Toolkit · Litigation

The Litigation Funding, Disclosure, and Structured Settlement Transfer Toolkit

42 U.S.C. § 1396

Type
Toolkit
Jurisdiction
National
Date
2025-10-08
Topic
Litigation

A working toolkit for litigation funding and structured settlement matters. Tools 1 and 2 supply model clause language for control, common interest, confidentiality, and compelled disclosure. Tool 3 is a consumer advance cost worksheet and Tool 4 a five-level waterfall model. Tool 5 is a disclosure response template for a court order. Tool 6 is a bench inquiry script for an unopposed transfer petition. Tool 7 provides a lien ledger and distribution statement, and Tool 8 collects the governing statutes, rules, and decisions in one table.

The Litigation Funding, Disclosure, and Structured Settlement Transfer Toolkit

Litigation > Litigation Finance and Structured Settlements | Published 8 October 2025 - Updated 2 June 2026 | UpLaw - uplaw.us

⚠️ Clause language below is a drafting starting point, not a form. Adapt it to the governing law, and check the champerty landscape of the chosen forum before relying on a choice of law provision.

TOOL 1 — THE NO-CONTROL COVENANT

Control of the Litigation. The Claimant retains sole and exclusive control of the Litigation. Without limiting the foregoing, the Funder shall have no right, directly or indirectly, to: (a) direct, control, or influence the conduct or strategy of the Litigation; (b) select, retain, direct, or discharge counsel or any expert or consultant; (c) approve, disapprove, veto, delay, or condition any settlement, compromise, dismissal, or other resolution of the Litigation, or any term thereof; (d) require the continuation or discontinuation of the Litigation; or (e) communicate with any party, witness, or tribunal concerning the Litigation.

All decisions regarding settlement shall be made by the Claimant, upon the advice of counsel, without regard to the Funder's economic interest. Counsel's professional judgment shall be exercised solely in the interest of the Claimant, and nothing in this Agreement shall be construed to create any duty owed by counsel to the Funder.

Deployment. The Funder's right to cease further deployment under Section [__] shall not be exercised for the purpose of influencing any decision reserved to the Claimant under this Section, and any such exercise shall not affect the Claimant's rights hereunder.

📌 Subsection (e) and the deployment sentence are the ones most often omitted from a funder's form. The first prevents indirect influence through the record; the second closes the de facto veto.

TOOL 2 — COMMON INTEREST AND CONFIDENTIALITY PROVISIONS

Common Interest. The Parties share a common interest in the successful prosecution of the Litigation. Materials exchanged in connection with the Funder's evaluation of the Litigation are exchanged in furtherance of that common interest and in anticipation of litigation. The Parties do not intend, by any exchange hereunder, to waive any attorney-client privilege, work product protection, or other applicable protection, and each shall take reasonable steps to preserve such protections.

Confidentiality. The Funder shall (a) maintain all Evaluation Materials in confidence; (b) restrict access to individuals with a need to know who are bound by equivalent obligations; (c) not use Evaluation Materials for any purpose other than evaluating and administering this Agreement; (d) not disclose the existence or contents of the Evaluation Materials to any adverse party, competitor, or media outlet; and (e) return or destroy Evaluation Materials upon termination.

Compelled Disclosure. If either Party is ordered by a court of competent jurisdiction to disclose the existence of this Agreement or any of its terms, that Party may comply, provided it gives the other Party prompt written notice sufficient to permit the other Party to seek protection, and discloses only what is required.

⚠️ Execute this before the first document is sent, not at closing. Materials shared during preliminary diligence, before any agreement exists, are the ones courts have been most willing to order produced.

