Recent Court Decision Shows Litigation Funding Continues to Gain Traction in U.S.

more+
less-
more+
less-
Explore:  Litigation Funding

Litigation Finance gains Traction in USThe heavy-equipment manufacturer Caterpillar, who is being sued in a federal court in Chicago, recently lost its request to obtain documents related to the plaintiff’s litigation funding agreement, according to a ruling made in the discovery phase of this case earlier this month. On the surface, this ruling is a win for the plaintiff (Miller UK LTD); however, in the greater context of the practice of litigation funding, which may also be referred to as third-party funding, this ruling is far more significant, as it highlights a growing acceptance of the legitimacy of litigation finance in the U.S.

Past Concerns about Third-Party Financing

Currently, litigation funding is a far more commonly accepted practice used to fund lawsuits in other countries, like in the United Kingdom and Australia. However, in the U.S., this practice has long been a source of indecisiveness because many legal professionals and others have feared that it would give third-party investors undue influence over the outcomes of cases. Additionally, some have suggested that litigation funding may spur frivolous lawsuits being brought to court.

However, such negative feelings towards litigation funding seem to be slowly losing traction, as an increasing number of legal professionals appear to be utilizing alternative litigation financing (ALF) and/or gaining a greater understanding of the part ALF plays in the US legal system, as evidenced in the judge’s ruling in the Caterpillar case.

Seeming to support the notion that attitudes towards litigation funding are improving, a recent study conducted and published by Burford Capital surveyed hundreds of in-house and private attorneys to learn more about what they thought about third-party financing. The results of this 2013 survey revealed that more than half of the survey’s respondents agreed that litigation funding should be an option for plaintiffs and their attorneys to bring their cases to court and that the need for this source of funding will likely grow in the U.S. in the near future.

Arguments for Litigation Funding

Proponents of third-party funding champion the practice as a way to even the playing field between the often limitless resources of defendants and plaintiffs or their attorneys who may lack the financial resources to properly challenge these defendants in court. In fact, with litigation financing, plaintiffs and their contingent-fee based attorneys who may not have otherwise had the financial backing they needed to bring their case to court can be empowered to challenge allegedly negligent defendants without the pressures to accept a settlement for less than their client’s claim is worth.

Best Practices for Litigation Funding in the Works

Despite this positive outlook for litigation funding, there are still many attitudinal hurtles to overcome. To this end, some financers – including Case Funding Inc and the American Legal Finance Association (ALFA) and Betham IMF (an international litigation finance firm) – are working on developing a universal code of best practices that could be used by third-party funders in the future. The goal of having such a code would be to minimize potential conflicts of interest that could arise between funders and litigants while maximizing the transparency of the funding process.

Among the suggested elements of the best practices, which are currently being developed, are that funders should refrain from advising litigants regarding how to present their cases and that there should be strict rules regarding if and when funders may have a say in a case’s settlement negotiations.

As the American legal industry’s views towards litigation funding continue to evolve, one thing remains clear: there is a growing demand for such financing, and even the most monied litigants are increasingly turning to third-party financing in order to avoid tying up their own funds in long-term litigation.

Sources:

Burford Capital
Wall Street Journal: 1 & 2