Loan Against Your Accident Case

Jonathan D'Agostino: How did you get above with LawCash? Ari Kornhaber: It's interesting, I was practicing Law at that time and it's when I actually first realized there was a need for this type of specialty finance what's known out there as Litigation Funding or Non-Recourse Funding or a Pre-settlement Funding. Jonathan D'Agostino: Where you doing plaintiff's personal injury? Ari Kornhaber: I was, I was representing plaintiffs who are injured in accidents or injured due to medical malpractice, things like that, and at the time my clients would come to me and say, Mr. Kornhaber, I know you are working very hard in my case and I know these case take years to resolve, but I need some money now. I am having trouble paying my rent, or my mortgage, or my daughter's college tuition is due and I know my case is going to be worth money down the road, but I need some money now. Could I borrow money from you, you say my case is strong. Jonathan D'Agostino: Isn't it amazing? It's a problem that I deal with; I don't want to say everyday, but definitely every week. Where clients assume that because you are handling their case and there is an expectation, they are going to receive money. That may be you can loan or advance money and just can't do that. Ari Kornhaber: It's against the rules of ethics and just that every State that an attorney cannot lend their own client money, it creates a conflict of interest. Jonathan D'Agostino: Absolutely! So what happened you decided to leave the practice of law or --? Ari Kornhaber: Decided to leave the practice of law and to get into Specialty Finance which is known as Litigation Funding. It's an interesting industry. Those same clients who came to me when they were my clients looking for money were unable to go to a bank and borrow money. They didn't have the creditworthiness and they have exhausted their other resources. Jonathan D'Agostino: We know it is, when you have somebody who has been, let's say, seriously injured and they are out of work and as a result of being out of work the income is not coming in like it was, they are not paying the mortgage or the rent, utilities, you name it, debts piling up, sometimes they get a little desperate, and I think that that is probably what prompted the growth of this industry, Litigation Funding. Ari Kornhaber: It's true. These individuals were physically injured, emotionally injured and their credit was being damaged as well. A lot of these individuals were also working 9:00 to 5:00, and they are working overtime and supplementing their salary with overtime and then they are go on disability and they are taking home may be 60% of what they were bringing home before the accident. Jonathan D'Agostino: Through no fault to their own, that they are in this predicament. Now LawCash has been around how long? Ari Kornhaber: About nine years now. Jonathan D'Agostino: And how long have you been there? Ari Kornhaber: I have been there about seven years. Jonathan D'Agostino: Okay. Ari Kornhaber: And yeah, like you mentioned, it's now a thriving industry. It's become prevalent in the practice of Litigation and also quite accepted in Litigation. There were controversial aspects of it and it has to be done responsibly and ethically. Jonathan D'Agostino: I think there are a lot of misconceptions about it. I think that the legal community has a lot of misconceptions. Ari Kornhaber: Right. Jonathan D'Agostino: And I think they are just like any other business, they are probably good and bad parts. It's not for everybody. Ari Kornhaber: It should be more of a last resort type of thing. Jonathan D'Agostino: And how do you -- LawCash decide if a case is a good candidate or if a plaintiff is a good candidate? Ari Kornhaber: When an individual contacts us to see if they could obtain and advance against their future potential recovery against their personal injury case, we look at three things. We look at the liability of the case, meaning what happen in who's fault? The damages which in cases like this were typically their injuries and how much insurance coverage is available. We look at those three aspects; we have attorneys who work for us they are our underwriters. We come up with how much we feel the claim is ultimately going to settle for. And it will consider an advance of up to about 10% of what that projected settlement value is. Jonathan D'Agostino: Now, what's the difference between the advance that your company makes and a loan? Ari Kornhaber: It's actually a distinct difference. In order to constitute a loan, there must be what's known as an absolute obligation of re-payment. With Non-Recourse Funding or Pre-settlement Funding, if we advance money to an individual with a case and the case is lost, we don't get our money back. We have no recourse to go after the individual or their personal assets. So it's very risky and also expensive to sort of offset that risk. Jonathan D'Agostino: If you said if a case is