May 31, 2019

Did Litigation Funders Just Confirm Our Suspicions? Again?

It is not surprising that in April, two litigation funders essentially confirmed they look for cases with massive damages potential to find their next jackpot. What is more interesting is the fact that one of those funders, contrary to the industry’s long-standing declaration against such practices, may have just admitted they do, in fact, want some control over the litigation they fund.

Will Weisman, a Therium Capital investment officer, recently wrote in an op-ed about the “tools that litigation financiers employ to align the interests” of everyone involved in the case: “litigators, attorneys, litigation funders.” Comparing litigation funding to a casino (an argument U.S. Chamber Institute for Legal Reform President Lisa A. Rickard has been making for several years), Weisman discusses a number of different provisions they use to get everyone on the same page.

He says funders have “no control over a plaintiff’s decisions,” like when or if a plaintiff wants to settle a case. This, he says, puts funders in a “scary” business position. Plaintiffs might see their funds as “house money,” meaning they may act in a manner more aggressive than the funder wants. If there were “no solution to this” he says, “litigation finance firms would not be in business.”

So to rein in a rogue recipient, funders may increase the percentage owed to the funder as time goes on, or use incentives for the lawyer to reach a settlement. Both of these tools are designed to “force parties to seriously consider earlier settlements and reduce the incentive to chase large-but-unlikely recoveries.”

But remember, they say they have no control over the actual decisions.

Funders are also open to contingency fee arrangements to “further align law firms’ interests with their clients’ and our own” that “give them upside for their recovery in the case, in exchange for discounted fees.” But again, there’s no control. Only rising interest rates, financial incentives, and maybe even a fee discount for good behavior.

If these carrots and sticks don’t work, a lawsuit funder might need to use the ultimate weapon: suing their own clients, which reportedly has become a growing phenomenon in the litigation funding space.

Regardless of what the litigation finance industry usually says publicly about its products and practices, Weisman’s article commits truth about their real intention to manipulate the process to have effective control over major parts of the litigation process. Which is why attempts to put common sense rules and laws in place are needed more than ever.

The Advisory Committee on Civil Rules for the U.S. Courts has been considering a transparency rule for over a year. A group of U.S. Senators introduced the Litigation Funding Transparency Act, which would require all arrangements to be made public at the outset of litigation. States like Wisconsin have also taken legislative action to bring funding out of the shadows.

The funders assure us that they play no role in the litigation once they place their bets. What they choose to reveal to us, though, suggests something very different.

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