the contract and apprise the party of the benefits and risks associated with the agreement.

Some attorneys say they will go along with a client’s desire to take an advance in rare cases.

Personal injury attorney Jonathan P. Groth said that while he generally discourages the practice, sometimes the money can help a case.

He currently has five or six active cases with clients who have taken out cash advances with legal service lenders.

“I don’t feel as guilty if someone is uninsured and needs a medical procedure, like an MRI because it may give them a fighting chance,” Groth said. “But I recommend they ask for as little as possible.”

Guerin conceded that there may be rare occasions where an advance can help an injured party out of work pay bills or a mortgage. But he has yet to encounter one.

“I have not seen a situation where I think taking advance fees at an exorbitant interest rate would be a benefit to my client,” he said.

2 comments

  1. Bad idea. Loan company can be joined as a party under assignment theory. Makes plaintiff look bad before jury’s eyes. I would not take a case where there is a loan made unless I could show the loan was for some absolute necessity–medical procedure, e.g., that would otherwise be unavailable without the loan.

  2. I think it is a great idea, but it has to be used conservatively. Lawyers must appreciate that the client may be in a very difficult financial position and the only asset they have is a claim that may not settle for 16 months. I think it is completely reasonable that someone has to pay back a significant amount more than they borrow. Typically the client has not credit, is not able to pay monthly payments, and has exhausted friends and family. The lending company has to rely on the lawyer and the client to work hard or they get nothing.

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