Why Consumer Legal Funding Poses No Risk to National Security

Consumer legal funding’s sole purpose is to help individuals and families alleviate cash-flow problems after an accident, while seeking compensation for injuries through lawsuits.

It can pay for early diagnostic scans or other medical bills and living expenses, such as rent, food, and clothes. It might even help a lower-income family to provide Christmas gifts for their children.

This is in contrast to commercial legal funding, which provides funding for large-scale litigation, encompassing any industry and area of law you can imagine. Consumer and commercial legal funding have a few things in common—both resolve cash-flow issues, for example—but they differ substantially on many others.

The relatively mundane function of consumer legal funding is hardly the stuff of international intrigue and spy craft, and yet that is exactly what the US Chamber of Commerce’s Institute for Legal Reform is telling legislators across the country in in its most recent legal research brief, warning that third-party litigation funding could pose national security risks.

Of course, the chamber doesn’t phrase it in those terms since that would sound silly. Instead, the chamber lumps together, in one, all transactions where a party to litigation receives any monetary resources from a non-party.

It paints a bleak picture of “foreign adversaries” undermining US “national economic and security interests through the infiltration of the American litigation system,” and we cannot say that the chamber is wrong to worry about the US judiciary and its implications for national security.

Our adversaries are, almost certainly, seeking ways to augment their own standing and power in the international community while diminishing that of the US.

Given the increased influence of the courts in not only our system of government but also our economy, it would be more surprising if our adversaries were not attempting to subvert our judicial system.

Nevertheless, we can unequivocally say that there is no risk of the kind of shenanigans imagined by the chamber arising from consumer legal funding.

The chamber’s campaign conflates consumer lawsuit lending with commercial litigation funding, a growing sector for private investment estimated as much as $39 billion globally in 2019.

Small Sums

The reason is that the nature of the consumer legal funding industry does not lend itself to being an effective vehicle for international sabotage.

A key statistic for this debate is the following: The average amount involved in consumer legal funding is $2,000-3,000, while commercial litigation funding can easily run into the millions.

Consider also that consumer legal funding does not involve the kind of high-profile litigation that might be of interest to our adversaries, and that all the funds go directly to average Americans who are just trying to live their lives.

In truth, if foreign powers are seeking to subvert our legal system by buying food for a single parent who is in the midst of a lawsuit, that adversary is quite bad at the whole “enemy” thing.

Logical Fallacy

The Chamber of Commerce is engaged in a textbook case of the fallacy of composition—assuming that what may be true of one part must be true of the whole. Because the introduction of outside funding into commercial litigation might pose a threat to our national security, any outside funding will do the same.

This is true, apparently, even when the funding comes in small sums to consumers who have no political or even judicial power.

Of course, the chamber’s insinuations are nothing more than logical fallacies. If the chamber wishes to seek to make our nation safer, it should narrow its focus to where the risks really lie, rather than seeking to cast the broadest net possible.

Consumer legal funding poses none of the risks identified by the chamber and should be left alone to aid consumers in seeking justice.

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

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Jeremy Kidd is a professor of law at Drake University Law School, where he teaches contract and business law. A law and economics scholar, he writes on third-party funding in litigation and other civil justice issues.