February 10, 2020
Sheilla Dingus
Quietly and curiously off the public docket, the Concussion Settlement Court revised its rules regarding third-party settlement advances. As you may recall, late last year, Funder Thrivest, petitioned for a writ of mandamus at the Third Circuit, asserting that Judge Brody had not complied with the mandate handed down by the Third Circuit Opinion a few months prior.
In response, on September 27, Judge Brody issued a notice on her own docket in which she argued that she was in compliance and instructed the claims administrator to add “clarification” and make the Rules more “user-friendly.”
While it gives me no pleasure to say, “I told you so,” it appears I’ve been calling this one correctly from the start. In no way did the existing Rules Governing Assignment of Claims comply with the Third Circuit opinion and mandate. Judge Brody was represented at the Third Circuit by Claims Administrator Orran Brown, Class Counsel Chris Seeger and University of Pennsylvania Professor of Law Samuel Issacharoff. I’m not really sure how, but she dodged a bullet there, with the Third Circuit surprisingly not granting Thrivest’s petition. Apparently the fact that she partially complied in that she no longer blocked arbitration between players and funders, along with the arguments of her legal representatives was enough to satisfy the appeals court that she was in compliance—after all—it’s extremely rare for a federal district court judge to defy an appellate mandate—so rare, in fact, that I had difficulty in establishing what might happen if the Third Circuit was to rule in Thrivest’s favor.
For players whose claims had been approved that had taken settlement advances, the process came to a screeching halt, with no one getting paid because there was no longer a process in place for handling claims in which a player took an advance on his settlement payout. I spoke with an attorney in late December who had a client in this predicament and we both expressed surprise that Judge Brody’s “clarification” hadn’t yet been issued, and neither of us had a clue as to what might be changed.
Based on the tone of her notice and numerous references to her December 8, 2017 Order prohibiting the assignment of claims, I really didn’t anticipate much in the way of change from the old rules to the new. I missed on that prediction. Apparently, the threat of mandamus was enough to force her into compliance with the Third Circuit, lest she not be so lucky again if someone should go back to the Third for the same reason.
What was previously called “Rules Governing the Assignment of Claims” became “Rules Governing Third-Party Funder Voluntary Compromise Process”
I’m embedding the original Rules created as a result of Judge Brody’s order, the revised Rules that were issued following the Third Circuit Opinion and the Rules that were quietly slid into place on January 10, 2020, so that you can verify the changes.
The first thing you should note is that the first and second sets of Rules were published on the public docket. The most recent revision (or rather, re-write) is not attached to a document number filed to the federal docket. Instead, I learned of it indirectly via a mention in Chris Seeger’s most recent fee petition. Following that reference, I found it discreetly posted to the settlement website.
The most obvious difference in the three documents is that in the “Voluntary Process” document, no mention whatsoever is made of Judge Brody’s December 2017 order prohibiting the assignment of claims. In the original Rules, the order is referenced at least six times, and in the May 2019 revision, it’s referenced at least six times, as well. Conversely, the Third Circuit Opinion is only noted in the new document and not any of it previous iterations including the minor revision following the Third Circuit ruling.
DEFINITION CHANGES
Nowhere is this more apparent than in the “Rule 1” definition explaining the purpose of the document:
While it’s unfortunate for Class Members that Judge Brody did not have the authority to interfere in Third-Party funder contracts, outside one extremely narrow circumstance, I’ve viewed her order with skepticism since it was issued in December 2017, in that there was no precedent to support her attempted voiding of contracts outside her authority over the settlement, itself. While a few Class Members seem to have benefited from the negotiation of the amount due to the funders, other Class Members have been irreparably harmed due to the delays and false impressions and hopes presented by the District Court and Claims Administrator.
In new Rule, you’ll note several changed and omitted or added term definitions.
Changes in Rule Definitions |
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While the definition of the term collateralized loan appears in both the 2018 and 2019 versions, it’s omitted from the 2020 Rules |
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“Finalized Funding Request” in tandem with “Funding Request Objection,” appears only in the 2020 Rules, and approximately replaces “Notice of Assignment Review Determination” found at (d) in the older rulesets.
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As noted previously, Judge Brody’s December 2017 order isn’t mentioned in the previous version of the “funder rules.” “Funding Request Objection” is a new term definition found only in the January Rules.
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This definition is common to and unchanged in all three documents. |
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Since “Prohibited Assignments” and “Collateralized Loans” are no longer defined in the 2020 version of the Rules, the procedure created to “review” them no longer exists.