lost, what about if a case is discontinued or dropped? Ari Kornhaber: If the case is discontinued or dropped then we also lose our money. If it's dropped and then reinstated again we try to follow that and try to get our money back, call it to clerk, we like our money back every once in a while. But again, if it's done responsibly and ethically it could be such a valuable resource and tool for these individuals. And the reason I say that is, I speak to lawyers everyday from around the country and there is a common theme that I am hearing which is these cases are taking longer and longer to resolve. And we looked into it and we know why, it's for financial reasons. The insurance companies that are ultimately going to settle these cases are holding onto all of their money and investing those dollars and they are earning interest and at the same time they are putting financial pressure on the individual and at some point they are going to make as you know a lowball settlement offer and try to make that individual take as little as possible in terms of a settlement. Jonathan D'Agostino: Your patience is required because I am the one who is always telling clients that the insurance companies are just like any other business trying to make money and save money. In my opinion not looking out for a way to adequately compensate somebody, quickly and fairly. They make money from their money. What kind of success stories do you have? Ari Kornhaber: When that comes to mind, we are talking about lowball settlements. I was in Orlando, Florida at a national conference of trial lawyers and I was approached by an attorney from Mississippi and he was asking, what does your company do and how does it work and I was just like this, just going through it. And I mentioned lowball settlements, and he said, called over one of his associates. He said, Ma'am, tell Mr. Kornhaber about our client so and so. And they told me the story and he said to me, I think this case has a settlement value of -- an excess of $500,000 and we are about a year away from getting finished with discovery and being in what's called the trial part. Jonathan D'Agostino: Let me guess and it was $100,000 offer on the table. Ari Kornhaber: They were a little more generous, about $125,000 offer. Jonathan D'Agostino: Okay. Ari Kornhaber: So we got back to our offices and he sent us an information on the case, we did our review, liability damages insurance coverage. We felt the case was worth well in excess of $500,000. The client came to us and said, I need $25,000 to survive financially for the next 12 months to be able to pay my mortgage and keep the lights on and bring food to the table. So we did the $25,000 advance, 12 months later, the attorney settled the case for $800,000. And he actually provided us with a testimonial and he brought it back to his office and they talk about other instances to remember to remember, to use Pre-settlement Funding or Non-Resource Funding to prevent lowball settlements. It's leveling the playing field on a case-by-case basis. Jonathan D'Agostino: Why shouldn't a plaintiff go through Litigation Funding? Ari Kornhaber: It's very expensive, the truth is to offset that high risk, there are high rates and the rates generally in the industry range from between 2-6% per month. We are right around 3% a month. There were no monthly payments. So the fees that accrue every month are added to the principal and it's compounded monthly. So every month the amount owed grows and grows and grows. So you have to be very careful about how much you take, because again you don't want to get into way of settling the case down the road. Jonathan D'Agostino: That's true, and I have seen the situation where a client needed funding, and the case had a value, not a very high value, may be $50,000 value. And we warned our clients, right up front, we say, look, when the time comes, when we do have that offer on the table for you, you cannot use this as a factor determining whether or not you are going to sign that release and accept this offer. The value of your case does not go up because you owe money to a company like LawCash. Ari Kornhaber: Correct! Jonathan D'Agostino: And it can become a problem, but I think that if the plaintiffs are educated by the attorneys, they are giving that explanation because it's actually in the paperwork, it can be confusing, and ultimately you are talking about somebody who is desperate. Ari Kornhaber: Right. Jonathan D'Agostino: I don't want to lose my house, I need the money, whatever it is, we generally don't have any problems that come to mine. Ari Kornhaber: Again as an Attorney who represented clients just like your's, I am sensitive to your issues. I know what your issues and concerns are. And we have evolved and our funding agreements now have in bold print a repayment schedule on the first page. We believe in full disclosure and transparency, we have a five-day right of recession. If your client takes money from us