“Considering Paths to Disclosure in Third Party Litigation Financing,” By Michael Zigelman & Kristina Duffy, Reuters, 2-22-2023
As stock and cryptocurrency markets sputter their way into the new year, one lesser-known investment strategy has demonstrated imperviousness to the broader economy. According to a June 2020 New York Times article, “Pandemic is Expected to Bring More Lawsuits, and More Backers,” third party litigation financing (“TPLF”) is yielding returns of up to 30 percent or more. While obscure to most investors, TPLF has garnered keen attention in the legal community due to the impact it is having on civil litigation.
TPLF is exactly what it sounds like: It takes place when a third party (often a wealthy individual, fund, family member, or other entity) provides funding to a litigant (often a plaintiff or counterclaimant) that enables the litigant to initiate or continue litigation. See “Third Party Funding in the United States: A Systemic Judicial Analysis”, 32 AMRIARB 173 (2021). As discussed by one 2013 New York state trial court decision, Lawsuit Funding, LLC v. Lessoff, by providing litigants with the resources to prosecute their case more effectively, it “allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or stronger appetite for protracted litigation.”
TPLF’s impact, however, has not been universally welcomed by the legal community. Detractors argue that claims TPLF expands access to justice are overblown given that lawsuits selected for funding are often the strongest and most likely to yield lucrative awards, not the types that would otherwise be passed over by traditional plaintiffs’ law firms. It also, of course, diverts a substantial portion of any award away from the injured party to compensate the financier. See “Tilted Scales of Justice? The Consequences of Third-Party Financing of American Litigation,” 63 EMORY L. JOURN. 489, 492 (2013).
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