Year End Cash Flow Planning

As year-end approaches, plaintiff attorneys should remember that they can structure their fees. With just a few weeks left in 2010, now is a great time to consider cash flow planning.

Structuring fees allows attorneys paid on a contingent-fee basis to recognize taxable income as they receive their periodic payments. The entire fee can be used to purchase periodic payments with pre-tax dollars, providing a greater initial investment and potentially reducing their overall tax burden.

Contingent attorney fees that result from both qualified and non-qualified settlements can potentially be structured. The periodic payments can be customized to provide a stable income stream that can provide for retirement or ongoing expenses of the law firm. In addition, future lump sum payments can be established to pay for large anticipated expenses.

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Pre-Settlement Attorney Loan and Post-Settlement Attorney Fee Funding Market?

The larger market, which provides loans and revolving lines of credit to law firms with a broad portfolio of cases that are in various stages of litigation, most of which are not yet settled. The smaller market, being post-settlements, where a specialty finance company provides an advance or an outright purchase of earned, but not collected legal fees from cases that have already been settled. Whereas plaintiff’s attorneys often find it necessary to invest large sums of money in case development costs (including: expert witness fees, deposition charges, demonstrative evidence, etc.), receivables are created which are repaid from case proceeds on successful outcomes.

By the end of 2000, the litigation finance market segment had just over $100 Million in committed loans provided by a few legal finance companies. Litigation finance has grown steadily to more than a dozen companies with outstanding loan commitments in excess of $1 Billion. Some companies focus on the larger plaintiffs firms and tend to gravitate toward firms handling mass torts and class actions as the costs involved in litigating these matters is immense with lines ranging from a few million to in excess of $20 Million per firm supported by litigation dockets that often exceed $100 Million in value. Numerous small companies focus on smaller firms providing lines typically between $100k and $3 Million with case portfolio values that total between a few million to over $60 Million.

For a more comprehensive overview of the legal finance industry click here.

Trial law firms can accelerate cash flow

Successful trial attorneys focus on winning their cases – which is how it should be. But too often, this focus on the meat of their work leads them to overlook an important business task: managing their money in a way that optimizes the availability of capital. Without paying attention to this important detail, many contingency-fee attorneys end up endlessly tying up their profits in case expenses, losing opportunities to better manage or expand their business.

Attorneys handling plaintiff’s cases face continuous financial challenges experienced by almost no other type of business.  Continually incurring significant expenses on each case well before any fee is collected.

The path to a settlement can be a very difficult process, but achieving the resolution is just the beginning, sometimes it can take many months and sometimes years to receive hard earned funds from a lawsuit settlement.

Post Settlement funding is one of the many tools now available to help trial lawyers strengthen their business. Rather than waiting months or longer to get paid, you can accelerate your attorney fees today. There is no need to wait for your hard earned fees due to court delays, class notifications or just an uncooperative defendant. You can make these funds immediately available to pursue new, larger, more profitable cases.

Learn more about Fee Acceleration and the many other options trial lawyers now have to improve the business of law here.

Alternative Litigation Finance in the U.S.: Where Are We and Where Are We Headed with Practice and Policy?

Great event that anyone involved or interested in the legal finance industry should attend.

The RAND Institute for Civil Justice recently launched a research initiative to analyze and explore the convergence of law, finance, and capital markets in the United States, including phenomena such as outside capital invested in law firms, alternative fee structures, and third party litigation funding. The Program endeavors to examine the effects of alternative litigation finance on the efficiency, fairness, and transparency of the American civil justice system through policy analysis, events, and a comprehensive Web presence at the RAND Corporation site.

The 2010 Conference will bring together practitioners, policymakers, judges, and researchers to discuss and debate issues and trends related to alternative litigation finance in the United States. The extensive program will feature presentations, panels, and speakers on practice and policy topics as well as offer continuing legal education.

Additional information

Why We Need Trial Lawyers

Mark Robinson and Kevin Calcagnie have written a very powerful Op-Ed piece published in the Wall Street Journal. It is a fantastic piece and I think everyone should take the time to read.

Why We Need Trial Lawyers
The alleged need for “tort reform” has become a refrain in American political life. Yet for all the demonizing of trial lawyers, the reality is that product-liability litigation has become an ever more important means of keeping consumers safe. Continue Reading at WSJ.com

Link to copy of article hosted by AAJ.

What is Post Settlement Funding?

Post settlement funding is when one purchases an assignment of the right to receive an assigned portion of the settlement proceeds in return for providing immediate receipt of settlement funds. When the defendant or defendant’s insurer ultimately sends the settlement funds to the plaintiff’s attorney, the attorney will forward the assigned amount to the provider of the settlement advance when the settlement check has cleared in the attorney’s escrow account.

Benefits of Working with a Finance Company that Specializes in Contingent Litigation

Law firms avail themselves of a secure source of funds that provides not only for future case development costs, but also for the recovery of monies already advanced on behalf of their clients.  In the typical credit facility agreement, participating firms will be able to recover up to 100% of the amount of their case development costs in immediately available cash.  The typical program produces many benefits for participating firms, including:

• No principal payment until the underlying case is resolved. The firm is not required to make any principal payments until a case is resolved. Traditional banks require periodic repayment of principal balances.
• Payments can be tied to a firm’s cash flow. Most facilities require only interest payments each month, principal payments are only required when the firm receives income.
• No interest expense to the firm on cases that are won or settled successfully. Most states provide a mechanism by which attorneys are permitted to recover the costs of litigation when a case is brought to its conclusion.  In addition to the costs of depositions, expert witnesses, demonstrative evidence, and the like, interest expense paid to third parties can generally be treated as a cost of litigation.  Each state has its own ethics rules and opinions, with which participating law firms must comply.
• Larger lines of credit are available. Banks are typically reluctant to lend large sums of money to firms engaged in contingent litigation.  As a result, bank lines are generally insufficient to cover the majority of a firm’s inventory of case development costs.
• Reduced risk. Traditional banks are often indifferent to the cash flow requirements of a trial lawyer when a line of credit expires.  Most providers have designed their programs to insure that attorneys have sufficient time to bring cases to a successful conclusion.
• Eliminate Phantom Tax. Since advances on case expenditures are generally not deductible the capital that is invested in case development can show up as income to the firm resulting in a tax payment on funds  that are not realized or available to either the firm or its partners until the underlying cases are successfully resolved which may be years later.