Client Advisory

Rachel S. Rubenstein, Taylor N. Perez

In Viglianti v. Blue, the New Jersey Appellate Division affirmed a trial court’s order enforcing a funding agreement under which a third-party litigation funder agreed to provide plaintiff with money for medical treatment after he was injured in a motor-vehicle accident, holding that New Jersey’s PIP statute did not render the agreement illegal.

After a motor-vehicle accident, plaintiff sought medical treatment. Before filing suit against the defendant, plaintiff exhausted his limited PIP coverage but continued to receive medical treatment. To pay for his continued medical treatment, plaintiff entered into a funding agreement with a third-party litigation funder, under which plaintiff was required to repay the funder—with interest—any recovery he received from any action against the defendant. Under the agreement, the funder purchased an interest in plaintiff’s anticipated recovery, which it defined as a medical lien. The agreement expressly stated that the agreement was not a loan and made clear that repayment was contingent on plaintiff’s recovering in an action against defendant and limited to the amount of the recovery.

Three months later, plaintiff sued defendant, and approximately three years later, the lawsuit settled for $250,000—the full amount of defendant’s insurance policy. The third-party funder filed a motion asserting that, under the agreement, it was a lienholder and entitled to the entire amount of the settlement left after plaintiff’s counsel took his fee.

Plaintiff opposed the motion, arguing that the agreement was illegal because it permitted a medical provider to receive more than the PIP fee schedules allowed under N.J.S.A. 39:6A-4.6. Additionally, plaintiff asserted that, if the litigation funder was attempting to enforce a medical lien, it was therefore limited under N.J.S.A. 2A:44-39 to 25 percent of the settlement. Plaintiff moved for reconsideration and after being denied reconsideration, appealed the decision to the Appellate Division. The trial court reasoned, and the Appellate Division agreed, that the funder was not a medical provider nor a physician, and thus not governed or limited by N.J.S.A. 39:6A-12, or N.J.S.A. 39:6A-4.6, and because plaintiff’s PIP benefits had been exhausted, the PIP fee schedules did not apply.

The Appellate Division affirmed the trial court’s decision, reasoning that plaintiff freely and voluntarily negotiated the agreement, had legal representation, and that PIP fee schedule does not control what an individual may voluntarily agree to privately pay after exhausting PIP coverage. It further held that even though the funder’s services were “related to medical care,”  the funder was not a physician or dentist rendering medical services as required under N.J.S.A. 2A:44-39.

Key Takeaways: This case demonstrates the importance of investigating the existence of litigation funding agreements early in litigation. Because these agreements include high interest rates that interest quickly compounds, defendants can use the agreements as leverage during early settlement discussions. On the other hand, as interest accrues during the litigation, it may pose a barrier to settlement, a risk defendants may want to consider as they develop litigation and settlement strategy.