Americans are often portrayed as a fairly litigious group of people – so much so that the term “lawsuit millionaire” is pretty well-established. Most prominently featured in comedy movies, the “lawsuit millionaire” is typically portrayed as an essentially likable oaf that literally bumbled his way into a fortune through the magic of a (usually hilarious) freak accident that a (usually pretty cartoonishly evil) corporation is technically at fault for.
It makes for believable enough movies, particularly when they star Adam Sandler, who by all accounts is a likable oaf that stumbled into a fortune. And certainly real life is not without similar seeming precedents. The United States is known the world over for being the land of the free, the home of the brave and the place where a jury will award you $2.8 million for spilling hot coffee on yourself.
But what tends to be obscured by the flashier and more famous cases — and the proliferation of “rich because they sued” characters — is that civil tort cases are usually both time-consuming and expensive, and this is particularly true in personal injury cases. Plaintiffs, who are suing because they’ve been physically injured in some way, find themselves squeezed by legal fees that often comes coupled with a loss of wages and a medical bill. And those pressures often end up overwhelming the aggrieved, who are then either forced to settle at a lower than fair rate, or who abandon legal redress entirely.
And that’s where the team from Mighty wants to enter the equation with a funding platform for personal injury plaintiffs. They argue that their platform has the potential to tip the scales in favor of the underpowered plaintiff in these cases.
“In the United States, many lawsuits take years to resolve,” Mighty’s CEO and Co-Founder Josh Schwadron told PYMNTS. “Almost three quarters of all Americans live paycheck to paycheck, meaning there were no extra funds to go toward supporting and waiting out a settlement. And then when their case finally settles, they usually end up with far less than what most people would expect — and pursuing it further is not an option.”
The Mighty marketplace exists to help consumers “bridge the gap” between suit and settlement by essentially selling a portion of their outcome to accredited investors.
Schwadron is an attorney and before turning to the world of marketplaces and crowdfunding he was the managing partner at Summon Litigation Ventures, a venture capital company that invests exclusively in commercial litigation.
“In the United States, many lawsuits take years to resolve,” CEO Josh Schwadron toldwrote on the company’s blog. “If a plaintiff is one of the 76 percent of Americans who are living paycheck to paycheck, those years of waiting may be worse than the accident itself. Many plaintiffs are mired in a prolonged struggle to get over the worst days of their lives. And when their case finally settles, they usually end up with far less than what most people would expect.
Personal injury was not his first love in the law, as he noted that he “turned [his] nose up at it” a number of times as the province of “ambulance chasers and neck-brace wearing scammers.” Working in it more closely, he realized that while there were unscrupulous plaintiffs, attorneys and frivolous filers out there, there was plenty of shiftless behavior on the defendant’s side.
“In a dispute with an insurance company, the plaintiff is more likely than not a one-time player in this system. The insurance companies they often face off with are by comparison professional defendants. Some play fairly, others do not,” Schwadron noted. “Frivolous defense is a phrase you will have heard much less frequently than frivolous lawsuits, but there is evidence that indicates that the basic strategy behind it, you know waging a war of attrition, no matter what the merits of the case, is the actual issue that clogs the courts.”
Having money in one’s pocket is often enough to bridge those gaps for those involved in tort litigation, however, and that is the benefit Mighty seeks to provide.
On average, a loan on the platform is around $5,000. Plaintiffs can only finance 10 percent of the estimated value of their settlement. And the loans are all offered as non-recourse investments, meaning that if a plaintiff loses, the investor loses, too. They don’t get their money back.
Which, Schwadron notes, justifies the interest rates plaintiffs will face when financing through Mighty. Though investors theoretically compete by offering litigants lower rates, Mighty’s interest rate is around 20 to 30 percent annually, much steeper than most traditionally backed personal loans or credit cards. Schwadron also noted that for plaintiffs without access to those traditional options involved in a personal injury case, the 20 to 30 percent APR is often still a much better deal than having to take any offer made due to financial constraints.
“Plaintiff financing provides plaintiffs with funds that enable them to live their lives while they wait for fair settlement offers. It’s not a loan; it’s an investment, which yields a return to the investor only if a plaintiff’s case settles or is won.”
And it’s an idea that is gaining traction. Since launching almost a year ago, the firm has sent out $1 million in loans and recently picked up $5.25M Series A funding earlier this year. Schwadron noted that 2016 will be intensely focused on growing the firm’s user base.
Mighty is not treading on entirely new ground. There are already several players that exist to offer monetary support to plaintiffs in ongoing personal injury cases. These firms are often accused of encouraging frivolous lawsuits and being dangerously opaque in financing models.
Schwadron says that Mighty wants to use tech to bring the appropriately respectable air to an area where financial inclusion is becoming a real social justice issue for many Americans guilty of nothing other than getting injured. The platform vets the cases before offering them up to investors, putatively screening them for frivolity, and by its marketplace design seeks to make the pricing and fees transparent for all players involved.
Schwadron does not believe it will fix the myriad problems in the tort system, but if it can make things a bit more fair in a way multiple parties can benefit from, he thinks it’s a pretty good first step.