WASHINGTON (Legal Newsline) – A panel of four debated just exactly who can benefit from third-party litigation financing Wednesday at the U.S. Chamber Institute for Legal Reform Summit.
Three professors and an attorney explored how the practice can increase the amount of lawsuits filed yet also help defendant corporations. Third-party litigation funding is basically an investment for the third party, which agrees to provide the costs for a litigant to file or defend a lawsuit.
Jonathan Molot, a professor at Georgetown University Law Center, said struggling companies facing lawsuits could use it effectively — saying it would “offload the risk” of fighting against a lawsuit to a jury verdict instead of settling to protect the welfare of the business.
Having the means to fight a lawsuit, he says, would also provide a bargaining chip that could drive a settlement down. The lender then would receive some portion of the money the company saved.
John Beisner, a partner at Skadden, Arps, Slate, Meagher & Flom, argued third-party financing has “the potential for a perfect storm.”
“There’s a real risk of lawsuit abuse,” he said. “The main point I want to raise is the rather obvious point — if you pour a lot more money into the type of funding that is available to finance litigation, you’re going to get more litigation.
“If you jam up the legal system with more claims, you’re going to limit the access of justice for individuals who have valid claims. Third-party financing litigation will encourage bringing weaker claims.”
Hedge funds interested in financing litigation, Beisner argued, are more interested in high-risk situations than attorneys who take cases based on the time they must dedicate and the likelihood of success.
Lenders target cases with only a small chance of success, but the opportunity to result in a high verdict or settlement.
Class action cases may get troublesome, too, he said.
“If you have (class action) litigation that has a third-party funder involved, who is really controlling the litigation?” Beisner said. “At the end of the day, the decision for a settlement or to go on with the case will be ccontrolled by the investors’ interest.”
While Stephen Presser, a professor at Northwestern University Law School, said large financiers won’t want to bring tort suits because a lack of certainty of jury trials, Paul Rubin, a professor at Emory University, wondered if the third-party financing was good for society.
While it would deter unlawful behavior with low-income individuals without the means to fight back, it would also create a new group with the intention of changing the law for its benefit.
From Legal Newsline: Reach John O’Brien by e-mail at email@example.com. Legal Newsline is owned by the ILR.