Recent Cases Underscore Problems With TPLF
“Investing in high-stakes lawsuits isn’t for the faint of heart,” writes Jennifer Smith in the Wall Street Journal.
Take, for example, two recent cases where lawsuit funders could lose big. A lawsuit over Iraqi oil fields could leave the unsuccessful plaintiff – and their funder – on the hook for millions in court costs, and a Colorado judge dismissed a funder-backed copyright lawsuit where the defendant might seek reimbursement for its legal fees.
Smith explains:
Litigation finance is a growing field that now includes a number of specialty firms that maintain multimillion-dollar portfolios devoted to legal investments. Hedge funds and individual investors also occasionally purchase stakes in litigation as part of a broader investment strategy.
Critics have pointed out that TPLF raises a host of ethical issues. In a letter to the American Lawyer, ILR president Lisa Rickard wrote:
Third-party litigation financing encourages meritless lawsuits, since one windfall can subsidize many losses, and investors verify a lawsuit’s “jackpot” potential, not its legitimacy. The practice also clouds who controls the lawsuit, compromises the attorney-client relationship, artificially inflates settlement values, and can crowd court dockets.
Third-party litigation financing is a relatively recent development in the United States, but has much deeper roots in Australia. Last week, ILR released a series of recommendations to address the use of TPLF in Australia. Among the ideas put forward by ILR, limit control that funders have over cases by keeping them from giving instructions to lawyers, require lawyers to answer to court-appointed representative, and bar law firms from participating if they own a litigation funder that is financing a case.
