The True Reality of Litigation Finance

Over the past several years, the U.S. Chamber of Commerce has led a war against the litigation finance industry.  They have lobbied for increased regulation of the industry and have given misleading information that suggests that litigation finance encourages frivolous litigation, violates a code of ethics, and somehow undermines the adversarial system of the American justice system.  Further, the U.S. Chamber of Commerce has reintroduced the Litigation Funding Transparency Act that would mandate disclosure of litigation funding agreements to the court and to the opposing parties.

In a perfect country, the justice system would provide for a resolution of legal claims in a fair manner, that is easily accessible to everyone.  However, we do not live in this world.  Litigation takes a long time, costs a lot of money, and is relatively exclusive.  For example, it takes an average civil case two years from the time of filing until it reaches trial.  Further, litigation costs have risen about 4% to 8% annually while incomes have remained stagnant.

A wealthy party with established lines of business and worth a lot of money can easily weather these large costs.  But how would a smaller, less well-off party pose a true threat, even with a meritorious claim?  According to a recent survey, 70% of small companies have declined to pursue legitimate claims against large companies because they lack such resources to fully litigate the case.

Litigation finance arose in response to this dilemma.  Typically, a litigation funder will provide a substantial amount of income to a party who otherwise would be unable to pursue their claim.  These claimants will then use this money to pay expert witnesses, acquire top-notch legal counsel, and use the money for other legal costs.

Due to the amount of benefit someone could perceive from litigation finance, wouldn’t the U.S. Chamber of Commerce actually encourage litigation finance?  This most recent bill, the Litigation Funding Transparency Act would further pain small parties by further increasing the costs of a lawsuit.  Additionally, the Who’s who of money, have backed this bill.

This mandatory disclosure of funding agreements would impose a huge burden on an already dysfunctional court system.  Everyone deserves equal access to the court systems.

Keywords: Litigation finance, bill, burden, accessible, meritorious

Word Cited:  Ralph Sutton, Litigation Funder Strikes Back at Chamber of Commerce, CFO (April 9, 2019)