TOOL 3 — CONSUMER ADVANCE COST WORKSHEET

☐ Client: __________ Date: _______ Funding company: __________ ☐ Amount offered: $______ Fees added at origination: $______ ☐ Rate: % per ☐ month ☐ quarter ☐ year — compounding? ☐ yes ☐ no ☐ Payoff at 6 months: $__ 12: $______ 18: $______ 24: $______ 36: $______ ☐ Counsel's realistic resolution estimate: ______ months ☐ Projected payoff at that date: $______ ☐ Non-recourse confirmed in writing? ☐ yes ☐ no ⚠️ No means stop ☐ Personal guaranty or outside security? ☐ none ☐ present ⚠️ ☐ Rescission window in contract or statute? ☐ yes — ____ days ☐ no ☐ State regulates these transactions? ☐ yes ☐ no ☐ unknown

Prior advances

Company Date Amount Rate Projected payoff
$ % $
$ % $
$ % $

Distribution projection

☐ Estimated settlement: $______ ☐ Less attorney fee: $______ ☐ Less case costs: $______ ☐ Less liens (from ledger): $______ ☐ Less all advance payoffs: $______ ☐ Projected net to client: $______ ☐ ⚠️ If the net is less than the advance requested, the transaction does not work. Say so plainly.

Alternatives explored

☐ Hardship withdrawal ☐ family ☐ landlord payment plan ☐ utility assistance ☐ disability benefits ☐ provider deferral ☐ partial settlement of undisputed portion ☐ other: ______ ☐ Client's decision: ______________________ Documented on: _______

TOOL 4 — WATERFALL MODEL

Complete at five recovery levels before signing any commercial funding agreement.

Loss Nuisance Expected Strong Maximum
Gross recovery $0 $ $ $ $
Case costs
Attorney fee
Funder — multiple basis
Funder — percentage basis
Funder actual (greater of) $0
Client net $0
Client net as % of gross — ____% ____% ____% ____%

☐ ⚠️ Check the nuisance column. A waterfall that leaves the client near zero at a modest recovery converts the funder into the real party in interest. ☐ Check whether the funder's entitlement can exceed available proceeds, and confirm the agreement caps it. ☐ Identify the crossover point where the percentage formula overtakes the multiple. ☐ Rerun with a resolution date 50% later than projected. ⚠️ Cases take longer than underwriting assumes.

TOOL 5 — RESPONSE TO A FUNDING DISCLOSURE ORDER

Disclosure of Third-Party Litigation Funding

Pursuant to [standing order / local rule / order dated ____], Plaintiff discloses as follows:

  1. Existence of funding. Plaintiff has entered into an agreement with a third party under which that party has agreed to provide funding for some or all of the costs of this litigation on a non-recourse basis.
  2. Identity. The funding party is [name], a [entity type] organized under the laws of [jurisdiction], with its principal place of business in [location]. [Its members/owners are: ____, for purposes of any conflict check.]
  3. Control. The funding agreement expressly provides that the funder has no right to control the litigation and no right to approve, veto, or condition any settlement. All litigation and settlement decisions rest with Plaintiff, upon advice of counsel.
  4. Contingency. The funder's entitlement to any return is contingent upon a recovery. No obligation arises in the absence of one.
  5. Terms. Plaintiff respectfully submits that the financial terms of the agreement are not relevant to any claim or defense and constitute protected work product. Plaintiff is prepared to submit the agreement for in camera review should the Court wish to confirm the representations in paragraphs 3 and 4.

[Signature]

📌 Volunteering paragraphs 3 and 4, and offering in camera review, is what usually keeps the terms out of the opponent's hands. The court's real concerns are conflicts and control; address them directly.

TOOL 6 — BENCH INQUIRY SCRIPT FOR A TRANSFER PETITION

Opening, to the payee directly:

"Before I rule on this petition, I need to hear from you rather than from counsel. There are no wrong answers, and nothing you say will get you in trouble."

