Tag Archives: law

Litigation Funding: Helping you get your case to trial or disrupting the litigation process?

If you haven’t heard of litigation funders, then stay tuned. I’m sure you will soon. They’re here to make sure your next big case gets the cash it needs to stay alive to victory or settlement.

Or are they just here to see if they can make a buck? Or both?

If you have heard of litigation funding, then I’d like to hear what you think.

What is ‘litigation funding?’

What is a “litigation funder?” These are financiers that provide one of two types of litigation funding to plaintiffs: either by cash advances to individual plaintiffs or funding to plaintiffs’ firms, helping them trade future risk for current cash flow.

In other words, they offer the cash to plaintiffs and plaintiffs’ firms to make it possible for litigation to go forward when it might not otherwise due to the cost of litigation.

The best part is that plaintiffs and plaintiffs’ firms need only pay it back if they win.

The cost? Funders can charge between 36% and 150%, per year, though, according to Kirby Griffis of Hollingsworth LLP, higher rates are not unheard of. They get away with it and avoid usury laws by advancing the cash on a non-recourse basis, requiring repayment only if the plaintiff wins or gets a settlement in their favor.

The Legal and Ethical Gray Area

The main problems–ethically and legally–arise under the legal doctrines of maintenance and champerty. As summarized by Griffis, maintenance is “the giving of assistance to a litigant in pursuing a lawsuit, and champerty is a form of maintenance in which the party giving assistance does so in exchange for an interest in the outcome of the lawsuit.”

Cases, such as Rancman v. Interim Settlement Funding Corp., have found that “a]n intermeddler is not permitted to gorge upon the fruits of litigation.” 789 N.E.2d 217 (Ohio 2003). As a result, the industry has formed a lobby to legitimize litigation funding. The American Legal Finance Association (or the ALFA) approaches legislatures and lobbies them to endorse “voluntary” codes of standards through codification.

ALFA has been successful, even overturning Rancman by statute in Ohio. Maine and Connecticut allow litigation funding by statute, and similar legislation is pending in Kentucky. Texas, Florida, New Jersey, Mississippi, Massachusetts, North Carolina and South Carolina and New Hampshire courts have allowed litigation funding contracts.

So, in some places it’s legal, others it’s not…but what is the effect?

It’s not healthy for our system, Giffis says. Third-party litigation funding disrupts the normal operation of litigation and will increase litigation in the U.S. He cites three reasons for the disruption, as well as an explanation for the potential increase in litigation:

1.  Conflicts of interest: the objectives of the funders and those of the individual plaintiffs are not necessarily aligned.

[I]t is difficult to believe that plaintiffs’ firms that receive a large portion of their funds from a third party will not come under the influence of that third party to at least some extent. Funders may want to hasten settlement to recoup their investment, delay settlement to increase their interest charges, and steer cases toward monetary and away from injunctive relief, among other things.

2.  Displacement of Risk: The opportunity for certain cash (which is only repaid from proceeds of a victory) from funders may create an incentive for plaintiffs’ firms to shift risks to third-party funders, trading future uncertainty for secure cash flow in the present.

3.  Confidentiality conflicts: The involvement of third-party funders “risks the disclosure of confidential information.” Like any investor, funders will want as much information as possible about the case they are financing, and right now the case-law “strongly suggests” that there is no privilege for communications with a third-party funder. What does this mean for defenders against such law suits?

[I]f you are defending a case in which the plaintiffs’ firm has litigation funding, go after the communications with the funder.

Why Increased Litigation? The Bottom Line

These are some of the ways litigation funding distorts the legal system, but why could it result in increased litigation? Simply put, the best way for a litigation firm to protect its investment, much like a smart investor, is by spreading out risk.

For anyone who stands to make money from litigation, as much litigation as possible should happen…

Litigation funding enables plaintiffs’ firms that are reluctant to take on risky litigation to shift the risks of failure to investors, who are able to bear the risk because they can spread it around. Obviously that will cause more litigation to occur.

Is there another side to this? Without a doubt, there are plaintiffs that fail to hold defendants to account in court because of the prohibitive cost of litigation. Should they be prohibited from obtaining third-party funding?

(h/t to Kirby Giffis of Hollingsworth LLP whose comments were published in “The Metropolitan Corporate Counsel,” vol. 19, no. 7, July 2011)

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Finding my heritage in Utah’s legal history

My brother presented me with  a rare gift and a lucky find for my birthday. While nosing through an estate sale, he saw a volume of the collected laws of Utah, circa 1876.

You know, back when they would all fit in one volume.

If you’ve read this blog with any kind of regularity, you know I love books, so this was a welcome addition to my collection.

When I opened it up, the names listed among the “authorities” in the territory at the time was a who’s who of frontier Utah.

Among the first things listed were the “Laws of Congress Applicable to Utah.”

An old book, a compilation of the laws of Utah. How much better does it get?

Better.

When we turned to the page that listed the compilers, I found a name I knew, but had not expected.

