Litigation financing industry finding leads in new ways

A new start-up has been using algorithms to search out civil lawsuits for investment purposes with the expectation of a big payoff. To attorney Robert Sheridan, Legalist is a sign the legal financing industry is getting more sophisticated. “It is happening more and more. I think that industry is certainly growing and becoming more and more sophisticated. With the availability of more sophisticated means by which data mining analysts can put the data together, the industry can become much more focused and targeted,” Sheridan told Legal Newsline.

Just what the company will be looking for are would-be lawsuits that would pay big dividends. Although Sheridan said he was just speculating, he believed “for it to be worthwhile for them, they would look at high-dollar lawsuits.” “I think they are going to look for one that actually looks promising,” Sheridan said.

“I don’t know what their metrics are and I don’t know their algorithms. I am sure there is only so much out there that they actually share but I am assuming they are going to look at some of the claims, how long a case has been out there, how far along a case has been. “It is possible [there is] a judge or jurisdiction that is particularly favorable to that kind of suit. I think those are probably the kinds of suits that are going to be targeted for financing.

Sheridan said it wouldn’t make sense for the company to target standard slip-and-fall lawsuits or automobile accident cases. It is more likely the company would look for high-dollar lawsuits. Of course, it is difficult to tell what Legalist invests in. Third-party finance companies have not had to disclosure their identities in those cases, with the exception of a recent ruling.

Whether litigation financing is good for the legal industry is uncertain, Sheridan feels.

“I think it can be good and I think it can be bad,” he said. “There is probably some legitimate meritorious lawsuit where there is real harm and folks just don’t have the capital to even keep the lawyers.  “On the flipside, there might be matters where even though it might be a high-dollar amount, for business reason or peace of mind or anything like that, the parties should really think about settling if there is a chance this might disincentivise settling. We are already a very, very litigious society vis a vis some of our peer nations so it is possible that we could become more litigious.”

Topics: Litigation Finance, Disclosure, Investment

Work cited: Chandra Lye, Legal Newsline, September 27, 2016