The Case for a Government-Authorized Self-Regulatory Organization for Commercial Litigation Funders

Abstract

This Note argues that a self-regulatory organization can effectively regulate commercial litigation funders operating in the United States. Critics of litigation funding have argued that the existence of third-party funders could lead to meritless lawsuits. Regulations that require the disclosure of the involvement of litigation funders has been proposed as a potential solution. This Note refutes the argument that litigation funding leads to meritless lawsuits by showing that such lawsuits offer no financial incentive to litigation funders. Because of the time value of money, one major risk is that litigation funders will encourage clients they fund to settle lawsuits sooner rather than later so that funders can redeploy their capital and capture more gains in a specified period of time. To prevent such behavior, litigation funders need a regulatory monitor to prevent them from attempting to influence the legal decisions in the cases that they fund. This Note argues that a viable self-regulatory organization should be created in the United States by pulling from regulatory models in Australia and the United Kingdom, and coupling a government mandate with an already extant industry self-regulatory organization. Such an organization could effectively address the risk posed by litigation funders while allowing them to help offset the costs of litigation for their clients.