Our civil justice system is designed to resolve disputes and ensure justice, but third-party litigation funders (TPLF) often have a different agenda. Their primary objective is to maximize their own profits, even if it means exerting control over litigation to achieve that goal. TPLF allows hedge funds and other financiers to invest in lawsuits in exchange for a percentage of any settlement or award.
We are debunking some of the myths you may have heard about the TPLF industry and shining a light on the grim realities of how it often prioritizes investor profits over justice and transparency.
Myth: TPLF is designed to increase access to justice by providing funds to litigants who would otherwise not be able to access the courts.
Fact: The TPLF industry is not providing funds for litigants that their counsel would not otherwise be able to expend via contingency-fee arrangements. Rather, it actively uses parties in litigation as puppets to maximize profits.
Myth: TPLF investors are passive investors who do not exert any control over litigation.
Fact: TPLF is a vehicle for maximizing funders’ return on their investments—often to the detriment of the plaintiffs whose claims they are bankrolling.
- For example, in a recent case, TPLF funder Burford Capital and Sysco Corp., a large U.S. food distributor, entered into an arrangement for Burford to fund some of Sysco’s antitrust litigation. Sysco later argued in court that Burford was preventing it from accepting reasonable settlements in its own antitrust litigation, effectively trapping Sysco in a lawsuit it wished to settle.
- Burford also tried to replace Sysco with one of its affiliates as the plaintiff in the case so it could pursue its own agenda.
- The Sysco case is just one example. There are many reported similar situations.
Myth: TPLF helps make whole purportedly injured claimants.
Fact: TPLF incentivizes investors to take a substantial percentage of money supposedly intended to make litigants whole.
- For example, while the percentage that each TPLF funder demands for its investment is a closely guarded industry secret, one recent report explained that investors typically seek returns of three to four times their investment for a single lawsuit, or around 18 percent when they invest in a portfolio of lawsuits.
- That 18 percent figure is roughly equivalent to a very high-interest loan, or roughly 1.25 times the current average yield of a “junk bond” (14%)—typically the last resort of companies seeking capital.
Myth: Judges, lawmakers, and policymakers have rejected attempts to make TPLF more transparent and that they are somehow indifferent about its potential abuses on our civil justice system.
Fact: TPLF is on governments’ radar at both the state and federal levels and abroad. In fact, all areas of government—the courts, legislatures, and regulators—are becoming increasingly proactive in scrutinizing TPLF, requiring greater transparency and setting the stage for much-needed reform.
- Specifically, several states have already enacted legislation that mandates disclosure of TPLF in all civil cases or prohibits TPLF investors from exercising any control over litigation or settlement decisions.
- In addition, some individual judges are inquiring about TPLF and requiring litigants to disclose whether they use it in their cases.
- Many legislators are raising questions about the risks of foreign influence in the U.S. from overseas TPLF funding, particularly from Russian and Chinese investors.
These are examples of why it is imperative for policymakers to advocate for transparency and oversight of TPLF. We encourage you to visit our educational TPLF page to learn more about the significant challenges posed by third-party litigation funding (TPLF) and access background policy information and ILR research. This page is a central hub for all the latest insights and findings on TPLF.