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While the definition is unchanged, the placement for “Settlement Agreement” is bumped down in the 2018 and 2019 Rules, or perhaps rather, because of the absence of the definitions of “Prohibited Assignment and “Notice of Assignment Review Determination,” you could say that it rises in position for the 2020 Rules. |
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These provisions are also unchanged as they’re defined in the Settlement Agreement itself. |
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This definition is consistent throughout all sets of Rules. |
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“Third-Party Funder Transaction” is a term contained in all versions of the Rules, but as you’ll note, the definition is expanded in the revision below. |
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The “Waiver Form” that existed in prior versions of the Rules was designed to force funders into accepting rescission of their contracts with Class Members in that all advances were initially considered to be “Prohibited Assignments.” Though slight language changes were made in the 5/31/19 version of the Rules, very little had changed regarding the manner in which the Claims Administrator handled apparently all funders, considering their agreements to be prohibited. |
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The “Voluntary Compromise Form” replaces the “Waiver Form” above, meaning that should negotiations take place between the funder and the Class Member; it will be done through a voluntary basis for both parties. |
WHAT’S CHANGED IN THE WAY SETTLEMENT ADVANCES ARE NOW HANDLED?
The short answer to this question would be, “Almost everything.” Moving forward, we’ll examine the new Rules and how they differ from the prior processes for dealing with settlement funders.
Rule 4 dictates that players will still have to disclose agreements with Third-Party Funders but the court and claims administrator will play a much smaller role.
4(c) is one of the biggest changes. It’s advantageous to both Class Members and funders, as odd as that might sound. The player or his representative now has the option of permitting the Claims Administrator to notify the funder of the award or may decline to permit the Claims Administrator to become involved.
In my view, in most instances, it’s probably a good idea to let this process take place unless you’ve made other arrangements and (a) Plan to pay the advance with interest in full as soon as it is received OR (b) have made arrangements with a private attorney to negotiate with the funder, likely through the arbitration described in most funder agreements. Note that should you decide to negotiate with the help of a private attorney who may or may not be the attorney who represented you in the claim process, your advance will be accruing interest while the arbitration takes place, and since it can no longer be construed as a prohibited assignment, any arguments for compromise would need to be based on state-law usury claims and/or impairment/lack of cognition to enter into a contract when the agreement was made.
While obviously if a player is receiving a claim for Alzheimer’s disease or dementia (Levels 1.5 or 2 Neurocognitive Impairment) the player is likely in position to make this argument if, and only if, a spouse or durable power of attorney was not involved with the contract in any way, and no doctor signed off on any statement declaring the player to be competent to enter into the agreement. If a wife, child or other designee was involved in procuring the loan, that person would likely have to be shown to be mentally incompetent, just as the player, in order to prevail on grounds of cognitive impairment. Likewise, if any physician provided a sworn statement attesting to the player’s competency to enter into a contract, it will be difficult to convince an arbitrator otherwise unless the doctor can be shown to have committed fraud and perjury.
For players who have outstanding debt to a settlement funder and expect to receive an award this is a topic that should be discussed with an attorney as soon as possible so that the player understands the odds of prevailing against the funder, should he consider challenging the loan, and both he and his lawyer will have adequate time to develop a viable strategy for the challenge which is likely to be a formidable one.
For players who don’t wish to pursue either of these options, the best bet would probably be to allow the claims administrator to contact the funder and proceed with the Voluntary Compromise Process described in the next section of the Rules.
A Word of Caution:
While it might seem tempting to decline to have the Claims Administrator contact the funder, outside the two scenarios I outlined above, I feel this would be a foolish mistake for the following reasons.
- Funders tend to keep track of their money. If you get paid, they will find out and if you’ve tried to evade them they won’t be happy.
- Do not try to hide or spend some of the proceeds that according to the agreement belong to the funder. Your bank records will wind up being subpoenaed and they will learn exactly what you received and when, as well as how it may have been used or disbursed from your bank. Outside of using the funds for medical reasons the expenditures are unlikely to be forgiven and repayment will be demanded possibly resulting in forfeiture of property, frozen bank accounts, and in the case of failure to obey a court order, potentially time in jail.
If you accept the voluntary compromise:
The Claims Administrator outlines what the next steps will entail.
Note that in Step One you are permitted to make an offer although the funder is not obligated to accept or consider it. In certain cases, funders who’d prefer to avoid litigation might consider some type of compromise, but that’s far from guaranteed in view of the Third Circuit ruling. You may also hire a lawyer to negotiate with the funder on your behalf and if you’ve reached an agreement then you would be able to inform the Claims Administrator of this so that payment of your claim moves swiftly.
Step Two gives the funder the option of accepting or considering a compromise, although the funding company has the option to decline and may well do so. Previously Thrivest Funding alleged that the Claims Administrator attempted to strong-arm funders into compromising or going through extensive litigation but, based on the Rule revisions, this doesn’t appear to be the case anymore. If the funder agrees to compromise and makes a proposal, a Class Member can probably consider himself to be very fortunate and would probably be better off in accepting than fighting except under special circumstances. That’s why it’s important to consult with an attorney in advance so that you’re aware of your legal standing for a challenge.
Rule 6 – Payment:
Rule 6 outlines the steps for payment of both the award and the advance.
Note that whether a Class Member decides to participate in the Voluntary Compromise he will be receiving his award directly from the Claims Administrator. This is a deviation from the normal process of sending the award to his attorney’s trust account for disbursement if a player is represented by a lawyer.
