Modern Islands of Litigation Finance
Third-party financing takes several forms in the United States. Three of these forms include: (1) public interest organizations, (2) contingency arrangements, and (3) litigation finance proper.
First, public interest organizations use individual instances of litigation to promote policies for the general public, rather than undertaking the comparatively costlier option of lobbying the legislative or executive branches. Because financing litigation—more specifically, Supreme Court litigation—is very costly for the average citizen, civil liberties require coordination among funders to effect social change. For example, the American Civil Liberties Union (ACLU) provides financing as well as legal expertise.
Second, contingency fee arrangements are contracts between a litigant and his/her lawyer agreeing that the specific fee ultimately paid to the lawyer is contingent upon the outcome of the case. Therefore, a lawyer may represent a client for free and will take a certain percentage of the judgment depending on the outcome. This benefits the litigant who may not have the financing to pay a lawyer upfront.
Lastly, litigation finance proper refers to investments in litigation by a third person not originally a party to the suit. This is similar to a contingency fee arrangement, however, the financier in a litigation finance proper setting is not acting as legal counsel to the client. The client would secure financing to pursue their suit, and in return, would share the winnings of its suit if successful. An important difference with contingency fee arrangements is that the litigation financier does not have control over the litigation strategy. Therefore, the control over the litigation belongs to the lawyer, an officer of the court who is subject to disciplinary action by the bar.
Topics: third-party financing, public interest organization, contingency fee arrangements, litigation finance proper
Work Cited: Michael K. Velchik & Jeffrey Y. Zhang, ISLANDS OF LITIGATION FINANCE, Stanford Journal of Law, Business & Finance (2019).
