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July 29, 2010 |
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| May 12, 2008 |
By: Billy Shields |
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udwing Benard suffered a dislocated disk while moving luggage as a cabin steward for Royal Caribbean Cruise Lines in 2004. After the accident, he couldn’t handle the intense physical work and returned to his native port town of Bluefields, Nicaragua.
Slideshow: Ludwing Benard
Benard said he didn’t try to contact anyone about a lawsuit and didn’t even consider suing. But within a week of returning home, a Miami-based litigation finance company called Fast Funds located him there. It offered him a $3,000 advance on a lawsuit against the cruise line. Benard would owe Fast Funds the advance plus a 5 percent stake in any award.
With little income, a large family and mounting bills, Benard said he accepted the money after a visit with Marco Barbosa, who delivered Fast Funds’ loan documents.
Barbosa told him to hire the Miami admiralty law firm of Lipcon Margulies & Alsina to represent him in a lawsuit against the Miami-based cruise line, Benard said.
“I explain everything to him. He says [to] me, ‘You got a case,’ ” Benard said in a West Indian patois. He hired the Miami admiralty law firm Lipcon Margulies & Alsina and switched to Miami attorney Jay Wingate.
Barbosa was right about Benard having a case. A personal injury suit was filed against Royal Caribbean on Benard’s behalf in Miami-Dade Circuit Court in August 2005. Royal Caribbean agreed to settle the suit for $150,000 later that year.
Benard said he left the Lipcon firm a month after the lawsuit was filed because he was dissatisfied with Barbosa and didn’t trust him. He said, for example, that Barbosa promised to arrange for him to get a visa to visit the U.S. but did not follow through.
Benard and another injured cruise worker identified Barbosa as a representative of the Lipcon firm, which if true may violate Bar rules prohibiting lawyers, law firms and their employees from virtually any involvement in litigation finance for their clients.
Florida Bar opinion
Benard had his settlement money in hand when Fast Funds sued him in July 2006 for $10,500 that it claimed he owed in fees and other costs — an amount he thought Wingate included in more than $50,000 in attorney fees and costs deducted from the settlement.
Benard’s experience illustrates how the controversial business of litigation finance works and how little protection litigants have in an arena that is almost completely unregulated.
Loan or investment?
The debate over litigation finance company begins over whether they are making a loan or investing in cases. Because courts have ruled their advances are not loans, the companies can charge virtually any percentage of a settlement or verdict in exchange for a cash advance without violating usury laws.
Critics say the litigation finance companies prey on desperate victims, reducing their much-needed payouts from lawsuits.
Some litigants also don’t realize that once they take the money, they limit their options. If a plaintiff takes too much money up front they may be stuck going to trial — and potentially losing — if settlement offers aren’t enough to cover the money they borrowed.
Professional distaste for lawyers buying stakes in the outcome of lawsuits dates back to a common law ban, leaving non-lawyers to build an industry that has blossomed since the 1990s.
Ohio is in the only state to outlaw the practice outright.
In Florida, The Bar prohibits attorneys and their staffs from owning interests in litigation finance companies that advance money to their clients. Bar rules also prohibit lawyers from indirect involvement in litigation financing for their clients.
Despite that, it appears some law firms have close relationships with litigation finance companies that may skirt Bar rules, a Daily Business Review investigation has found.
Attention grabber
Lipcon Margulies & Alsina caught the attention of a Miami-Dade Circuit judge recently when it included litigation finance charges in its legal bill.
Ricardo Alsina and Charles Lipcon attempted to intervene in a client’s lawsuit against Royal Caribbean after the firm was fired by the client. The lawyers were trying to enforce a litigation financing contract between Barbosa and the former client, Rosalyn Hodgson Handsack, who lives in Bluefields.
Hodgson sued the cruise line after hurting her back on the Adventure of the Seas moving luggage. She switched attorneys and the Lipcon firm moved to recover its fees and costs for their representation of Hodgson until it was fired.
Lipcon and Alsina asked Miami-Dade Circuit Judge Jon I. Gordon to order Hodgson to pay $15,577 in legal fees and costs when the case settled.
That included $10,000 in advances to Hodgson. The fee schedule submitted by Lipcon and Alsina to the judge included three different advances owed to Marco Barbosa, the firm investigator who also recruited Benard.
The firm’s fee filing included a contract between Hodgson and Barbosa for the advance.
The judge, who noted in court that a Daily Business Review reporter was present, questioned the lawyers, who identified Barbosa as a third party and told the judge the $10,000 was tacked onto the list for accounting purposes only, but didn’t represent money owed to the law firm.
Alsina then took a highlighter out and attempted to distinguish fees owed to his firm from the advance money owed to Barbosa.
Lipcon and Alsina's list of costs
The judge was confused and then taken aback by the fact that the firm was trying to collect money it now claimed was owed to a third party rather than for legal fees or costs.