The questions, in order:

☐ "Tell me in your own words what you are asking me to approve." (Tests whether the payee understands the transaction.) ☐ "How much money will you receive?" (Almost always answered correctly.) ☐ "How much in payments are you giving up, in total?" ⚠️ (Frequently not known.) ☐ "Do you know what the discount rate on this transaction is?" (The disclosure states it; ask whether the payee read and understood it.) ☐ "What is the money for? Be specific — which debt, which expense, how much?" ☐ "Did you talk to a lawyer or financial adviser of your own choosing about this?" (If waived: "Tell me why you decided not to.") ☐ "Have you sold structured settlement payments before?" (If yes:) "When? How much did you receive? What did you do with that money?" ⚠️ (The single most informative question on this list.) ☐ "Who depends on you financially?" (The statute requires the court to consider dependents.) ☐ "After this transfer, what payments will you still receive, and for how long?" ☐ "Have you considered selling a smaller number of payments?" ☐ "Does anyone besides you receive money from this transaction?" ☐ "Are you receiving any government benefits based on your income or assets?" (A lump sum can disqualify — 42 U.S.C. § 1396p, 42 U.S.C. § 1396k.) ☐ "Is anyone pressuring you to do this?"

Findings to make on the record:

☐ Disclosure timely and complete, including present value and effective discount rate ☐ Notice given to the annuity issuer, obligor, and interested parties ☐ Venue proper and connected to the payee ☐ Independent professional advice received, or knowingly and voluntarily waived after inquiry ☐ Specific stated use of proceeds ☐ Consideration of dependents' welfare and support ☐ Consideration of remaining payments and continuing adequacy of the structure ☐ Transfer does not contravene applicable law or the settlement's terms ☐ The transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents ☐ Order qualifies under 26 U.S.C. § 5891 and does not disturb the assignment under 26 U.S.C. § 130

TOOL 7 — LIEN LEDGER AND DISTRIBUTION STATEMENT

Lien ledger — maintain from intake

Claimant Type Authority Asserted Negotiated Released
Medicare Conditional payments 42 U.S.C. § 1395y $ $ ☐
Medicaid Assignment / recovery 42 U.S.C. § 1396k, 42 U.S.C. § 1396p $ $ ☐
Employer plan Reimbursement 29 U.S.C. § 1132 $ $ ☐
Workers' comp Statutory lien State act $ $ ☐
Provider / hospital Statutory lien State act $ $ ☐
Child support Arrears State act $ $ ☐
Federal debt Offset 31 C.F.R. Part 285, 31 U.S.C. § 3713 $ $ ☐
Funding advance Assignment Contract $ $ ☐
Funding advance Assignment Contract $ $ ☐

☐ Check for a bankruptcy filing — the claim becomes property of the estate under 11 U.S.C. § 541. ☐ Check for federal program exposure — 31 U.S.C. § 3729.

Distribution statement

Gross settlement $______ Less attorney fee (%) $__ Less case costs (itemized) $______ Subtotal available for liens and client $______ Less [lien 1] $______ Less [lien 2] $______ Less [advance 1 payoff] $______ Less [advance 2 payoff] $______ Net to client $______

I have reviewed this statement, including each deduction, and approve the distribution.

_________________________ Date: _______

⚠️ Review this with the client before disbursing, not after. See The Money Is Not Yours Yet and Negotiating a Settlement and Resolving Liens Before Distribution.

TOOL 8 — AUTHORITY TABLE

Structured settlements and transfers

Authority What it governs
26 U.S.C. § 104 Exclusion of damages for personal physical injuries or sickness
26 U.S.C. § 130 Qualified assignment of periodic payment obligations
26 U.S.C. § 5891 Excise tax on factoring transactions absent a qualified order
26 U.S.C. § 61 Gross income — the rule the exclusion operates against
26 U.S.C. § 6041 Information reporting
26 C.F.R. Part 1 Income tax regulations

Liens on recovery

Authority What it governs
42 U.S.C. § 1395y Medicare secondary payer and conditional payments
42 U.S.C. § 1396k Medicaid assignment and collection of rights
42 U.S.C. § 1396p Medicaid liens, adjustments, recoveries, and transfers
29 U.S.C. § 1132 ERISA civil enforcement
31 U.S.C. § 3713 Priority of government claims
31 C.F.R. Part 285 Debt collection and offset authorities
31 U.S.C. § 3729 False claims
11 U.S.C. § 541 Property of the bankruptcy estate