and then has a change of heart, if they say within five days, you know what this isn't for me, we can return the money at no cost to them and in the repayment we'll show them in bold print if you take X amount of balance today this is how much it turns into every 90 days for three years, and that number will more than double. And we have more clients now than ever saying, no, thank you, that's too expensive, and we say good, rather you say, no, now, and complaint to you and me a year-and-a-half later saying, I didn't know what I was getting myself into. We want your clients like you've mentioned making informed educated decisions and we want to help educate them. We want the attorneys we work with to help educate them, so they know what they are doing. Jonathan D'Agostino: Do you find that in most cases the attorneys are the obstacle for you, or define that the attorneys are endorsing your company and it's the plaintiffs who are afraid to pull the trigger? Ari Kornhaber: With those choices it would be the attorneys. We're still in the process of educating the attorneys about how we do this. A lot of attorneys think that if a client takes $5,000 from us, they are going to have the settle the case for $5,000 more. And they are working hard enough to get a fair and reasonable settlement offer, they don't need another obstacle like us. So again, if there are responsible ways to do what we tried to demonstrate that and we are the first ones to say this is not for our every client. This is not for most of your clients. Let's agree on that and if we could agree that this funding is not for most of your clients then may be we could agree that may be it is for some of your clients. Like few clients who were offered Low Ball settlements and I have a couple of other examples, if you want to talk about those now. We don't get involved in any aspect of the case, we don't get involved in how our money is used. But we do ask the clients who take money from us, why do you need our money and what you are going to do with it, and over 60% of our clients say they use our money for housing needs, to prevent foreclosures and evictions. Jonathan D'Agostino: You ask them how, through a questionnaire or you physically ask them, do you interview them? Ari Kornhaber: With a questionnaire, we ask the last page of our funding agreement is an optional page, and we say please if you desire to tell us what you are going to do with the money, and the ones who have answered well over 60% say it's for housing needs. So if you have a client who has a good case and it's going to take some time to get full value and the client now has an eviction notice or a foreclosure notice and can't get financing from the bank, they have used at credit cards camp or money from family or friends, should that client be out on the street or may be take an option of financing, that's more expensive than bank financing, but we will keep the roof over their heads and their family's heads so they could have the financial ability to survive until the case is able to be settled for the appropriate value. Jonathan D'Agostino: Is there a cap, is there a minimum or maximum on the amount that you will advance? Ari Kornhaber: Again we have the sort of 10% rule, so we will only consider in advance of up to 10% of the minimum value of the case. Jonathan D'Agostino: No exceptions? Ari Kornhaber: Very rare exceptions. The truth is, the biggest problems we had or with clients who weren't fully honest with us. When a client comes to us with what appears to be a great case. Client was in a car accident, the client was stopped at a red light, it was hit in the rear, the client sustains a torn labrum confirmed on an MRI and needs shoulder surgery and has the shoulder surgery. Jonathan D'Agostino: And there are limits that are high enough to compensate the client, we have everything. Ari Kornhaber: There is enough assurance, and we have everything, we have all three. We look at the case, it looks like a great case. It turns out that the client forgot to tell us and forgot to tell the attorney that this is the third car accident, that the shoulder tear was already there, and yes, this accident created the need for a surgery, but instead of the case being worth X, it was worth half of X. Jonathan D'Agostino: Right. Ari Kornhaber: So we have to be very careful, so there are exceptions we try not to break. Jonathan D'Agostino: Do you do any sort of background check? Can you check to see if they are prior claims or anything like that? Ari Kornhaber: Yeah, we do, we make sure the client is not in bankruptcy, number one, you can do a public search on that. There is a new system that was formed through an organization that our company started. There is a not-for-profit trade group, this is pretty new called ALFA, stands for the American Legal Finance Association. Again it's a not-for-profit trade organization that was created to establish best practice guidelines for companies involved in