“Why is that part of a motion to attach costs?” Gordon asked angrily. “I don’t see how that’s part of your costs.”
When asked later by the Review about Barbosa, Alsina said: “I’m a lawyer. I don’t know what he does and does not do. … All I know is what’s in the records in the case. Pull the records and come to your own conclusions.”
When asked why Barbosa’s name and $10,000 bill were on the fee statement generated by Alsina’s firm, he told the Review, “You’re asking questions that I cannot respond to because they are based on information that is incorrect.”
Benard and Hodgson said Barbosa worked for Lipcon Margulies & Alsina from a base in the Bahamas.
Barbosa is “a representative of the law offices of Lipcon Margulies & Alsina,” according to affidavits filed by Hodgson and husband Carlos Adolfo Hills Parrales in her personal injury case against Royal Caribbean.
Barbosa could not be reached for comment. His lawyer, Paul Hoffman, did not return a call for comment.
Affidavit of Hodgson and her husband
Separating lawyers, litigation finance
Florida Bar ethics counsel Elizabeth Tarbert said lawyers can’t run or have financial interests in companies making litigation loans to their clients, and they can’t direct employees to do the same thing.
Tarbert was speaking in general terms about Bar policy.
When asked whether a law firm could legitimately bill a client for a debt owed to a litigation finance company, she replied, “I can’t say, ‘Oh yes, you absolutely can,’ ‘No you absolutely can’t.’ It depends on the context.”
“I don’t know if I’ve heard of anybody listing a loan by a third party in their own list of expenses,” Tarbert said. She noted medical providers are commonly listed as third parties in personal injury cases.
She theorized the document Gordon received could have been for internal use at the law firm.
“It’s possible that the document they’re giving to the court is part of their system” of accounting, she said. “In any contingency case, there has to be a closing statement detailing all the money going in and all the money going out before a lawyer disperses funds.”
In another example of a firm with close ties to a litigation firm, Nelson Ayala, an investigator with Jay Wingate’s admiralty firm, operated a litigation finance company called Integrity Legal Funding that advanced money to Wingate’s clients.
Integrity Legal Funding was started in 1999 by Ayala as part of the Huggett Law Firm before lawyers were banned from the litigation finance business. In a deposition by Ayala, he testified that he kept running the finance company after the law firm was taken over by Wingate.
Ayala repeatedly avoided questions about the litigation finance business in the deposition, which was part of a lawsuit brought by William Huggett’s widow to recover assets of her late husband’s firm.
Ayala was asked in the deposition about his involvement with Integrity and whether people in the firm knew about it.
“I think most folks at the office may have known. But I don’t — I can’t testify today, iron clad, that he [Wingate] knew,” Ayala said.
Wingate was an associate at the firm and took it over after Huggett’s death in 2004.
Wingate also said he didn’t know that Ayala was operating Integrity for the more than two years while at his law firm.
“When he was with me I told him not to do that, and he didn’t do that to the best of my knowledge,” Wingate told the Review last month. He stopped responding to requests for comment.
But state corporate records still list Integrity as an active company. The latest annual report filed Jan. 28 listed Ayala as the sole corporate officer. The business address listed on the form through the years is a Miami mail drop. Ayala declined comment for this article.
Booming, unregulated business
While lawyers must follow detailed rules regarding their involvement in litigation finance, the business itself falls somewhere between the practices of law and banking without the regulatory mechanisms of either industry.
In Miami, where the court system has become a clearinghouse for arbitration and admiralty disputes from all over the world, lawsuit financing is a business of national scope and international reach, and the financiers have close relationships with several plaintiff firms.
Detractors say the companies exploit down-on-their luck people when they are the most desperate.
“It’s abusive to the victim because they have to pay so much of their money when they win the case,” said Ervin Gonzalez, a class action and personal injury litigator with Colson Hicks Eidson in Coral Gables.
“The fees are astronomical,” he said. “The companies don’t take huge risks. If the liability is iffy or if the ability to collect is iffy, they won’t lend the money. … They’ve got all the control, and they get a huge return on their investment.”
In many instances, the cut of the settlement that a plaintiff signs away to the finance company far exceeds the initial advance, which if the advance were considered a loan could be usurious. But because the advances are not considered loans, the fees aren’t considered interest.
In Benard’s case the 5 percent fee amounted to more than double the advance.
If that advance were a loan, that would amount to 200 percent interest in less than a year. On loans of $500,000 or less, Florida usury law pegs the maximum interest at 18 percent. For loans above $500,000, the maximum is 25 percent.
Risks and big reward
The Florida Bar rules issued in 2002 also prohibit lawyers from co-signing for a litigation loan or referring a client to a finance company where the lawyer owns a stake, Tarbert said.
“You cannot do indirectly what you are prohibited from doing directly,” she said.