The Committee on Compilation of Utah laws in 1876 included Abraham O. Smoot, Silas Smith, and Robert T. Burton.

Robert Burton, Deputy U.S. Marshal and Command...

Image via Wikipedia

Robert T. Burton is my ancestor, sheriff of Salt Lake (you can find his picture hanging in the Salt Lake County Sheriff’s office to this day), a member of the Presiding Bishopric of the LDS Church, a rescuer of the Martin Handcart Company, and, like many in his day, a polygamist. With his three wives, he fathered 27 children.

I proudly count myself, along with H. David Burton, among his progeny.

Not too shabby, eh?

The price to my unsuspecting brother? Just $9. Not a bad price to own a piece of history.

4 Lessons in Legal Scholarship

Patrick Charles pulls no punches in his critique of one-sided, narrowly scoped, legal histories, and he shares a few lessons he’s learned from reading them.

1. Incorporate Actual and Accepted Historical Works Into Your Scholarship. Citing only one or two works does nothing to help expand the scholarship on your topic. Include the landmark historical works in the general area. You can’t do a thorough examination of a topic without standing on the shoulders of those who have gone before. Continue reading

Practice Tip (via ABL): How to Become an (Almost) Indispensable Junior Associate

Short of going solo, there’s almost no way around the fact: you’re going to be a junior associate before you become a partner. But that doesn’t mean you have to wait to be a partner to start thinking like one.

Start now, says Above the Law.

Take ownership of winning your case or completing your deal.  Of course, the ultimate outcome of any case or deal is the lead partner’s responsibility.  But the point of taking ownership is to think like a partner, and demonstrate that you are committed to getting the best result for the client.  This involves much more than simply doing a good job on the tasks you are assigned.  Taking ownership of your case or deal requires you to first understand the case or deal as a whole, and then actively think about how every part relates to the big picture.  So, for example, even if you are stuck doing doc review or due diligence, approach these tasks with an eye toward spotting the important issues that will help prove the theory of the case, or information that your client would want to know about the company it’s buying.  And then don’t be afraid to bring up those issues to the partner or senior associate to get his or her thoughts.

As soon as you take ownership, it’s amazing how fast the case changes in your eyes. You make fewer mistakes, conduct more thorough research, and are willing to spend the extra hours to get the job done, or even to just be available to get the job done. Work starts to flow your direction, and suddenly–ta da! You’re indispensable.

Check out the full post over at ABL (an indispensable blog for every attorney’s sanity).

Utah Legislature Watch: “Lawyers should be good lobbyists…”

“..but really, they’re pretty lousy.”

Ironic, I know. But that’s the word from Doug Foxley.

Last week I attended a Utah Bar CLE entitled “Utah State Bar Day at the Legislature.” Except, we really didn’t get over to the legislature itself. We sat in an auditorium over in the Capitol Office Building, and the closest we got to a legislator was several lobbyists and the Lieutenant Governor, Greg Bell, who is a former legislator.

So, not quite at the legislature. More near the legislature.

Details aside, however, they morning CLE was geared towards how to better influence and affect Utah’s legislators when we actually got over to see them. (Presumably, this is a “do it yourself” project, or a “do it on behalf of your client” project, perhaps.) But if we do get over there, don’t tell them you’re a lawyer. Or at least, don’t introduce yourself as a lawyer.

Yep. That’s what Doug Foxley said.

But, wait, you say, doesn’t that establish credibility? Not exactly.

You see, chances are, the legislator does not have as much education as you, the lawyer-lobbyist, has obtained. In fact, a recent study bears this out. Adam Brown found that of the 99 legislatures in America, the Utah House ranks #90 in education after high school with only 32% carrying an MA, 4% a JD, and 7% a doctoral degree of some sort.

With that in mind, remember that when you tell the legislator you’ve got some feedback on his legislation “because I’m a lawyer,” he’s not likely to take it so well. After all, who likes to be told what to do by someone who thinks they are smarter than you?

How do you get around this problem? Inadvertent or not, lawyers, intending to establish their credibility by stating their credentials, are actually hurting their efforts. Chris Kyler, who shared the stage with Foxley and Pignanelli, had some common sense advice:

At some point, it is important to let them know you’re a lawyer. Just not right off the bat when you shake their hand.

That said, here are a few other tips for communicating your message to legislators:

  • Remember that the legislature can be an emotional place. Frank Pignanelli called it an “emotional body.” Further, he said, “[l]ogic and reason have no place in the legislature.” Act accordingly.
  • There are hundreds of bills in the legislature, and it’s a really fast session–just six weeks! Legislators have a short attention span; get your presentation down to a two-minute elevator speech.
  • Don’t categorize legislators. Remember that politics makes strange bedfellows. Don’t get sidetracked by a legislator’s apparent ideology.
  • Last: make time to talk to the legislators. If email is your only way to contact them, likely you’re just educating a 20-year old intern, not the legislator.