Markets in everything, lawsuit edition

…some wealthy investors are starting to dabble in lawsuit investment, bankrolling some or all of the heavy upfront costs in return for a share of the damages in the event of a win…

Here is the full story, thanks to John De Palma for the pointer.

Comments

This is nothing new -- it's called champerty and is generally illegal in most U.S. jurisdictions, at least until recently.

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It is not champerty to fund a lawsuit. Champerty normally requires instigation as well. In any event, contingency arrangements mark the end of champerty. In any event buying interests in the outcome of litigation, like buying judgments, is not really a problem under US law.

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This could be a very good thing if it helps to deter predatory behavior against financially weak individuals.

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This could be a very good thing if it helps to deter predatory behavior against financially weak individuals.

Enormously valuable in cases where a party may be stronger on the merits but lacks the resources to complete the case. Sounds like a good investment.

Just to be clear, the contingency-fee mechanism and class-action mechanism in the States already speak to these concerns. If someone has a strong, valuable claim, s/he will have no trouble finding a good lawyer willing to fund his/her case in exchange for a share of the damages. Similarly, if a large number of people have been injured in a small way (at the individual level), there will be no shortage of lawyers willing to sue on behalf of a class, in exchange for a share of the judgment.

That being said, I can't really deny that having a free market in lawsuits (as opposed to a market in which lawyers are the only buyers) would probably be more efficient economically.

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It is not champerty to fund a lawsuit. Champerty normally requires instigation as well. In any event, contingency arrangements mark the end of champerty. In any event buying interests in the outcome of litigation

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Regarding investing in lawsuits, I believe, in some cases, but not all, this new phenomenon of third-party funding could lead to cases being decided or settled on the basis of merit. In other cases, it conceivably could have the opposite effect, giving artificial "legs" to bogus claims that would otherwise fall flat. But I wonder whether sophisticated investors would bet on bogus claims, when they can fund meritorious ones instead. In any event, another effect of this trend probably will be a further acceleration of the shift to offshore legal outsourcing. Corporate legal departments, already under cost pressure, will see that pressure increase, with the rise of well-funded plaintiffs' suits. And litigation investors, eager to get the best possible return, and treating litigation as a business, naturally will want to increase efficiencies through legal process outsourcing. So one of the big winners in the lawsuit funding area is likely to be the LPO industry.
Priya Kumar
http://www.sddglobal.com
high-end legal outsourcing

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