Federal Judge Alvin Hellerstein is to conduct a hearing this week to investigate whether lawyers for 9/11 first responders in their case against the City of New York, can pass on loan interest costs to their clients or whether such costs represent overcharges. Of the proposed $712M settlement, the lawyers are due to collect almost $200M in legal fees and expenses. At issue is the latter which includes "repayment of interest expenses".
In "Ill Heroes Must "Shel" Out" an article by Joseph Goldstein and Susan Edelman appearing in the August 22 edition of New York Post ,it has been reported that workers contend that they had no knowledge of the loans, not to mention being socked with interest charges that run at 18% per year. The Post says that Worby Groner Edelman & Napoli Bern borrowed $20-30M to fight the cases over 6 years. Purportedly such loans are needed to fight large cases against well funded defendants because of the lack of available traditional financing. It was also reported that another unnamed law firm representing 689 Ground Zero first responders told Hellerstein that it neither took loans nor would charge interest to its clients.
The article is implicit in its criticism of New York Assembly speaker Sheldon Silver who is an investor in Counsel Financial Services, the firm that made the loans to the lawyers. Silver's office contends he is only a passive investor in Counsel Financial.
The Counsel Financial website contains a copy of a State of New York Ethics opinion which states:
Ethics Opinion 754-2/25/02
1. It is ethical for an attorney to borrow funds from a third party lender to cover litigation expenses, or to fund his law practice.
2. The interest charged by the lender to a lawyer on the funds borrowed by the lawyer to fund litigation expenses may be passed on to the client as a legitimate litigation expense if certain conditions are met:
A. the client must remain ultimately liable for expenses paid under DR 5-103(b)(1),
B. the lawyer can not have any interest in the lender,
C. client confidentiality cannot be compromised,
D. the terms of the borrowing are disclosed with adequate advance notice to the client,
E. the time after which interest is charged to the client, and the loan interest rate, are both reasonable,
F. the client has consented to the loan in advance of the closing thereof,
G. the client is permitted to avoid paying the interest charges by paying the funded disbursements before the loan is taken, and
H. the disbursements themselves must be fair and appropriate to the case.
See also , Ass´n. of the Bar of the City of New York, Formal Op. 1997-1.
One has to presume that Judge Hellerstein will address these points in his investigation.
Of interest to structured settlement stakeholders, Counsel Financial has ties to Millennium Settlement Consulting, an IFS Company.
According to his bio on the Millennium website, Buffalo settlement consultant Steven Mingle joined Millennium Settlement Consulting..."through his affiliation with Counsel Financial Services as their in-house structured settlement consultant and loan officer... and a number of years with Plaintiff Support Services". Mingle's office location as shown to be the same as both Counsel Financial and Plaintiff Support Services.
Another settlement consultant, in the Buffalo area, Jennifer D'Andrea-Terrreri, whose website is entitled Millennium Settlement Consulting, lists non-recourse financing and loans to lawyers on her website as "affiliate services".
The phone number shown on the website for Mark Weitz, another Millennium settlement consultant, is also shown to be a phone number for Weitz and Luxenberg, PC. The Post claims the name partners of that firm are Chairman and Vice Chairman of Counsel Financial.
Note that the New York Post does not suggest any wrongdoing on the part of Counsel Financial.