The New Age of Litigation Finance

by Walter Olson on November 19, 2013

On Thursday I was a panelist at the Federalist Society National Lawyers’ Conference discussing the rapid rise of litigation funding — specifically, well-capitalized firms that advance money to plaintiffs in commercial high-stakes litigation, often in exchange for a share in the proceeds. (A separate wing of the litigation finance business, which was not the panel’s primary focus, advances smallish sums to individual injury plaintiffs at high interest rates in a sort of analogue of payday lending.)

My opening remarks speculate about the future emergence of divorce trolls — excuse me, “marital rights assertion entities” — set up to buy out an ex-spouse’s stake in ongoing matrimonial strife and play it for maximum extraction value. While no one has yet rolled out that kind of business model, note that outside financiers have indeed begun to fund divorce litigation.

More seriously, I went on to argue that the rise of patent trolls and mass tort operations prefigures problems we are likely to see emerge from litigation finance, from the encouragement given to low-value claims to a settlement process skewed by the interests of the funders rather than the original disputants, and suggest that the age-old rules against champerty, maintenance and barratry might owe something to an appreciation of such dangers. A link to the video is here.

More: Check out Roger Pilon’s post on what else Cato people were up to at the Mayflower last week.

{ 4 comments }

1 Allan 11.19.13 at 10:21 am

Ah. We can have a free market in everything but lawsuits? We need a system where: 1) wrongdoers are made to disgorge ill-gotten gains; 2) those injured by wrongdoers are paid in full; and 3) lawyers (on both sides) get less. I do not know which is more disheartening, a lawyer who makes $1,000,000 when his client gets $3,000,000 in damages or a lawyer who makes $200,000 defending the wrongdoer where the damages are really $3,500,000.

2 mike 11.19.13 at 10:42 am

The legal system is not a “market.” If it is treated as such, expect a huge mess, especially in matrimonial practice. The present system is traumatic enough to parents and children.

3 Allan 11.19.13 at 5:52 pm

The legal system is not a market? Really? One party pays another services. The other party is paid for rendering service. The price of services are determined by supply and demand. It is a market.

4 Walter Olson 11.19.13 at 5:58 pm

mike, do you want to be the one to tell him about the compulsory process aspect?

Comments on this entry are closed.