As the economies of the United States and the rest of the world went into a tailspin in 2008, investors in the United States scrambled to seek alternative vehicles to increase their portfolios. One investment vehicle that some investors have begun to focus on is litigations. Not any specific litigation, but rather in the business of suing large companies with deep pockets. This is a growing trend that companies should take notice of, as it has the potential to significantly increase litigation pressures companies face, and as a result, increase litigation costs. This is particularly true in the world of products liability and mass tort.
In the past, many plaintiffs were unable to bring suit against a company where there were questionable merits or the case involved extremely complex issues of science. In these cases, the potential plaintiff was unable to find an attorney willing to invest his or her time in money in pursuing a case with unclear prospects of recovery. Because plaintiffs’ attorneys typically work on a contingency fee basis, the attorney engaged in a balancing of potential recovery against expected costs and declined filing cases where the result did not substantially favor recovery. Given the enormous investment in discovery and experts that are typically involved in a product liability or mass tort case, many of these cases went unfiled, as claimants were unable to find an attorney willing to invest the time and money into pursuing the claims. However, a new source of funding for these cases may be developing.
Third-party litigation funding companies are much more well-established in other countries, particularly Australia and the United Kingdom. However, this concept is just beginning to develop in the United States. Recently, Nate Raymond drafted an article for the New York Law Journal discussing the rise of litigation funding companies. Raymond discussed two companies, Juridicia Investments Ltd. and Burford Capital Ltd. which are dedicated solely to providing investors with an opportunity to invest in business-to-business commercial litigations. Juridicia’s website notes that it “invests only in business claims, and does not invest in class actions or personal injury, product liability, or mass tort claims.” And, while Burford’s “short-term” focus is on commercial disputes, it notes that it “may expand its focus to other attractive and suitable jurisdictions.”
There are potential ethical issues that surround third-party litigation funding. Last fall, the U.S. Chamber Institute for Legal Reform released a report entitled “Selling Lawsuits, Buying Trouble” discussing the dangers of third-party litigation funding. The report discusses the danger of introducing a third-party into the attorney-client relationship whose sole interest in the litigation is financial with no concern for the merits of the case or the vindication of any of the plaintiff’s rights. The report states the concern that the rules governing professional responsibility, compensation, and attorney-client privilege are at risk of being relaxed in order to accommodate this new relationship. All of these factors, the report concludes, raise the risk that companies will be subjected to additional meritless claims and the legal process will be subject to expanded and continued abuse by those with exclusively monetary motives.
Currently, the companies devoted to third-party funding of litigations focus mainly on commercial claims, like Juridicia and Burford. However, given the potential recoveries in product liability and mass tort cases, if the phenomenon of these litigation lenders continues to expand, companies may see suits brought by plaintiffs who are able to hire more sophisticated counsel with a larger war-chest to fight. This could only serve to increase the litigation costs of defending against such claims, and may lead companies to settle claims that in the past would not have even been filed. As a result, this is a development that companies should pay close attention to.
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