Get a free quote

When Michael Lane injured his back and neck in a car accident in May 2001, the 49-year-old Buffalo man suddenly found himself unable to return to work.
The former independent contractor for a courier service received disability payments from his insurance company for a while, but that stopped when the insurer claimed he was fit again. Now he had no money to support his family and no way to pay for furniture in their new house.
He was suing the driver of the other car for $100,000, but hadn’t won his case yet. So he searched the Internet for ways to get money — and found LawCash.
The Brooklyn-based finance company agreed to advance him money based on the expected value of his lawsuit, at a rate of 3.85 percent per month. Within three days of applying, Lane received a check for $5,000, allowing him to buy furniture, pay rent and buy groceries. He later took out another $2,500.
His case settled in February 2003 for $45,000. He repaid LawCash $9,480, including fees and interest.
“I was able to get my spirits back and help my family, because I had nothing coming at that time, nothing at all,” said Lane, who has since referred other people to the firm.
LawCash and a Getzville firm, Plaintiff Support Services on North Forest Road, are part of a growing industry that provides “non-recourse” or “presettlement” financing to personal injury plaintiffs to help them with living expenses while they’re waiting for a verdict or settlement.
Although the firms charge an application fee and interest — which they call their “rate of return” — they say it’s technically not a loan because there’s no obligation to repay a penny if the plaintiff loses the case. Also, the firms have no security interest in the case, and therefore no “recourse” to go to court to get their payments. And interest is accrued over time until the case is finished, rather than being paid every month.
Instead, the firms think of their role as an investor akin to a venture capitalist — investing in the plaintiff and the outcome of the case in the hopes of a sizable return. Like a venture capitalist, they can lose their entire investment and not get any money back. But by providing money for living expenses, the firms say they can help people avoid going bankrupt or losing their house.
“We’re just trying to keep them afloat, to keep them from losing their house, their car, their heat, their electric,” said Helen Jones, underwriter and the second-ranking official at Plaintiff Support. “It’s not meant to give them their settlement up front. It’s not meant to buy a big screen TV or pay off your credit card or those type of luxuries.”
Supporters say the financing makes it easier for plaintiffs to hold out for the big money instead of settling early for less cash out of desperation. And it’s completely legal and acceptable in many states — including New York — as long as the lawyer doesn’t get paid for a referral.
“The legal process takes an awful long time. People need funds to live on and try to maintain as normal a life as they can during the process,” said Richard Campbell, a corporate and tax attorney at Hodgson Russ in Buffalo who represents Plaintiff Support. “Having his client able to meet his living expenses ensures the lawyer that his client isn’t going to have to drop out of the litigation or be anxious to settle for less because he needs the money for living expenses.”
But there are risks to the companies. Although they try to pick plaintiffs with good representation that have a strong likelihood of winning or at least settling their case, there are no guarantees. The firms suffer average losses of about 5 percent, and also have to pay about 15 percent interest themselves to get the money they provide to customers.
“We take an enormous risk in what we do. A bank will never do this,” said Joseph DiNardo, owner and president of Plaintiff Support.
So the firms say they have to charge higher fees for their service. LawCash charges 2 percent to 4 percent per month — in several cases locally, 3.85 percent. That’s as much as 48 percent annually, not counting the application fee of between $150 and $250. Plaintiff Support charges an annual rate of 34 percent compounded daily, plus a $350 application fee.
And they’re on the low side. Firms in Texas charge more than 6 percent per month, while those in California charge 8 percent and rates in Nevada are as high as 15 percent, according to both LawCash and Plaintiff Support.
But consumer activists cry foul at those numbers.
“I would certainly see a value to this type of service, so that people don’t agree to settlements just out of desperation,” said Ken McEldowney, executive director of San Francisco-based Consumer Action. “But I don’t see any justification for interest rates that high.”
Still, the firms say they’re filling a niche and defended their business as benevolent. “This is an industry that really does help people,” said Dennis Shields, president and CEO of LawCash. “It’s an industry that’s just starting out. Like any industry, if it’s not handled the right way, there’s certainly potential for abusing it.”
The rise of nonrecourse, presettlement funding services comes as the nation has seen explosive growth in personal injury litigation and personal injury law firms. With multimillion-dollar settlements and judgments coming down all the time, the finance companies are eager to jump on the bandwagon and make a buck at the same time.
The law prohibits attorneys from loaning their clients money, since that is seen as a conflict of interest. And banks and other traditional lenders won’t help because there’s a high risk involved and they don’t have an asset like a house or a car to use as collateral.
Enter the independent firms, which get much of their business through referrals from attorneys and others who have learned about them. Many of the companies in the industry are small operations that exist for just a short period of time, until they get burned and lose money on a few cases.
Besides LawCash and Plaintiff Support, other major firms include Magnolia Funding and Pre-Settlement Finance in New York City and Cambridge Management in New Jersey.
LawCash was founded by Shields and chief operating officer Harvey Hirschfeld, veterans of healthcare finance, who learned of the problems plaintiffs struggle with and decided to start a business in 1999.
The firm now operates in about 28 states, working with almost 3,000 law firms. Clients are typically working-class, and the money is often used for housing, Shields said.
The company advances about 10 percent of what it thinks the case is worth, which averages out to about $7,200. The average case is taking about two years to settle.
Cynthia Kozlowski of Olean turned to LawCash while she was suing a driver who rear-ended her at a red light in December 1999. Kozlowski, a former teacher’s aide at Olean High School, has been out of work since then, and was struggling to pay her routine bills.
She was facing the loss of her gas and electric service and even her house when her attorney at Cellino & Barnes referred her to LawCash, who gave her $3,000 at 3.85 percent. That allowed her to catch up on her bills. After she settled her case in January 2004 for about $300,000, she repaid $4,465.
Plaintiff Support was founded in 1992 by Ken Polowitcz, a former mortgage banker who became aware from lawyers that there was a need for such financing. He ran the firm until 2000, when it was purchased by DiNardo, a former prominent Amherst personal injury attorney.
DiNardo had left his law firm in 1998 and was suspended from the bar in 2000 after pleading guilty to filing a false tax return in 1994. He paid a $20,000 fine and was placed on probation for two years.
But he had become familiar with Plaintiff Support and saw an opportunity to take it to a larger scale beyond just Western New York.
Today, it has nine employees and a $13 million portfolio, funded by private investors. It does business in New York, New Jersey, and eight other states, with almost 600 open cases. And even with knowledge of DiNardo’s past, major nonbank finance companies are now expressing interest in providing a line of credit to the firm, he said.
“Plaintiffs have been in this predicament forever. It’s just in the last eight or 10 years that nonrecourse funding has come along as a tool to assist them,” DiNardo said. “There’s no place for these people to go. They need this help.”
Source: Buffalo News

Comments are closed.