The consumer litigation finance industry in the state of New York is currently unregulated. The industry is not new, it has been around for about two decades, but it is starting to gain increased scrutiny. Companies in the industry help litigants make ends meet while they wait for settlements to be paid out, and only collect on their loan if the litigant is successful. However, there are reports of these companies charging interest rates of as high as 124 percent on those loans.

New York’s state legislature is considering legislation to regulate the industry with S. 3911 and A. 8966. S. 3911 would define consumer litigation financing agreements as those where the amount of funding is no more than $500,000. It also puts in place other restrictions, including a cap on charges of 16% of the funded amount.

  1. 8966 is largely similar, but notably does not define consumer litigation financing agreements as those where the funding amount is less than $500,000. It focuses much more on the details of the contracts but leaves the definition of what a consumer litigation financing agreement much more open than its Senate counterpart.

Maya Steinitz, Professor of Law at the University of Iowa College of Law and Visiting Professor of Law at Harvard Law School offered testimony on May 16, 2018 at the New York State Senate Committee on Consumer Protection regarding these two bills. Her testimony specifically focused on consumer litigation financing. Professor Steinitz notes areas in these proposed new regulations that can be improved upon to make the legislation more effective at protecting consumers.

She even notes that S. 3911 is going in the “correct direction” by exempting “contracts offering non-recourse financing of more than $500,000 from its scope.” This is a step in the right direction “in the sense that the Senate bill attempts to focus its protection on those individuals who are less sophisticated litigants.” While the exemption for contracts financing over $500,000 is a step in the right direction, it’s an “imperfect way to capture the difference between different kinds of litigation finance consumers.” Borrowing from the field of securities regulations – which distinguishes between unsophisticated and sophisticated investors she suggests “protecting ‘unsophisticated plaintiffs’” and advises “amending sections 2 and 4 of the Senate bill to read … “‘Consumer litigation funding company’ shall mean a person or entity that enters into a consumer litigation funding contract to provide non-recourse funding to an unsophisticated plaintiff” and “‘Consumer litigation funding contract’ shall mean a contract to provide non-recourse funding to an unsophisticated plaintiff.”” Essentially, to best protect consumers, she argues that the legislature create separate classes of litigants and that the regulations protect those who need the most protecting.

Another concern that Professor Steinitz expressed to the Committee was that “the combination of the compensation of the third part litigation funders and the attorneys’ contingency fees would, separately or combined, leave the wronged or injured plaintiffs without meaningful recovery and remediation.” Her suggestion to address this would be to have “the statute directly guarantee a minimum return to the plaintiff.

She further elaborates that the legislation “should ensure a minimum recovery of no less than 50%, barring extraordinary circumstances, to the plaintiff.” This would necessitate defining “Net Recovery” in statute, and she suggests that the definition of Net Recovery be “the total amount awarded to the consumer less the disbursements of the litigation–including filing fees, transcript costs, expert witness fees, and similar expenses—advanced by the attorney. The charges of the consumer litigation finance company and any attorneys’ fees shall not be included in the calculation of the Net Recovery.”

Both the Assembly and Senate bills are still under review, and Steinitz’s suggested amendments have not yet been added to either piece of legislation. However, it is not unlikely that the bills will undergo further amendment as they progress through New York’s legislature, and Steinitz’s suggestions may still be added.

The U.S. Senate is considering two pieces of legislation that would increase protections for Special Counsel Robert Mueller should they become law. The two bills, S. 1735 by Senators Graham (R – South Carolina) and Booker (D – New Jersey) and S. 1741 by Senators Tillis (R – North Carolina) and Coons (D – Delaware), approach this goal in two different ways. Both add a provision that a special counsel can only be fired for “good cause.”

S. 1735 requires that before a special counsel can be fired, the Attorney General must first file an action with the United States District Court for the District of Columbia and the House and Senate Judiciary Committees contemporaneously. Further, a three-judge panel must hear the action, and the special counsel can then only be removed if the court issues “an order finding misconduct, dereliction of duty, incapacity, conflict of interest, or other good cause, including violation of policies of the Department of Justice.”

S. 1741 reverses that process while keeping the standard for removing a special counsel the same. So instead of the Attorney General going to Congress and the court first, the Attorney General instead first informs the special counsel in writing the reason for the removal. After that, the removed special counsel “may file an action with paragraph (2) that the removal was in violation of this section” and that action must be heard within 14 days by a three judge panel. If the panel determines the special counsel’s removal violates the requirements in the bill, they would get their job back. Interestingly, S. 1741 is retroactive to May 17, 2017 – when Robert Mueller was appointed special counsel.

