Lawmakers Taking Closer Look at Litigation Funding

Via the Wall Street Journal

The practice of advancing millions of dollars to help people and companies file lawsuits has had critics for years.

While proponents of the “litigation finance” industry say it helps level the playing field for those who would otherwise be unable to pursue lawsuits, critics have long complained that such third-party investors give outsiders undue influence over legal decisions and allow frivolous lawsuits to go forward, driving up the overall cost of litigation.

In a typical litigation finance arrangement, a funder will give money to a plaintiff to pay for the cost of litigation, and take a chunk of any recovery in the end. If the case is unsuccessful, the funder usually doesn’t get its money back. But the details of such deals are usually undisclosed.

The latest pushback against litigation finance comes from Senate Judiciary Committee Chairman Chuck Grassley (R., Iowa) and Senate Majority Whip John Cornyn (R.,Texas). The pair is calling for more transparency in the litigation finance industry, in part by sending letters to three of the largest litigation funders with a list of demands.

The letters, to Burford Capital, Bentham IMF and Juridica Investments Ltd., ask for a slew of information, including a complete list of cases each company has funded from 2009 to 2014, how much money they made, and whether the financing arrangements were disclosed to other parties in the litigation.

“It’s vitally important to our civil justice system that litigation decisions aren’t unduly influenced by third parties,” Mr. Grassley said.

All three litigation finance companies named in the letters are publicly traded on foreign exchanges, but often invest in U.S. cases.

A Burford spokewoman said Thursday that the company is reviewing the letter and noted that Burford’s business “exists at the request of lawyers and businesses to address the ever-increasing burdens of litigation.”

In 2013, Burford co-founder and Chief Executive Christopher Bogart told the Wall Street Journal that funding frivolous litigation would be “the fastest way for me to go out of business.”

A Bentham spokesman said late Thursday that the company plans to “provide all information necessary to help Congress and the American people better understand our business” and that it looks forward to explaining how commercial litigation funding “serves the legal profession, clients and the American civil justice system.”

We reached out to a rep from Juridica and will update this post if we hear from them.

The industry has had its ups and downs but is showing signs of expanding into news areas, including a focus on specifics types of suits such as class-action injury cases and eyeing bankruptcy court as a potentially lucrative new venue.