{"id":9190,"date":"2024-02-19T19:37:02","date_gmt":"2024-02-19T19:37:02","guid":{"rendered":"https:\/\/ncjolt.org\/?p=9190"},"modified":"2024-02-19T19:37:02","modified_gmt":"2024-02-19T19:37:02","slug":"litigation-finance-an-evolving-landscape","status":"publish","type":"post","link":"https:\/\/journals.law.unc.edu\/ncjolt\/blogs\/litigation-finance-an-evolving-landscape\/","title":{"rendered":"Litigation Finance: An Evolving Landscape"},"content":{"rendered":"\n
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Understanding Litigation Finance<\/strong><\/p>\n\n\n\n

Litigation finance is when a third-party invests<\/a> in a lawsuit in hopes of sharing in the profits of a successful verdict. A recent survey found that more than forty U.S. litigation finance companies<\/a> exist. This survey, conducted over the course of one calendar year, found that these firms invested $2.33 billion in capital to litigation matters. Plaintiffs often pursue litigation funding when they themselves cannot afford the out-of-pocket expenses of litigation. <\/p>\n\n\n\n

During an interview<\/a> with Harvard Law School\u2019s Center on the Legal Profession, Stephen D. Susman\u2014a founding partner of Susman Godfrey\u2014discussed developments in the litigation finance space. As Susman described, litigation funders are often willing to pay up to 50% of the law firm\u2019s hourly rates. Subsequently, the law firm and their funders both claim 20% of any recoveries. The cost breakdown between law firms and litigation funders is worth discussing. Generally, law firms will assume the risk of a 100% contingent fee arrangement; however, law firms in these arrangements strongly prefer that litigation funders provide the advance for litigation expenses. <\/p>\n\n\n\n

One benefit commonly referenced benefit of this arrangement is easing access for plaintiffs to the justice system. However, while law firms and litigation funders<\/a> have used this partnership to access plaintiff-side litigation, the question arises if litigation funding actually increases the access of those who are injured or small businesses to justice? To Susman, an industry expert with over 40 years of experience, the answer is \u201cI don\u2019t think so.\u201d Instead of funding individual suits based a case\u2019s merits, litigation funders have trended towards funding portfolios of cases based on factors such as common defendants or practice area.<\/p>\n\n\n\n

the world of litigation finance<\/a> is still the Wild West<\/p>Bloomberg Law<\/cite><\/blockquote>\n\n\n\n

Other critics within the legal industry have observed that \u201cthe world of\u00a0litigation finance<\/a>\u00a0is still the Wild West.\u201d Even in Susman\u2019s interview, the interviewer articulated a future scenario where \u201cBlackstone<\/a>\u00a0[would] start moving into this or some of the big people who make other kinds of\u00a0similar bets<\/em>\u201d (emphasis added). The thought that \u201cdeep-pocketed venture capitalists and private equity types<\/a>\u201d are betting on the outcomes of cases should raise concerns over the industry\u2019s impact on the judicial system. Not surprisingly, the litigation finance industry recently founded a trade lobby, known as the American Legal Finance Association<\/a>, to represent their interests politically. Likewise, attorneys have also raised concerns that these agreements, driven by the funder\u2019s high interest rates, makes settling with plaintiffs significantly more difficult.<\/p>\n\n\n\n

On the other hand, even the American Bar Association<\/a> (ABA) recognizes the validity of third-parties financing litigation, describing a scenario where \u201cbusinesses can lift the financial burden of litigation, reduce financial risk, build a stronger case, and achieve fairer legal outcomes in court.\u201d This view reflects the ABA\u2019s recognition of the practical benefits of a new financial technology becoming available to firms and plaintiffs alike. Some suggest that litigation finance could spur the development of artificial intelligence<\/a> and machine learning designed to better assess a case\u2019s strengths and weaknesses. To Susman, \u201canything that allows either lawyers or funders to better predict the results in a case is to be welcomed. It is socially desirable. It\u2019s desirable for our justice system<\/a>.\u201d<\/p>\n\n\n\n

Regulating the Industry<\/strong><\/p>\n\n\n\n

For years, the litigation finance industry has dealt with calls for regulation from both state and federal government. At the federal level, the U.S. Chamber of Commerce<\/a> called for \u201cstrict limits on third-party litigation funding.\u201d The Chamber\u2019s concerns dealth with foreign actors using litigation finance to influence the United States\u2019 national economic and security interests through the judicial process. Furthermore, the Chamber\u2019s report raised concerns that these actors could provide investment into funding cases that address divisive issues. While, generally, courts have sided with plaintiffs attempting to shield third-party investment contracts, some states have adopted local disclosure rules. For example, the U.S. District Court for the District of New Jersey<\/a> now requires litigants to disclose information of third parties that provide funding for attorney\u2019s fees and other litigation expenses.<\/p>\n\n\n\n

Only a handful of states have successfully implemented similar statutes. One of the only states to have passed such legislation, Montana\u2019s SB. 269 requires that plaintiffs disclose funding for all civil cases brought in Montana<\/a> courts. More recently, several states have introduced similar bills. In January 2024, a Florida Senate committee<\/a> voted favorably on a bill requiring disclosure from plaintiffs when their suits are backed by third-party investors. According to Bloomberg Law, \u201c[t]he Florida Bill is the furthest along of the state efforts.\u201d Similarly, Kansas, Rhode Island, and Arizona introduced litigation finance bills in early 2024; however, of the three states, only Kansas has brought the proposed legislation before a committee. In short, the litigation finance landscape may change significantly over the next few years as regulators, legislatures, and courts grapple with appropriate transparency requirements without unreasonably limiting plaintiffs from seeking financial backing.<\/p>\n\n\n\n

Daniel Self<\/strong><\/p>\n\n\n\n

Daniel Self is a 2L at the University of North Carolina School of Law. To read more of Daniel’s writing, check out his recent development in Volume 25, Issue 2 regarding data privacy rights and censorship protections in Florida’s Digital Bill of Rights<\/a>. <\/p>\n","protected":false},"excerpt":{"rendered":"

Understanding Litigation Finance Litigation finance is when a third-party invests in a lawsuit in hopes of sharing in the profits of a successful verdict. A recent survey found that more than forty U.S. litigation finance companies exist. This survey, conducted over the course of one calendar year, found that these firms invested $2.33 billion in capital to litigation matters. …<\/a><\/p>\n","protected":false},"author":4,"featured_media":9191,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[51],"tags":[551,552,550,554,553,280,470],"_links":{"self":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/9190"}],"collection":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/comments?post=9190"}],"version-history":[{"count":4,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/9190\/revisions"}],"predecessor-version":[{"id":9198,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/9190\/revisions\/9198"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/media\/9191"}],"wp:attachment":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/media?parent=9190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/categories?post=9190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/tags?post=9190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}