pre-settlement funding. They don't discuss pricing that would have some antitrust violations and things like that, but they have all agreed to put that repayment schedule on the first page. The right of recession, the 10% or things like that. Look, in every industry there are good guys and bad guys, we believe we are one of the good guys, and we believe that ALFA has brought the groups that want to be part of the good guys together. So the companies that are members of ALFA, share their information so when you advance money to an individual, you post that in a system so if that client then goes to another company within the ALFA organization, they could check the database to see their prior funding. Most of the funding agreements do not allow a second funding from a second company. Again, to control the process, if one client is able to get money from five different companies then that 10% rule could be out of the window and then the attorney has a very different time. Jonathan D'Agostino: I thought of that. Did you see some clients jumping around from company-to-company and looking for that advance and we are getting applications faxed and e-mailed and mailed and it's out of control sometimes. Ari Kornhaber: It is, you know what else it has been an emergence of brokers in this industry. Jonathan D'Agostino: I haven't seen that. Ari Kornhaber: This is big, there are brokers who are on the Internet all over the place and they are getting lists from I don't know where, but they are e-mailing individuals who have pending lawsuits and saying you could get money today, call me, then they call the broker, then the broker will call a company like us and say, hey, I found this client who wants funding and we don't like working with brokers because the broker wants a broker fee. Again this financing is already very expensive. If you add a broker's fee on top of that and the brokers are holding themselves out to the public as if they are funding companies, but they are not. So you really have to be careful of brokers and broker fees and other hidden fees like underwriting fees. Jonathan D'Agostino: I am how long do you think this industry has been around? Ari Kornhaber: Just about ten years. Jonathan D'Agostino: I am doing this 20 years and I would say about ten years ago, and now you see the commercials all over television and it seems like it's just continuing to grow, which means like you said, good guys and bad guys and there is going to be corruption, there's going to be somebody who can figure out an angle how to make a buck and how to take advantage of somebody. And it's a little scary. Ari Kornhaber: Again for me it's all about the education about it. If the attorneys know how it's done, what to look for, what to look out for and the clients are making informed to educate the decisions. Again there are times when it should be used in times where it shouldn't be used. Another instance when it should be used comes to mind. Jonathan D'Agostino: Should or shouldn't? Ari Kornhaber: Should be used. Jonathan D'Agostino: Okay. Ari Kornhaber: Is when a client needs surgery, for example, sometimes an individual is injured in a terrible accident and they don't have health insurance. Jonathan D'Agostino: No coverage. Ari Kornhaber: Now if the liability is good and the insurance coverage is there, companies like ours will make the advance directly to the medical provider and we feel that's a real win-win situation. Number one and most importantly the client gets the medical attention that they need. Number two, if the injury was caused in the accident and he needed a surgery because of that injury that was caused in the accident and they have deserving the value of the case, then goes up and they should be entitled to the greater compensation that they deserve. Jonathan D'Agostino: I have had clients who haven't had the health insurance, there's no coverage. The liability is there, the injury is there, the need for surgery is there. They don't have the funds, they actually wanted to settle their case so that they can then have the funds to go and have the surgery. Ari Kornhaber: Right. Jonathan D'Agostino: Which is a tough situation. Ari Kornhaber: You know as well as any other attorney out there, a case where there is a recommendation for surgery, doesn't have the same value as a case where the client had the surgery. Jonathan D'Agostino: Sure, and once you have the surgery it's all the rehab that goes with it. Ari Kornhaber: Similarly sometimes there may be an orthopedic surgeon who will perform the surgery on a lien, and say, you don't have to pay me until the case settles and you could pay me after your settlement funds. Jonathan D'Agostino: Did you say an orthopedic surgeon that will do surgery on a lien? Ari Kornhaber: I have seen it. Jonathan D'Agostino: Can I have the name and number? Ari Kornhaber: Yeah sure. They are out there, I mean, less and less. When I was practicing there were plenty of doctors. Jonathan