While I view the new Rules primarily in a positive light because they’re a lot more straightforward that prior versions and they don’t create false hopes or legal arguments allowing a player or his representative to make sound choices based on fact, the method of payment is the one facet of the new rules that I do disagree with. (Not that there’s anything I can do to change the aspect; I’m merely stating my opinion of it.)
Players can expect for their attorneys to file a lien for payment against their award. This should not be perceived as anything personal against the player. Under ordinary circumstances in this or other settlements, awards are paid to attorneys who then deduct their fees and pay their clients the balance. For your attorney this is no longer an option, therefore the only way he or she will be guaranteed payment will be to file a lien for attorney fees. While on the surface it may feels as if he or she doesn’t trust you to pay them, consider it a sound business decision on their part. If the situation were reversed, you’d probably take the same action. Unless you contest the attorney fees which are capped at 22% then there should be no hold-up in receiving your money.
If you were willing to enter into a compromise but the funder declines:
Just as with the prior rules if the funder does not accept a compromise that leads to rescission, then you will be paid your award in full, less any medical, attorney, or other liens such as child support or taxes owed to the IRS.
Unless you’ve been in contact with the funder or you have an attorney handling the matter, be prepared to be compelled to arbitration to decide the matter of how much you owe. There are a few things you can do to protect yourself in this situation.
First, remember that with every week and every month that passes, your advance is continuing to accrue interest. Either pay the principal and any undisputed amount (perhaps 10% interest) to the funder immediately upon receipt of your award and then place any disputed funds into an escrow account until the matter is decided in arbitration. This will advantage you in accruing interest on a smaller amount as well as showing both the arbitrator and the funder that you are trying to deal in good faith, and that there is no danger of the funder not receiving payment of whatever amount the arbitrator should determine you owe.
It’s certainly no guarantee that should you do this, the arbitrator will rule for a reduced amount, but it does increase the likelihood that the arbitrator would consider doing so if you’ve done everything right and demonstrate dire need of the disputed amount, as well as any legal arguments your attorney might construct based on how the loan was procured and the usury laws of your state. At the very least, the arbitrator would probably be persuaded to stay any interest accrual during the time the matter is under arbitration if these steps are taken.
The biggest reason why I don’t like the procedure of paying players directly when an advance is involved is simple human nature. After experiencing hardship for an extended period of time, it would seem tempting, when a large award is received, to be reluctant to part with a big chunk of it to a settlement funder. It’s likely that some players will be tempted to try to hide the proceeds or outrun the funder, but the chances of success in doing this are very slim. It’s important to make good decisions when the award reaches your bank, otherwise, you might find yourself in a similar position as William White, whose initial debt of $500,000 ballooned to $1.2 million after he tried unsuccessfully to litigate because of the extra interest accrued and attorney and arbitration costs that were also imposed on him.
Another player facing similar circumstances is Toby Wright, who attempted to proceed without counsel for a time and apparently tried to evade Thrivest as they sought to collect from him. In the next to last public filing on record, Thrivest asked the court to hold Wright in contempt because of his failure to comply with court orders and have him incarcerated until he’s in compliance. Unfortunately, some of these lenders are known for playing hardball. The very last public filing shows that Wright hired an attorney and a very good one at that, but all other documents involving his case have been placed under seal, so his status is unknown. I requested comment from his attorney but did not receive a reply which is understandable since his first obligation is to his client and not the class as a whole or the public who might benefit from the information. For Mr. Wright’s sake, I hope he’s able to salvage the situation.
If both the player and funder agree to compromise:
If both parties are agreeable to compromise, then the process of being paid should be relatively smooth.
The section above seems self-explanatory. The funder is paid by the claims administrator with the balance of funds released to the player if pro se or his attorney if represented.
FINAL THOUGHTS:
I’ve often been critical of the procedures for handling Third-Party funders implemented by the Court and Claims Administrator because I felt they were somewhat deceptive, costing a player more money in the long run that he would have been responsible for otherwise. While the prior procedures might have appeared more player-friendly, it’s an instance of where looks are deceiving. It’s much easier to deal with facts and base decisions, especially high dollar decisions of fact over fantasy.
The Rule, as it’s written now seems in full compliance with the Third Circuit’s Opinion and Mandate, and the only fault I see with it is the decision to pay players who failed for whatever reason to achieve a compromise directly, placing them in the path of temptation rather than permitting their attorney to fulfill his obligations to both the player and the funder.
Still, the path forward seems much clearer now so, at the very least, it seems unlikely that interest will accrue on awards while the court and claims administrator toy with the funders, making this a much better arrangement for players who have outstanding loans.
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Sheilla Dingus founded Advocacy for Fairness in Sports in October 2016, after a stint with Defenders of the Wall, a New England Patriots based blog where she dived deep into the legal aspects of Deflategate. Along the way, she observed many inequities in sports and felt a need to address some of the under-reported stories in sports law. She draws from her background as a former professional dancer, who like many of the athletes she writes about, took an early retirement due to orthopedic injuries. After a return trip to college she worked for a legal software company, with seven years as a Project Manager and Analyst. She brings her analytical skills to the table in breaking down complex lawsuits, and enjoys pursuing her longtime interest in journalism.
