Courts - Nevada 'Pawn Star' owner fought with state on lawsuit loan business

By Alan Maimon Las Vegas Review-Journal LAS VEGAS (AP) -- Rick Harrison hit the national spotlight with a hit reality TV show about his Las Vegas pawnshop. But another of Harrison's businesses, Sierra Settlement Funding Company LLC, had him battling Nevada state regulators last year over the rules governing an emerging litigation settlement finance industry. In spring 2009, the Nevada Financial Institutions Division issued and then withdrew a cease-and-desist order against the company offering cash advances to plaintiffs on an agreement to repay the money with interest if a case settles. Lawyers are prohibited by ethics rules from giving clients money for anything but lawsuit-related costs. But litigation finance companies have in recent years begun serving plaintiffs who want cash before a case winds through court. Sierra Settlement is one of several in the Las Vegas area. According to the division, Harrison's company made loans, and by law, needed a license. Harrison disagreed, and said so. "When we opened the business two years ago, we did our due diligence and looked into whether we needed a license," he said. "The (division) told us we didn't. Well, then they decided to come after us. But when they realized they messed up, they backed off." The state rescinded its order to Harrison. But Steven Kondrup, deputy director of the Financial Institutions Division, said the case "brought to light some questions that needed answers." One key question: Are companies that gamble on the outcome of personal injury and other lawsuits, with little or no recourse to collect a debt if a plaintiff loses, actually in the business of lending money? The division concluded the answer was no. But that might soon change. Based on the Sierra Settlement case, Nevada has become the latest state to seek to regulate advance settlement funding companies, which often charge high interest rates. The state Financial Institutions Division has drafted a new regulation intended to broaden the definition of "lender" to include businesses that make loans "secured by an interest in the outcome of a civil action, case or controversy" -- regardless of whether repayment is contingent on the outcome of a case. Sierra Settlement put existing regulations to the test. The company's website advertises cash advances in personal injury cases: "If you need money now and you can't wait until your lawsuit settles, we can help by providing a cash advance against the future proceeds of your lawsuit." Harrison is identified as the manager of Sierra Settlement by the Nevada secretary of state and the city of Las Vegas. He said he doesn't oversee day-to-day operations. "Pawn Stars," the History Channel show about the shop Harrison runs with his father and son, premiered in July 2009, three months after the state issued the cease-and-desist order against his other company. The cease-and-desist order to Sierra Settlement provides a glimpse into the field of lawsuit-based loans, though Harrison says that view is probably inaccurate, given that the state issued the order erroneously. "They got my name right, and that's about it," he said. According to regulators, Sierra Settlement, in one instance, bought a portion of a lawsuit settlement for $1,000 with a monthly interest rate of 12.5 percent for the first 16 months. The contract between Sierra Settlement and the plaintiff in that lawsuit also called for an additional $500 charge after the first day of the loan. Sierra Settlement received a lien for the entire settlement in the case, which allowed it to take its share and then pay out what remained to the plaintiff, according to state documents. State legislation passed in 2007 requires companies that charge more than 40 percent annual interest on a loan to limit the loan term to 35 days. After that, the interest rate must drop to the prime rate plus 10 percent. While a new regulation would address the business aspect of the industry, questions still remain about the involvement of lawyers in litigation financing. Critics of the industry say the involvement of third-party lenders has the potential to unduly influence the course of litigation and turns the pain and suffering of personal injury into an "asset." The Nevada Bar Association prohibits lawyers from referring clients to litigation finance companies or knowingly allowing third parties to make such referrals. But if a client independently seeks out a lawsuit-based loan company, the lawyer is required to pay out whatever amount the client owes the company after a settlement. Las Vegas attorney Mitch Cobeaga said clients can easily get in over their heads with lawsuit-based loans. "I've been doing personal injury cases for 36 years, and I still don't understand exactly how it works," he said. "I just know they drip of things I don't want to be involved with." If and when new regulation begins, Harrison said he will be happy to obtain the required licenses to operate his businesses. Dan Polsenberg, a past president of the State Bar of Nevada, said details are important when it comes to lawsuit-based loans. "Some plaintiffs are desperate for money, and helping somebody get by can be a good thing," he said. "But I would hate to see someone in a desperate situation being taken advantage of." Published: Tue, Jul 27, 2010

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