D'Agostino: There were but it just seems like it's tough to find these days. Ari Kornhaber: Well, even if you have the doctor who will provide the medical care on a lien basis, hospitals will not. The patient or the plaintiff still needs prescription medicines and if they are out of work again because they need the surgery, they are now again not bringing home the income they were before the surgery. So this is a good bridge to gap for. Jonathan D'Agostino: It could get dark. It can became a nightmare, and we are dealing with a case right now where the client's case settled for a lot of money, seven figures. But if you have a seven figured case, you've got seven figure injuries. Ari Kornhaber: That's right. Jonathan D'Agostino: And he was out of work for years and his house is almost in foreclosure now, just barely hanging on and we are just waiting for the money to come in. He actually used your company, and so it helped him a lot. Ari Kornhaber: Good! Jonathan D'Agostino: To say that, that was actually a real success story, but we are going to wrap that up this week and we will move on and everybody will be happy. But without either your company or any other liking someone to provide that kind of funding, I don't know what you would have done to be honest with you because with that fund he was able to hold on to his house for the rest two years. Ari Kornhaber: We hear that everyday stories like that and I love hearing stories like that. When I was practicing law I was very proud to be a personal injury lawyer and I faced comments all the time, I was called an ambulance-chaser. And I got to be honest with you. Those comments, they went down to my core and really bothered me because I had relationships with my clients and I felt like I was so much more than their attorney. I was really their counselor. Jonathan D'Agostino: Right. Ari Kornhaber: And I would help them just talking to them, we help them. I recognize that they were not just an injured name on someone in complaint. They were a person who had a life changing event through no fault of their own that impacted them and their families and their ability to live life to its fullest. And I was very proud of what I did, and I am very proud of what I am doing now and the way we are doing it now and I hear the comments now about loan shorts and things like that and it's the same kind of thing. Good guys and bad guys. Jonathan D'Agostino: You can't get around it, and if you are a person forget lawyer, forget about LawCash. But if you are a person who cares about people in general, and if you generally like people and you want to help people, if you are a giver and you happened to be the person as your lawyer, you are going to get involved, and you are going to tell your clients I am not just here to get your money, I am here to help you. If you have a problem you call, if you need sit down and talk, you come in, that's who I am. I take a lot of pride in that because let's face it. There are a lot of good lawyers who can get the job done in the end, but getting the job done whether it's getting somebody money or whatever it is, whatever you are, you still have that period of time, it may take a year, it may take two years. What is going to happen, what's the relationship going to be like, what is the communication going to be like, and that's why I think that if you were that way to begin with as a lawyer working in your industry probably brings you a lot of satisfaction because you are able to help people like that. I am sure, and I don't want to put you on the spot, but I am sure there are instances where it doesn't work out, or may be they shouldn't have taken that advance. And may be at the end of the case they were left with very little live in their pocket because they took the advance, because it took so long, because they had to repay so much. It happens, and I think that's the risk on both sides. Ari Kornhaber: That's right, and we do everyday reduce our liens so to speak if a client took X and we are owed Y, and his lawyer calls us and says, look, I have to settle this case for whatever reason, it's not as strong as we thought it was. Could you take less than what's owed? We do it all the time. Jonathan D'Agostino: It's compromise. Ari Kornhaber: It's a compromise. Speaker: But again it's all part of the relationship. Ari Kornhaber: Right. Jonathan D'Agostino: May be it will be future business coming from that firm because they know that you are a company that will compromise. And as we all know in this industry we may figure cases worth $100,000 we'll find out it's only worth $50,000, what are we going to do at that point. So we all have to kind of bite the bullet at some point and move on. Ari Kornhaber: That's right. Jonathan D'Agostino: What about funding that you do for lawyers? Did you get involvement fees? Ari Kornhaber: We do some financing for lawyers, we do loans, lines of credit and the biggest thing we are doing now is what's known as Case