While The Bar can regulate the lawyers, The Bar cannot prohibit plaintiffs from taking the loans, which do not require repayment if plaintiffs lose.
That’s a risk the companies face, and nonetheless business is booming.
“When I started it in 1998, I was one of the only ones,” said Harold M. Braxton, who owns and operates Fast Funds. The lawyer, who permanently resigned his Bar license because of a criminal conviction, wonders whether he would have become a lawyer if he had stumbled onto his current line of work first.
With most appellate courts giving their approval, Braxton said: “Courts have held that because we take that risk, the investment is not considered a loan. Therefore we’re entitled to make whatever profits we want.”
Word has spread about litigation financing, and Braxton said competition has become cutthroat. Legal funding companies have popped up across the country. They tout their services as a financial buffer for plaintiffs awaiting their day in court.
Litigation funding “came about due to defense tactics of dragging cases out for as long as possible in hopes of getting a better settlement for their clients because the plaintiff has to settle for less than the case is worth,” said Lauren Lipcon, owner of Injury Funds Now, which has an office address in a Miami Beach condo tower.
Lipcon is the daughter of Charles Lipcon, a name partner in Lipcon Margulies & Alsina.
She said her company is selective when choosing clients, estimating Injury Funds Now accepts only about 5 percent of its applicants.
But critics say that selectivity is because litigation finance companies only fund cases they are certain are winners.
Lauren Lipcon said she and her father don’t share clients, but they both pitch their services to injured cruise workers on the “resources” section of the Web site of the nonprofit International Seafarer’s Association, an organization that helps cruise workers.
Lauren Lipcon would not comment on her company’s fee structure, but some of her contracts have appeared in court files when winning plaintiffs skip repayment.
In a lawsuit against Charles David Voorhies in Louisiana, Injury Funds Now demanded 19 percent of a settlement in addition to repayment of a $25,000 advance on his personal injury claim.
For plaintiff, it’s matter of survival
The debate over litigation finance is a world away from Ludwing Benard, who is focused on his struggle to survive day-to-day in eastern Nicaragua.
He doesn’t quite know what to make of lawyers, lenders and investigators.
Until recently, Benard was under the impression he might be arrested if he returned to the United States because of the lawsuit involving Fast Funds and the Wingate firm.
He said he sent his last $4,000 from the settlement to Fast Funds because of the company’s collection efforts.
“This guy was honest enough” to mail him a check “which shocked me. All he had to do was tell me to go screw,” Fast Fund’s Braxton said. “I can’t collect money down there.”
Benard, who worked for Royal Caribbean for 11 years, making $50 a month plus tips, can only dream of making that kind of money now. While the salary is low, cabin stewards usually make about $800 a month in tips.
He tried to go back to work after his initial injury on a three-month run but couldn’t handle the work. He saw a doctor in Hawaii after being hurt a second time and went back to Bluefields, where Barbosa found him.
Benard now lives in a neighborhood called Barrio Nueva York in the shadow of a baseball stadium and said he gets a little more than $300 a month in disability checks from the cruise line. He tries to make ends meet by taking passengers from place to place in an old school bus he bought.
His conscience is clear, though. He feels like he settled the debt that started with Barbosa’s visit. With that odyssey finished, his lawsuit settled and his cruising days over, the daily task of survival looms large.
“I need to feed my family,” he said. “And no one want help me.”
Billy Shields can be reached at bshields@alm.com or at (305) 347-6649.
Ludwing Benard photo by Miguez Alvarez
Reader's comments
anonymous said:There are so many things in this article that are incorrect. The author should be required to verify his facts before going to print. For one thing, Voohries, has been found guilty of wire fraud after the FBI launched and investigation on him. Voohries defrauded at least 3 funding companies and IFN lost its entire investment. Not to mention all the other criminal charges he is facing for other fraudulent acts. Funding company fees are high because the advances are NON-RECOURSE. Many cases are lost....some due to fraud (ie - as in the Voohries matter) and others just lose. In order for this valuable service to be available - which when done correctly helps clients get HIGHER recoveries - the winners have to pay for the losers. May 12 at 2:16 p.m.
L. Lawrence said:I recevied an advance on my case and it helped me save my home since I was not making any income due to be injured. Not only did the advance do wonders for me and my family, but I ended up with a higher recovery because of it. I was able to hold out until my lawyer could get a much higher offer! May 12 at 6:43 p.m.
Stoptheinsanity said: Laura Lipcon and the rest of her ilk should be ashamed. They are preying on some of the most vulnerable individuals at a time of great need. No wonder that her father has made such a lucrative career leeching on these poor fellows. Like father like daughter, I guess. This loan sharking needs to be regulated if not outlawed. May 12 at 8:17 p.m.
Flossie Segal said: This is an excellent treatment of a very complex subject. Good job.May 15 at 11:29 a.m. |
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