On November 20, NYU Law’s Center on Civil Justice hosted a daylong conference on third-party litigation funding, featuring accomplished legal practitioners, scholars, and corporate representatives. The panelists shed light on numerous aspects of third-party litigation funding, a practice just beginning to take hold in the United States despite already being established in large legal markets across the world, including in the United Kingdom, Australia, Canada, and Hong Kong. Third-party litigation funding, or alternative litigation funding, involves a party outside of a lawsuit buying a piece of that suit. Typically, an investor will provide a plaintiff with necessary capital in exchange for part of the settlement proceeds.
Panelists began with a discussion of the impetus behind the rapid growth of the phenomenon. For litigants, the practice “avoids a two-tiered civil justice system” and promotes access to justice for individuals in “an enormously expensive justice system where attorneys’ fees of $25,000 to $100,000 per month are not unusual,” explained Alan Zimmerman, CEO and founder of New York finance company Law Finance Group. Investors, meanwhile, see the prospect of potentially lucrative returns on their investments.
John Desmarais ’88, founding partner of New York law firm Desmarais LLP, considered the special need for litigation funding in the patent space, where high-stakes litigation can lead to attorneys’ fees upward of $500,000 a month. “Parties,” he warned, “need a contingency fee lawyer or a funder if the claim is to see the light of day.” However, he also urged caution. Discussing potential ethical challenges in litigation funding, Desmarais expressed worries about whether funding relationships and diligence documents created by funding firms would be discoverable in court, as well as concerns over whether the client would lose control of the litigation. In particular, he pointed out that in a “first dollars” system where funders are paid in full before litigants receive anything, funders might be “happy with an offer to settle where the client gets nothing.”
Other panelists analyzed various challenges facing each different subcategory of litigation funding, as well as its use as a tool for collective actions and private arbitrations, a particularly salient topic given a recent multipart cover story in the New York Times.
Industry regulation also occupied the panelists’ attention. Responding to recent informal inquiries into the industry by Republican senators Charles Grassley and John Cornyn, panelists discussed how existing legal frameworks could serve as guidelines for regulation.
The overarching consensus was that, although litigation funding is a relatively nascent industry, it will continue to be a hot topic for debate.
Posted January 11, 2016