Tort Reform and Its Impact

Up until recently, the Republican party has controlled the White House, and both halves of Congress.  Therefore, some kind of tort reform will likely be proposed and voted on shortly.  If such legislation passes, this could have a dramatic impact on many parts of the legal industry.   In particular, litigation financers could be heavily impacted.  Two legislative scenarios are likely to happen in this situation if something comes to fruition.

The first scenario that could happen is that tort reform may make it harder to bring lawsuits.  This could happen if standards for entering into a lawsuit are changed or if some causes for action are eliminated.  For example, altering standards for class-action eligibility may cause a dramatic decrease in the number of class-action lawsuits.  In turn, this would reduce the overall need for litigation finance.

The second scenario that could happen is that tort reform may lead to reduced costs associated with lawsuits.  Specifically, this would happen if legislation passes that will cap the amount of damages for certain cases.  Thus, the price investors are willing to invest in a new litigation claim, would diminish greatly.

However, with these possible reforms, there may be some unexpected positive outcomes.  While these impacts have the potential to reduce business and investments, reducing the cost of lawsuits, and altering the standards of class-action lawsuits, could actually lead to more claims.  Simply put, if a pre-tort reform lawsuit would have cost $1 million to litigate, and a post-tort reform suit costs now $500k to litigate, then a firm could afford to have twice as many failures and thus be able to take on twice as many risks.

It is important to note that all of this is speculative at this point.  It is unclear what legislation will be brought forth within the coming years.  As for litigation financers, it is worth thinking ahead about how the future may look and preparing accordingly

Keywords: litigation finance, reform, Republicans, legislation

Work Cited:  Michael McDonald, Tort Reform and the Litigation Finance Business, Above the Law (November 29, 2016)