Litigation Funding Equals Big Money

Posted on October 6, 2011 02:18 by Terrence L. Graves

The Wall Street Journal (“WSJ”) reported in the October 3, 2011 edition of the paper about the start-up of three brand new companies that were started with the purpose of entering what is considered the “fledging alternative litigation funding market.”  You can view the article here.  

The WSJ identifies the three new players in this market as BlackRobe Capital Partners, LLC, Fulbrook Management LLC, and Bentham Capital LLC.  What is ultimately interesting about the article is not that there are three new sources of alternative litigation funding now available, but the fact that it points out a level of investment in high stakes commercial litigation by alternative litigation funding companies of which many lawyers in smaller law firms are simply unaware.  

Many of us think of a sleazy operation that takes advantage of personal injury plaintiffs by lending them money at usurious interest rates in order to “tide them over” until they are able to settle their personal injury law suits when the term alternative litigation funding is used.  This practice is widespread throughout the United States and is only regulated in a few jurisdictions.  These include:  Ohio, Rhode Island, Florida, Maine, and Nebraska.  These states only mandate that the lending entity be licensed and that proper disclosures be made of the applicable interest rates.

The lenders discussed in the WSJ article are looking for what are described as “huge, untapped market[s] for betting on high stakes commercial claims.”  It was reported that companies that would be involved in litigation will spend $15.5 billion in commercial litigation and an additional $2.6 billion on intellectual property litigation.  The practice apparently has what is described as “cautious backing” from several “big law” firms, including Latham & Watkins, LLP, Patton Boggs LLP, and Cadwalader, Wickersham & Taft LLP.  The bottom line is that many firms see this as a way to engage in litigation while making sure that legal fees are paid in a timely fashion.  

There is no question that allowing smaller companies to tap this source of funding would allow them to potentially go against much larger companies in litigation and, might be considered to be a way of leveling the playing field.  On the other hand, critics of this practice have indicated that allowing alternative litigation funding increases the likelihood of frivolous claims and would continue to mean an increase in litigation that would continue to deplete resources from what many already consider to be an over-whelmed legal system.

In some cases, the litigation that is generated is between the alternative litigation funder and the borrower.  This circumstance is discussed in a companion article found as an insert in the Wall Street Journal here.  The case that is the subject of this article resulted in a law suit in which the alternative litigation funder is seeking to recoup its “investment” of $3 million that was provided to fund litigation involving the plaintiff’s international arbitration claim against the nation of Romania.  

No matter which side of the debate you come down on with regards to alternative litigation funding, one thing is clear.  This is a subject that is gaining momentum in the legal community on several levels.  The DRI’s Public Policy Committee, chaired by John C. Trimble of Lewis Wagner, LLP in Indianapolis is looking at this issue and will be providing recommendations to the Executive Committee of DRI in the near future.  

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