Third-party Litigation Financing Study Released

Point of Law’s Walter Olson wrote about a recently-released study by the U.S. Chamber of Commerce’s Institute for Legal Reform.  According to the study, third-party litigation financing can be dangerous, and leaves plaintiffs vulnerable to lawsuit abuse, especially in class action cases. 

For those of us who aren’t familiar with the term, third-party litigation financing is a scenario under which a law firm or other entity agrees to finance the lion’s share of a plaintiff’s litigation expenses in exchange for a percentage of whatever monetary award he receives.  They’re becoming increasingly popular across the United States and Australia, which has experienced a significant spike in litigation as a result of such arrangements. 

The root problem with third-party litigation financing, according to the study, is that it introduces a stranger to the attorney-client relationship, whose sole interest in the matter is financial.  The stranger’s objective is to maximize his or her investment, not seek a fair outcome for the other parties involved. 

ILR’s study, “Selling Lawsuits, Buying Trouble,” was authored by John Beisner, Jessica Miller, and Gary Rubin.  You can read the full text of their report here, which includes their recommendation that third-party financing should be banned in class action lawsuits in the United States.