Small-Scale Litigation Finance Is Not a Threat to Increase Meritless Litigation

One of the many prevalent criticisms of litigation financing is that it will promote more litigation and more unmeritorious litigation.  Those who level this criticism contend that more widely available financing will make it easier for litigants to continue lawsuits to vindicate a grudge or chase a big judgment, just as a lottery ticket buyer chases a jackpot.  But this criticism simply does not apply to the fastest growing part of litigation financing – small-scale financing to plaintiffs with modest claims.

In small-scale litigation financing, the financier’s investment in the case is used to cover essential litigation costs and/or personal and living expenses while the case is pending.  This kind of modest investment will not be made unless both the lawyer and the financier have made a judgment that the prospects of the case are strong.  These are simply not the circumstances that will cause a flood of unmeritorious cases that will swamp the judicial system.

Recent research indicates that the availability of third-party funding may lead to increases in the amount of litigation, but not in the volume that could disable the judicial system or disrupt the economy. With small-scale third-party funding, any increase in litigation would likely come from individuals who have legitimate claims.  The judicial system exists for the purpose of redressing inequities, and the vindication of legitimate claims can actually benefit the economy by deterring wrongful and inefficient behavior.

The transactions and interests at stake in small-scale financing is completely different than those involved in highly publicized examples of large-scale financing, as with Peter Thiel’s financing of Hulk Hogan’s lawsuit against Gawker for releasing Hogan’s unauthorized sex tape.  A billionaire like Thiel can afford to risk a few million dollars to vent his personal anger at a defendant in someone else’s lawsuit.  But litigation funding companies simply do not have those kinds of motivations.

The growth of litigation financing has prompted calls for increased regulation at the state level.  But the proponents of regulation, notably the United States Chamber of Commerce, have often argued for their proposals by obscuring the differences between large-scale litigation funding, as in the Gawker case, and small-scale financing.  The failure to carefully distinguish between these two very different kinds of transactions can lead to overregulation and failed public policy.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, lawsuit loans, non-recourse financing, consumer protection, law reform

 Works Cited:

Jeremy Kidd, Big-Time Litigation Funding Vs. Consumer Legal Funding, Law360 (Dec. 6, 2016) available at https://www.law360.com/consumerprotection/articles/867313/big-time-litigation-funding-vs-consumer-legal-funding

TownCenter Partner Team

TownCenter Partners, LLC lead Asset Manager is Mr. Roni A. Elias. From modest beginnings, and with the help of a hand-picked dream team of professionals we have built one of the most dynamic and fastest growing companies in the country. TownCenter Partners LLC(TCP) is a real estate partner and master-planner providing development, leasing, management, and third party services. The company’s demonstrated ability to apply big ideas in creative and innovative ways has played a defining role in the firm’s success. Yet, TCP's most important insight has been the core understanding that it is not sight lines or site plans, but human activity, that defines a space and creates a place.

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