September 14, 2016

Sue by Numbers – Algorithm Determines Which Lawsuits Will Equal Big Payouts

By Lisa A. Rickard
President, Institute for Legal Reform

An algorithm sounds like a long-forgotten term from your high school mathematics course. In reality, algorithms are part of our everyday existence. They are used to predict the weather, choose the fastest way for you to get to work, and determine what appears on your Facebook newsfeed. 

But what about an algorithm that would help you profit from someone else’s lawsuit?

Two Harvard students have come up with a formula to determine which lawsuits have the potential to pay out the most money. Their company, Legalist, is part of the at least $3 billion (and growing) third party litigation funding (TPLF) industry. The new company says it will determine which cases are potentially most lucrative and offer investors the chance to finance the lawsuit. 

In return, they say, investors will get up to 50% of the final judgment or settlement.  

What is the big problem with this new business model and litigation funding in general? It exploits our court system and prioritizes profit over justice. 

Cases are chosen based on potential return, not whether the plaintiffs actually have a meritorious claim. TPLF helps move potentially frivolous lawsuits forward as funders take risks on questionable, but potentially big dollar, claims. The reality is most cases settle and funders take advantage of this.

More lawsuits overall and, most likely, more abusive lawsuits.

What factors do matter in Legalist’s formula? 58 different variables to be exact.

Eva Shang of Legalist said “one of the biggest predictors of case outcome is the presiding judge.” In essence, the group is taking bets that a judge will rule in their favor–turning our courts into casinos. It’s also important to note that the judge, and the defendant, won’t know that the case is funded by an outside group, as there is little regulation of the industry and no state or federal court requirements to disclose funding agreements.

The litigation becomes all about profit–and it’s no small profit at that.

These cases brought against corporate and small businesses alike have the potential to cut the lights and lock the doors for good. Thus far, Legalist has invested $75,000 in one lawsuit and expects a payout of up to $1 million. That’s a return of more than 1,200%.

With such high stakes, the priorities that matter in the case are those of the funders, not the plaintiffs. Funders might not want to settle a case unless they feel they are getting the maximum payout. A lawsuit that would have been easily settled could now result in bankruptcy.  

Allowing third parties to invest unchecked in lawsuits distorts our legal system. The new algorithm is a proof point to this, showing that the end goal is profit maximization, not legal justice.

Delaware General Assembly Blog Delaware Wants to Take a Closer Look at the TPLF Industry   Third Party Litigation Funding (TPLF) Blog European Parliament Legal Affairs Committee Adopts TPLF Legislative Initiative Report International Initiatives, Third Party Litigation Funding (TPLF) Welcome to Delaware Sign Blog Another Federal Court Now Requires Disclosure of Third Party Litigation Funding Third Party Litigation Funding (TPLF) litigation funders, beach scene Blog Sun, Sea, but no Sand(box) for Florida Lawsuit Investors Lawsuit Lending, Third Party Litigation Funding (TPLF) Blog Third Party Litigation Funding: Buying Trouble Across the Globe International Initiatives, Third Party Litigation Funding (TPLF)

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