Looking for something in the market that’s growing instead of shrinking? Try litigation.
The WSJ surveys the current landscape of litigation funding, discussing three new U.S. entrants: BlackRobe Capital Partners LLC, with John P.”Sean” Coffey, formerly of Bernstein Litowitz and 2010 Democratic nominee for NY AG; Fulbrook Management LLC, and Bentham Capital LLC.
The article notes that litigation funding is being used by both small companies to gain leverage against bigger opponents and publicly traded companies as a kind of “off-balance-sheet financing for their litigation.”
Notably, litigation funding is finding jobs for lawyers. As indicated above, they’re advising the funds. And the funding is, after all, a way to raise cash to pay lawyers.
The article discusses the policy arguments both ways: funding for strike suits, or “oxygen” for meritorious ones?
For more, see my Death of Big Law at 801-02. Here’s a piece (footnotes omitted):
Outside litigation funding is controversial. It has been attacked on the ground that it could increase frivolous litigation. However, outside financing of litigation can encourage socially valuable suits as well as frivolous claims. Moreover, prohibitions may leave anomalous gaps by permitting funding by insurance companies, or by lawyers through contingent fees. Accordingly, the best approach may be regulation rather than prohibition, including by ensuring that litigation financing does not systematically favor plaintiffs over defendants.
And Law’s Information Revolution (at 46-52) has a longer analysis and description of the litigation funding market as part of the new legal information industry. Here’s the lead-in to this section:
The value and supply of legal information can be increased not only by turning it into products, but also by using it to invest in capital assets. Like drilling an oil well, litigation involves exploration, production, financing and valuation. This model for using legal expertise would depart from the current advice model because it would dispense with clients, even in their modified form as customers of legal information products. Legal capitalists would find their profits in the capital markets rather than in selling advice or information to those engaging in transactions or litigation.
See also this earlier post on lawsuit loans.
Bottom line: litigation is an asset, and assets attract capital. If you think that this value comes at a cost to society, then regulate it directly. The capital markets are only the messenger.
“If you think that this value comes at a cost to society, then regulate it directly.”
My proposal to regulate this problem is to put a $100/head bounty on plaintiff’s lawyers.Cheap, efficient, quick.
With law firms scrambling for capital in a tight capital market and clients, both large and small, cutting back on the legal spend, the markets are simply seeking methods to infuse cash into law firms, while earning a reasonable – perhaps handsome – return. Since large scale litigation has become so incredibly expensive, litigation funding is a natural outgrowth. http://kowalskiandassociatesblog.com/2011/04/27/alternative-business-structures-here%e2%80%99s-a-great-idea-let%e2%80%99s-get-some-private-equity-funds-to-invest-in-large-commercial-law-firms-and-we%e2%80%99ll-all-make-a-ton-of-money/