Sleeping with the Enemy-Litigation Loan Agreements: Are They Legal?

In a lawsuit involving multiple parties, sometimes one defendant wants to settle the case even if everyone else doesn’t. In these situations, they might use something called a “litigation loan agreement” to reach a settlement. This involves making two payments to the person suing (the plaintiff)—one is a regular settlement payment, and the other is a “loan” to help them keep paying for the lawsuit. The loan only has to be paid back if the plaintiff wins more money from the remaining defendants. This type of agreement can be good for both sides because the plaintiff gets a higher minimum settlement amount, and the defendant can get out of the lawsuit knowing they won’t have to pay as much. It can help settle the case, even if not everyone involved agrees to it. A litigation loan agreement is when a defendant in a lawsuit helps finance the plaintiff’s case against other defendants. This could be seen as unfair because the settling defendant still has a financial stake in the outcome of the case. In Florida, this type of agreement may be considered illegal, but there are some differences between a champertous agreement and a litigation loan agreement. Basically, when a defendant settles a lawsuit with someone, they are still considered to have an interest in the case, even after they settle. So, a loan agreement for the lawsuit is still valid even after the defendant settles. This is because the purpose of the loan agreement is not to cause trouble or encourage unnecessary lawsuits, but to end the lawsuit that is already going on. In short, although litigation loan agreements may appear to be like champerty, they are not because they don’t involve a third party with no real interest in the case. These agreements actually encourage settlements and the end of legal disputes. As for Mary Carter agreements, a litigation loan agreement may decrease a defendant’s liability in proportion to other defendants, but it doesn’t have the secrecy or continued participation of the settling defendant that make up a Mary Carter agreement. So, it’s not an invalid Mary Carter agreement either. The Florida Supreme Court said Mary Carter agreements are not allowed because they let a settling defendant stay in the case and influence the trial. But with litigation loan agreements, the settling defendant is fully removed from the case, so it’s not the same thing. So, litigation loan agreements are not considered unfair like Mary Carter agreements. A litigation loan agreement is a tool used to settle ongoing lawsuits by guaranteeing a minimum recovery for the plaintiff. It is not unfair to the defendants because it has the potential to reduce settlement costs. It is not considered champertous or a Mary Carter-type settlement, but rather a way to achieve a fair resolution of complicated litigation. The public policy of Florida is to encourage the settlement of civil actions, and litigation loan agreements further that policy. Florida courts should not undermine the settlement of civil actions by holding litigation loan agreements invalid.

Source: https://www.floridabar.org/the-florida-bar-journal/sleeping-with-the-enemy-litigation-loan-agreements-are-they-legal/