Some call it a disturbing trend.  Others call it a win-win for accident victims and low to middle-income families across America who might not otherwise be able to afford to seek justice in a court of law.

The issue is legal lending; to plaintiffs who don’t have the money to pay for surgery related to a claim or pay their bills while their case is tied up in court, or to law firms who can’t afford to hire expensive experts or survive a lengthy drawn-out battle with a corporate giant.

Supporters say more legitimate cases are now being heard and that means more little guys are now getting an opportunity for justice.  Critics say this practice leads to an increase in frivolous cases that clog courtrooms.  There’s concern among some that the legal system is becoming something like a casino for big investors seeking a better than average return on their money.

In fact, big hedgefunds are diving into the legal lending field.  According to a recent report in the New York Times, hedge funds and big investors are devoting a billion dollars towards lawsuits at any given time, with 250 firms in New York alone borrowing money to fund cases.

One case where firms and plaintiffs both borrowed is the 9/11 Ground Zero Workers health claim, where first responders said they suffered injuries after breathing the air in lower Manhattan.

Another case making headlines is the Bernie Madoff Ponzi scheme which left thousands of investors seeking billions in restitution.  Several firms are now reportedly offering victims an immediate payout of 20-30 cents on the dollar in exchange for the firm’s right to seek the full payment themselves, which could be 40-60 cents on the dollar or more.  The money fueling the payouts comes from hedgefunds and speculators.

Lisa Rickard with the Institute for Legal Reform says the wall street money is corrupting the legal system.

“It’s an inherently dangerous practice because what we are doing is we are putting a third party into a lawsuit and now you have the lawyers trying to get their cut in a contingency fee scenario. You you have investment funds that are trying to get their cut and there is very little left for the plaintiff at the end of the day.”

Charles Ernst, who formed Law Street Capital to front money to plaintiffs, mostly in personal injury cases, disagrees.

“They’ve come into some economic hardship whether they’ve lost work as a result of their injury, they’ve got medical bills they they cannot pay or any expense that was incurred through no fault of their own, they need to get some bills paid.  They’ll come to a company like ours so they won’t have to be forced into a low settlement value, just because they have to get out of the financial strains that they’ve incurred because of their injury.”

In some cases firms will borrow to fund cases but they aren’t obligated to tell the plaintiff until after the case is resolved, leaving the client facing interest charges they weren’t expecting.

Trial Attorney Benedict Morelli, a founding partner of the firm Morelli Ratner doesn’t need to borrow to pay expenses on lawsuits.  His firm has the resources to fund every case, but he still supports the practice, suggesting the biggest opponents are major corporations who don’t want the little guy to have the power or reserves to survive a long drawn-out battle.  He also says firms that borrow and the firms that lend to them do plenty of due dilligence to insure they only invest in cases with merit, actually REDUCING the number of frivolous suits on the docket.

“Would you be funding a unmeritorious case?” Morelli asks.  “Putting up $10, 20 thousand to fund a case that you knew was not meritorious because maybe you could fool somebody?  That’s absurd.”

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