The last action either of these bills saw was at a September 26, 2017 hearing in the Senate Judiciary Committee, at which Akhil Reed Amar – Sterling Professor of Law and Political Science at Yale University – pointed out serious constitutional flaws in the bills, and proposed a way to achieve the goal of the bills without inviting constitutional challenges.

Invoking Edmond v US, Professor Amar points out that “the Court declared that an inferior officer must truly be … inferior (!) and must in general answer to some superior officer. … At present, a special counsel such as Robert Mueller is inferior (and thus constitutionally kosher) precisely because he can be fired at will  – surely by the AG, and probably also by the President” in his testimony to the committee.

Put another way, in what Amar calls “The Inferior-Means-Inferior Principle”:

Special counsels are not confirmed by the Senate; thus they are only permitted if inferior. But these bills aim to make them independent. One simply cannot both be truly independent and truly inferior. A truly inferior officer must have a superior officer within his own branch to whom he answers and who can countermand or remove him if the superior loses confidence in the inferior.”

This is just one of multiple examples that Amar cites in his argument as to why S. 1735 and S. 1741 fail to pass constitutional muster. He proposes, instead, that the Senate “revise its committee structure to create a new and powerful Standing Committee on Presidential Oversight.”

The committee he envisions “should at all times have an equal number of Republicans and Democrats regardless of which party controls the Senate as a whole” where “the Republican caucus should choose the Democratic members of Presidential Oversight Committee and the Senate Democratic caucus should choose the Republican members.” Further, “each committee caucus should by rules and traditions be given broad authority to insist on hearings; each Committee caucus, if unanimous or if backed by at least one senator from across the aisle for each caucus defector, should itself have subpoena power. This Committee should also have a generous budget to hire professional career prosecutors and investigators, akin to career staff attorneys in the Justice Department itself” and “this new Senate Oversight Committee should at all times be chaired by a member of the party opposite to that of the US President.”

As stated before, nothing has happened with either bill since last September, so it is yet to be seen if Professor Amar’s concerns and ideas appear in amended legislation.

Law professors across the U.S. influence and shape more than just the next generation of lawyers; they influence and shape the laws and policies of the nation as well. In our first Capital Contributions post, we’re highlighting Professor Seth W. Stoughton of the University Of South Carolina School Of Law and his contribution to a bill currently working its way through the California Legislature, AB 931.

Professor Stoughton is a former police officer turned Assistant Professor. His specialization is in the regulation of police. His scholarship has been published in various law review journals as well as media outlets such as The New York Times and TIME Magazine.

Recently, Professor Stoughton wrote a letter offering conditional support of California Assembly Bill 931, which changes the use of force policy used by police officers in California. As we’ve discussed previously on CAP·impact, AB 931 would change when it is acceptable to use deadly force from when it is reasonable, to when it is necessary.

In his letter, Stoughton notes some areas of improvement for the legislation. Those include the bill’s lack of an explicit definition for “reasonable alternatives,” as in reasonable alternatives to the use of deadly force, and an explicit definition for “imminent,” as in an imminent threat. He also takes issue with language in the bill about “whether the officer’s conduct was consistent with applicable training and policy.”

Stoughton offers definitions for reasonable alternatives and imminent in his letter. He understands reasonable alternatives as “only when it does not unjustifiably increase the danger to officers or bystanders; thus, an alternative that makes the situation any less safe for officers or bystanders should not generally be considered reasonable.” An imminent threat, by Prof. Stoughton’s understanding “exists only when the officer reasonable perceives that the subject has the capability, opportunity, and intent to cause death or great bodily harm.” He goes on further in his full letter to Asm. Weber to define capability, opportunity, and intent.

Stoughton expresses concern over the use of the factor “whether the officer’s conduct was consistent with applicable training and policy” into evaluating the validity of the use deadly force by an officer. His issue with this language is that it “could create a perverse incentive for police agencies to adopt lax policies, which officers are less likely to violate, as a way to insulate officers from liability. Meanwhile, officers at agencies with stricter policies may be exposed to greater criminal liability.” This “fatal flaw” undermines the intent of the bill.

Stoughton’s letter to Asm. Weber – dated June 11 – notes that there are already proposed amendments that address his concerns about training and policy by removing the provisions with those references. Amendments to AB 931, published on June 12, show the addition of an explicit definition for “reasonable alternatives.” As of now, there is no explicit definition for “imminent” in the bill.

AB 931 is still working its way through the California Legislature, and was recently passed out of the Senate Committee on Public Safety on a 5-2 party line vote. With another committee vote and a floor vote to go, it is currently unclear what the final impact of Stoughton’s input on the legislation will be. It is clear now, however, that his input has led substantive changes to the proposed law.