litigation is growing, with impacts on businesses big and small.
based in Westborough, Mass., a startup third-party litigation funder
launched with a $100,000 grant from a foundation that was founded by Peter Thiel, a Silicon
Valley tech billionaire, in August.
new firm uses an algorithm to calculate investment return on lawsuits for which
it can reap up to 50 percent of awards, according to Legalist co-founders, Christian
Haig and Eva Shang, former Harvard University students.
mission is to expand access to justice for small businesses who can’t afford existing,
meritorious lawsuits,” Shang said in a statement to Legal Newsline. “All cases we take on are already underway, such as
a local Massachusetts paper company with a breach of contract case or a small bakery
with a busted water pipe.”
Legalist's business model encourage or discourage more litigation? One West
Coast academic concurred with the likelihood of this new third-party litigation
funder triggering additional lawsuits.
Legalist's business model may cause persons who might not otherwise be able to
afford to litigate to enter or stay in the litigation system," Morris
Ratner, a professor of law and associate dean at the University of California
Hastings College of the Law in San Francisco, told Legal Newsline.
to Ratner, such litigation funding is an outgrowth of the practice of lawyers
funding cases on a contingent fee, payable if or when a plaintiff receives an award.
“More law enforcement via private litigation is not a bad
thing,” Ratner said, “especially if Legalist is investing in meritorious
cases. And why shouldn't it? After all, if it invests in weak cases, it won't
make a return on its investment.”
Shang declined a request to comment on specifics
of Legalist’s algorithm to calculate an existing, meritorious lawsuit.
According to the firm’s website, “Our algorithms analyze millions of court
cases to source, vet, and finance commercial litigation. Find out if your
lawsuit qualifies for financing.”
The financing of another’s lawsuit, or champerty, was not
legal under English common law, according to Ratner. Yet that legal
prohibition of financing litigation ended in Australia 50 years ago, and has
expanded broadly over the past 20 years.
During that time frame, investors seeking return on their
capital have looked to courtrooms as a market opportunity instead of focusing solely
on financial instruments such as the bond and stock markets, Ratner said.
A leading business association is staunchly opposed to third-party litigation funding.
Lisa A. Rickard, president of the U.S. Chamber of
Commerce Institute for Legal Reform, delivered a sharp critique in a New
York Times op-ed.
“This practice is a cancerous growth on our civil justice system,
turning our courts into profit centers, increasing the number of lawsuits in
our already over-sued society, shifting control of lawsuit decisions toward
funders rather than litigants, and reducing settlement dollars for truly
deserving victims," she wrote.
third-party litigation funding is growing, according to Burford Capital, a
third-party litigation funder. Its 2016 Litigation Finance Survey, for example,
found that “28 percent of private practice lawyers say their firms have used
litigation finance directly—a four-fold increase since 2013.”
granting of funds to Legalist to launch its business follows the Silicon Valley
billionaire’s investment in a multi-million dollar lawsuit on behalf of pro
wrestler Hulk Hogan against Gawker.com,
the former online media outlet that had posted a sex video of the grappler
without his permission.
time, the Hogan lawsuit drove Gawker into
bankruptcy, and it ceased all operations this Aug. 22. What motivated Thiel
to bankroll Hogan?
possibility is revenge, as Gawker had revealed Thiel’s homosexuality in 2007, a
the meantime, Shang dismissed Thiel’s active involvement in Legalist and its
funding of lawyers and litigants as improper.
are not affiliated with Peter Thiel,” Shang said in a statement. “It would be
akin to a nonprofit receiving a Soros Justice Grant—it doesn’t mean they have
any interaction with George Soros.”
personally have a background in prison reform,” Shang said, “so I’ve been
passionate about access to justice for a long time."
Editor's note: Legal Newsline is owned by the U.S. Chamber Institute for Legal Reform.