Tag Archives: litigation

Which is worse on the economy?

Feel free to elaborate on your choice, and why it is a loaded question, in the comments.

In the meantime, chew on this:

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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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In which I am distracted, and libertarians infiltrate polite society

I’m a bit preoccupied. My Better Half reached her due date yesterday, and we are anxiously awaiting whatever comes next.

So, in the meantime, while I’m trying to get my “head in the game,” here’s some stuff to expand your knowledge and entertain your senses. Or maybe vice-versa. Also, libertarian views on the rise:

  • Said Judge Posner, of an alleged serial spammer’s courtroom presentation. “It’s not only incompetent, it’s grotesque. You’ve got damages jumping around from $11 million to $130 million to $122 million to $33 million. In fact, the damages are probably zero.” Timothy B. Lee at Ars Technica.
  • “Montgomery County officials have allowed the children to reopen their lemonade stand, by relocating it about 100-feet away from the intersection where it was set up Thursday.” This after they fine the tots $500 for their enterprising ways. WUSA9.com
  • Wanna go to Harvard? Apparently the White House is a good stepping stone. “About a half-dozen staffers will begin at the premier law school this fall, bringing a rare skill set, a golden Rolodex and tales of the corridors of power to Harvard Yard. The exodus of the younger White House staffers marks the first major departure of junior aides in the Obama administration.” Politico.
  • This is for you Alex (as you consider forcibly moving your fellow Americans to Somalia): Ilya Somin wonders if the public is becoming more libertarian. “Obviously, the vast majority of the public is not nearly as libertarian as most libertarian activists and intellectuals are. But it does seem to be more libertarian than the median voter of the recent past.” The Volokh Conspiracy.
  • If Ilya ain’t enough for you, the NYT column FiveThirtyEight (Nate Silver) is getting in on the action, too, citing a CNN poll that seems to show a shift.

Whether people are as libertarian-minded in practice as they might believe themselves to be when they answer survey questions is another matter. Still, there have been visible shifts in public opinion on a number of issues, ranging from increasing tolerance for same-sex marriage and marijuana legalizationon the one hand, to the skepticism over stimulus packages and the health-care overhaul on the other hand, that can be interpreted as a move toward more libertarian views.

And, just for kicks, here’s a graph:

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Peacemakers and lawyers: synonymous?

Judge using his gavel

Image by IXQUICK via Flickr

Perusing a copy of the ABA‘s GPSOLO magazine, I came across an article focused on attorneys as peacemakers in a family law setting.  With my sister recently divorced, and knowing plenty of attorneys who make their living in divorces, I know that peacemaking is not an easily obtained goal, if it even is a goal at all.  And it’s not necessarily the attorneys’ fault. People are hurt and angry as they enter the divorce process, and the American legal system provides couples with a venue in which to take out the negative emotions on the object of their ire. What they could not work out in marriage, they now look to an authority figure–a judge and the force of law–to resolve for them.

And the attorneys become their hired guns.

But do they need to be?  Not so, says Forrest S. Mosten.  They can provide services that seek to avoid the aggravation of marital problems and instead bring about “peacemaking.”  The title of his article, published in the September 2010 issue of GPSOLO, is “Building a successful law practice without ever going to court.

One of the most interesting pieces of the article, to me, was the role of the litigator as a peacemaker.  Says Mosten:

Peacemaking and litigation are not necessarily incompatible.  Litigators who embrace a peacemaking approach can make a positive difference in the lives of their clients.

It sounds like he is recommending that lawyers shift from being hired guns to being active participants in advising their clients in ways that will bring them greater happiness. (hmm…that sounds like something one of my law professors might spout from her ivory tower…)

Mosten provides five recommendations for making this “positive difference:

  1. Readily agree to requests by the other party to stipulate facts, admissibility of evidence, and other requests to speed up proceedings;
  2. Readily agree to requests for personal accommodations from the other party and counsel for continuances based on illness, children’s needs, work responsibility, and other reasons;
  3. Refuse to take advantage of mistakes committed by opposing parties and counsel;
  4. Refrain from negative personal or sarcastic comments;
  5. At all times advocate for family healing and demonstrate that such an approach is congruent with the interests of the client.

Geez.  It almost boils down to “Do unto others as you would have others do unto you,”  a maxim found in philosophy and religion from Socrates (“”One should never do wrong in return, nor mistreat any man, no matter how one has been mistreated by him.”) to Taoism (“Regard your neighbor’s gain as your own gain, and your neighbor’s loss as your own loss.”). When you hurt another, you are only hurting yourself.  Sounds kind of Zen, you know?

Of course this doesn’t help you much when the client is hell bent on causing as much pain as possible to their former spouse, but in those situations where the parties are willing to listen to their counsel’s wise advice, it might help to turn down the heat and bring about some peace to both parties, which could only mean a happier ending for all.

Check it out and consider it: what could you do in your practice to be a peacemaker?