Litigation funding: doctrine and procedure

Authority What it governs
National Ass'n for the Advancement of Colored People v. Button Litigation as protected expression; limits on overbroad regulation
In re Primus Solicitation in service of expression distinguished from commercial solicitation
Boeing Co. v. Van Gemert Common fund doctrine
Hickman v. Taylor Work product protection
Upjohn Co. v. United States Privilege in the organizational setting
Perdue v. Kenny A. ex rel. Winn Lodestar enhancement
West v. Atkins Action under color of law
Rule 26 Disclosure and discovery framework
Rule 11 Certification obligations, which remain counsel's
Rule 23 Class actions and court approval role
Rule 408 Compromise offers and negotiations
28 U.S.C. § 1332 Diversity jurisdiction
28 U.S.C. § 1367 Supplemental jurisdiction
28 U.S.C. § 1927 Counsel's liability for excessive costs
15 U.S.C. § 1601 Consumer credit disclosure principles informing state funding statutes

Closing note

☐ Tool 1 protects the client. Never sign a funding agreement without it. ☐ Tool 2 must be executed before diligence begins, not at closing. ☐ Tool 3 run in front of the client is the most persuasive document in this toolkit. ☐ Tool 6's prior-transfer question is the one that makes the protective statute work.

TOOL 9 — FUNDER DILIGENCE REQUEST LIST

What a commercial funder will ask for. Assembling it before approaching the market shortens the process substantially and improves terms.

☐ Case summary — parties, claims, forum, procedural posture, and key dates ☐ Operative pleadings and any dispositive motion briefing ☐ Merits memorandum — the theory of liability, the principal defenses, and the honest assessment of each ☐ Damages model — methodology, assumptions, and the realistic range, not the demand ☐ Expert identification and, where retained, reports or preliminary views ☐ Key documents — the contract, the patent, the correspondence that makes the case ☐ Litigation budget — by phase, with contingencies for appeal ☐ Fee arrangement with counsel, and counsel's own risk position ☐ Collectability analysis — the defendant's financial condition, insurance, and asset location ☐ Adverse cost exposure and any fee-shifting risk ☐ Existing encumbrances — prior funding, liens, assignments, and security interests ☐ Corporate authority to enter the transaction ☐ Any prior valuation of the claim, including for accounting purposes ☐ Insurance available — after-the-event, judgment preservation, or existing coverage ☐ ⚠️ Provide all of this under the Tool 2 agreement, and prepare summaries rather than handing over the raw file.

TOOL 10 — CLIENT LETTER ON A CONSUMER ADVANCE

[Date]

Re: Litigation funding advance — [client name]

You have asked about an advance from [company] in the amount of $[amount]. This decision is yours to make. My role is to make sure you have the numbers.

What it costs. The company charges [rate]. Based on my realistic estimate that your case will resolve in about [__] months, the amount that would be repaid from your settlement is approximately $[payoff]. If the case takes longer — and cases often do — that figure rises to approximately $[payoff at longer horizon].

What you would receive. Based on my current estimate of the case value, and after my fee, case costs, and the liens I have identified, I project your net recovery at approximately $[net without advance]. If you take this advance, that becomes approximately $[net with advance].

Other options. We discussed [list]. I recommend exhausting these first, because each of them costs less.

If you proceed. Please send me the agreement before you sign it. I will review it and sign any acknowledgment the company requires, so long as it does not obligate this firm beyond honoring the assignment.

⚠️ One request: please call me before taking any additional advance. Clients who take several advances from different companies frequently receive far less at the end than they expect, and I would rather recalculate with you than surprise you at distribution.

[Signature]

📌 Send this letter every time. It takes ten minutes, it changes decisions, and it is the document that prevents the distribution-day conversation nobody wants to have.

Related Documents