More Litigation Funding Rules Would Threaten Access to Justice

Litigation funding isn’t some dark and mysterious backroom industry. It is a mainstream process that provides fairness in litigation for individuals and small businesses. Mandating public disclosure of all aspects of such funding relationships would subvert that fairness by creating litigation disadvantages.

Few can afford an attorney, much less one capable of winning against large corporate attorneys billing over $2,000 an hour. Litigation financing helps equalize the playing field by allowing non-wealthy individuals and businesses to enforce their rights.

In addition to individuals who would otherwise have their day in court denied, Fortune 500 companies, universities, and businesses of all sizes have benefited from litigation funding in recent years.

Our court system has recognized this. For instance, New York Supreme Court Justice Eileen Bransten once wrote that “litigation funding allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or stronger appetite for protracted litigation.”

Funders provide the needed liquidity for legal fees and necessary litigation expenses. Most funding is non-recourse—not a loan—and the funder only realizes a return if the litigation succeeds. Therefore, investors have a profound interest in funding only meritorious cases.

Funding helps narrow a chasm between haves and have-nots in a legal world that continues to grow more complex and costly. I practice patent litigation, and although many types of civil cases can be funded, patent cases are among the most complicated and expensive—requiring budgets venturing into eight figures.

Without funding, only the very wealthy could ever present their case to a jury of their peers. Also, litigation finance improves the quality of legal settlements.

Funded cases are generally strong, as no one would invest millions of dollars without significant diligence. In addition to hiring in-house specialists to vet litigations, plaintiffs hire outside law firms and regularly spend hundreds of thousands of dollars and hundreds of hours assessing the underlying merits of a potential matter.

Further, to get a case funded, plaintiffs must pre-litigate every aspect, from pre-filing to appeal. Although this is a good practice in all cases, funders require this amount of pre-filing meticulousness in strategy, fact, and law.

Because they invest in less than 5% of presented cases, most funders readily welcome disclosing their presence and identity. And any plaintiff would love to explain to a jury the arduous months-long process of obtaining approval for funding.

But now that David has a better chance against Goliath, the latter has gone on the attack.

Some detractors of litigation financing insist that disclosure is lacking, but many courts automatically require various levels of disclosure. In patent cases, any enforceable security interest can be found on the US Patent Office’s public website.

Requiring every aspect of the funding relationship to be made public, such as detailing all clauses of a funding agreement, wouldn’t achieve fairness. Instead, it would grant a litigation advantage to the other party.

For example, disclosing the litigation budget of a funding agreement tells the defendant the exact dollar amount it would take to win a litigation battle based on attrition rather than legal merits.

Additionally, information subject to attorney work product must sometimes be shared with funders during diligence. Virtually all courts have found that such work product is protected from disclosure when it is shared when seeking funding.

While most funders have no problem being disclosed, funding opponents seek extreme levels of detail for investors. If someone were to approach a major corporation and seek the name, address, relationships, and specific investment of each of its shareholders—including those outside the US—this would be justifiably denied.

One legitimate concern is to verify that the funder can’t control litigation or settlement to prevent interference with the lawyers’ independent professional judgment. But that is something courts already routinely monitor—while respecting the legitimate business needs for confidentiality.

Making the litigation finance process more difficult and disadvantageous through excessive disclosure requirements would limit individuals’ and small companies’ access to justice. The last thing we need is more government regulation to protect large corporations from having to litigate on a fair playing field.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Erick Robinson is partner and chair of the intellectual property and chair legal finance practices at Spencer Fane.

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