this new form of law firm financing, a New York State court decision in August 2015 has upheld the validity of such funding agreements. In Hamilton Capital VII, LLC v. Khorrami, LLP, of credit to the defendant mass-tort law firm. The law firm agreed to repay the amount borrowed with interest at a specified percentage. In addition, the law firm agreed to pay additional "revenue interest" in the amount of 10 percent of the law firm's gross revenues over a three-year period of time. The law firm granted the lender a security interest in its account receivables and agreed to provide the lender with regular reports on the status of its cases. The lender had no role in the legal work associated with the cases. For several years, the law firm enjoyed the benefits of this arrangement, borrowing millions of dollars from the line of credit to finance its portfolio of mass-tort litigation. However, after the law firm fell into default on its payments, it sought to avoid its contractual obligations under the credit agreement that it had voluntarily entered into provided for improper fee-splitting between the lender and the law firm. In particular, the law firm challenged the agreement's provisions under which the law firm granted the lender a security interest in the law firm's receivables and received a percentage of the revenues. On August 17, 2015, Justice Shirley Werner Kornreich of the New York State Supreme Court (a trial court) in Manhattan rejected the law firm's arguments. The court explained that sound public policy favors allowing law firm financing agreements: investment capital where the investors are effectively betting on the success of the firm promotes the sound public policy of making justice accessible to all, regardless of wealth. Modern litigation is expensive, and deep pocketed wrongdoers can deter lawsuits from being filed if a plaintiff has no means of financing his or her case. Permitting investors to fund firms by lending money secured by the firm's accounts receivable helps provide victims their day in undermined if the Credit Agreement were held to be unenforceable. The court will not do so. colleague Justice Eileen Bransten, also observed that "there is a proliferation of alternative litigation financing in the United States, partly due to the recognition that litigation funding allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or [a] stronger appetite for protracted litigation." Justice Kornreich then rejected each of the law firm's specific challenges to the credit arrangement. With respect to the challenge to the lender's security interest in the law firm's accounts receivable, Justice Kornreich quoted from two earlier court decisions, one by Justice Bransten in late 2013 and the other from Delaware, interest in both a law firm's earned and not-yet-earned fees: "inappropriate" for a lender to have a security interest in an attorney's contract rights. Yet it is routine |