Justice Dealers: The Ecosystem of American Litigation Finance

Abstract

People litigate for various reasons. Some want to right wrongs, others – make precedents. But most, at least in the civil realm, sue to protect economic interests; and they are motivated by pragmatic considerations rather than abstract notions of justice. One fruit of the mercantile approach to civil litigation is the nascent market where third parties provide financing for litigants (or their lawyers) and profit from a successful resolution of the funded claims. Through the lens of a third-party funder, justice is a mass-market commodity, and its value depends on laws of men and laws of probability alike.The ways of litigation funders create multiple points of tension for the legal process and its participants, and laws on the book offer little guidance on how third-party interests should be treated. Resulting procedural and ethical dilemmas have stirred a debate among scholars who rushed to offer conflicting opinions and advice. Critics demand that litigation investing be banned, calling it a travesty of justice that turns courts into casinos. Enthusiasts want the practice formally recognized, asserting that it levels the playing field for weaker parties.The discussion on litigation financing does not lack vigor; but it does lack hard facts. Drawing from first-hand empirical data on the practice of litigation funding in the United States, this paper explains how the market for legal claims actually works. First, I describe the entire ecosystem of actors who apply the logic of asset management to uncertainties of individual lawsuits – litigants; litigators; funding companies and their investors; and their “entourage” providing additional, specialized services. Then I segment the market and explore different strategies of third-party investing. Finally, I list American litigation funders and group them based on what they do.Based on the descriptive findings, I claim that modern civil litigation engages multiple, often undisclosed stakeholders with complex financial motivations. I argue that such interests should be recognized by the legal system as legitimate and ultimately regulated. The first step in that direction should be making sure that third-party involvement in a dispute is disclosed.