Cost Financing. It's interesting, lawyers who represent injured individuals, personal injury lawyers, medical malpractice lawyers and such work on a contingency fee. So these attorneys don't get paid until their case is settled. Jonathan D'Agostino: That's right. Ari Kornhaber: And that means that their cash-flow is very what I called advent flow or lumpy. So up and down, up and down, it's not predictable and when cases are settling things are good. When cases aren't settled and attorney may go through a month or two where cases aren't settling. Well, their overhead continues, they have to pay their salaries and bills and they are also paying for case cost -- Jonathan D'Agostino: Tell me about it. Ari Kornhaber: -- and well you could probably tell me more about it. Lawyers could go to banks and apply for lines of credit, there is actually a bank out there now for lawyers called Esquire Bank, which is a bank that's only about 18 months old which is a bank that truly understands the different financial needs of contingency fee lawyers. But then there are also specialty finance companies that -- again, lend money to lawyers and law firms that unlike banks, a bank will look at an attorney's creditworthiness strictly from the financial standpoint. They'll look at their tax returns and income statements and things like that. The specialty finance company like ours will look, determine an attorney's creditworthiness, it's not just from the financial standpoint, we look at that information and it's waited. What holds a greater way to us is the value of the cases. A bank can't look at your cases and really analyze them. We can, as an attorney, as an attorney -- organization. Jonathan D'Agostino: An attorney who is trained to understand. Ari Kornhaber: So we consider your case as assets, and it's a very interesting asset class. We call them contingent assets. Why? Well, a couple of reasons. Data maturity, speculative value. You may lose a case or two along -- well not you but lawyers may lose a case or two along the way, but again if we could understand the value of your cases, of your inventory, we could leverage those cases and give contingency fee to attorney's access to greater capital with much more flexible repayment. Jonathan D'Agostino: Is that growing in this industry as well? Ari Kornhaber: It is, in fact I have to get out of here soon because I have so much business to do. Jonathan D'Agostino: That's cool, well let me ask you one more thing? Ari Kornhaber: Yeah. Jonathan D'Agostino: Where do you see this industry ten years from now? Very briefly, because I know you can probably talk about it. Ari Kornhaber: I could talk about it forever, but I think it will continue to grow and evolve, I think more and more attorneys and clients will be utilizing specialty finance companies because banks don't understand litigation. I think the rates will come down as companies like ours grow and we continue to have this success that we are having if it's done the right way. I think we will be able to get cheaper capital, that we will be able pass through to the consumer. Jonathan D'Agostino: You know what I love about it, that it takes away some of the leverage that the insurance companies had in withholding settlements in cases because people needed the money, specially around holidays you get these low offers around the holidays because people need the money, and now people have a company like your's there to help them waited out, they can maximize their recovery and everybody wins. Ari Kornhaber: That's the whole thing and a recent evolution is something we are very proud of, that we call a rolling contract. If a client needs $12,000 for the next year to survive so they could pay their mortgage into the case settles. May be instead of giving the clients $12,000 today and saying, Ma'am, this is the whole joule (ph) for the next 12 months. $1000 will show up to first of every month. Number one, show them to use that money more responsibly towards our monthly need. In our experience if we give the $12,000 on day one, it's typically gone in 90 days or less. Again, if the fees are 3% a month. Well, instead of being 3% against $12,000 on day one, it's only against $1,000 on day one. And against $2,000 and the prior month's fees on day say 32. So at the end of the 12 months the client owes the funding company a lot less. Jonathan D'Agostino: Right. Ari Kornhaber: Now, not every funding company will offer those rolling contracts because the companies don't do as well, but for us we believe in the relationships, not maximizing our yield on every case and it does, it just generates more business because it's the responsibility to do it. Jonathan D'Agostino: Alright, I am going to run. Ari Kornhaber: Okay. Jonathan D'Agostino: Good! Ari Kornhaber: Great to see you! Jonathan D'Agostino: See you later! Ari Kornhaber: Loved spending time with you. Jonathan D'Agostino: Same here! Ari Kornhaber: Thanks Jon! Jonathan D'Agostino: Alright!