Litigation Funding: Is There a New Trend?

What Does Litigation Funding Mean to the Legal Industry?

Litigation Funding. While you may be familiar with the term, you might not understand how it affects you and your career as an aspiring attorney—at least directly. After all, how does someone else’s need for financial assistance in pursuing a lawsuit in any way relate to your personal career ambitions? And what does this litigation funding mean to the wellbeing of the legal industry, both presently and looking forward?  Here, we will examine some of the key aspects of litigation funding – what it is, its purpose, and how it may affect the legal industry as you know it.

How does litigation funding work?

According to the Law Blog of The Wall Street Journal, litigation funding is usually a simple arrangement: a funder awards a certain amount of money to a plaintiff “to pay for the cost of litigation” and then “takes a chunk of any recovery in the end” (Randazzo: “Lawmakers Take a Closer Look at Litigation Funding”).  However, the funder will not get the money back if the case is not a success (Randazzo).

Who benefits from litigation funding? What are the pros of litigation funding?

Typically, litigation funding offers aid for those who would not be able to afford the extensive expenses that go into pursuing a major lawsuit. In some ways, the availability of this funding “levels the playing field” and allows those of all socioeconomic status and backgrounds to seek justice (Randazzo). Ideally, people will have their needs met to pursue the case and nothing more; their personal struggles and life story are to have no bearing on the case at hand. Of course, in an imperfect world run by imperfect and biased human beings, this golden standard is not always easily upheld—which brings us to the next point.

What are the cons of litigation funding? Who potentially suffers from it?

According to the WSJ Blog, critics argue that litigation funding risks going beyond simply providing financial support to those who need it. Knowledge of these needs can potentially carry over into the actual legal process, leading to “third-party investors [giving] outside influence over legal decisions” (Randazzo). Not to mention, with more funding and opportunities to pursue legal action available, the legal system risks being overwhelmed with “frivolous cases” (Randazzo). As a result, litigation costs rise for all litigants – the plaintiffs, the defendants, the lawyers, and so on.

Senate leaders have attempted to resolve such concerns by demanding “more transparency in the litigation finance industry” by sending letters to Burford Capital, Bentham IMF, and Juridica Investment LTD, all of which are leading providers of litigation financial assistance (Randazzo). In these letters, the Senate Judicial Committee and the House Whip demand a wealth of objective, specific information including “a complete list of cases each company has funded from 2009 to 2014,” the amount of money made from such cases, and to whom—if anyone—such financial arrangements were disclosed, especially those not directly involved in the case (Randazzo). In demanding these details, Senate leaders hoped to uphold a sense of objectivity in the whole litigation process. They feared that if third-parties were aware of specific circumstances regarding certain cases, then the results would be skewed in some fundamental way—which is not at all how an effective justice system should operate.

Conclusion

Litigation funding in and of itself is not a problem. The problem arises when such funding is not transparent or regulated in some way—through an involved application process, for instance. When litigation funders are more concerned about luring in potential plaintive for their services than they are seeking justice, leading to the pursuit of expensive but ultimately frivolous lawsuits, the cost of legal expenses soars for everyone. Furthermore, the concern about objectivity in all cases is pressing and legitimate. The goal of the justice system should be to provide all U.S. citizens with the opportunity to pursue a case and find the appropriate justice before an objective but fair jury. When third-party funders concern themselves with the matters too heavily, though, objectivity risks being compromised. Again, perhaps the only real best way to deal with potential issues of bias is regulation and stringent confidentiality policies. Funders are not to release any information regarding a case to any outside parties that do not deal solely with the finances of said case. Of course, even solutions present their own caveats. Even so, the solution should not be to do away with litigation funding completely but to reach some compromise.

 

Works Cited

Randazzo, Sara. “Lawmakers Taking Closer Look at Litigation Funding.” Law Blog RSS. The Wall Street Journal, 27 Aug. 2015. Web. 06 Oct. 2015.

 

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