Litigation’s Latest Backer

Litigation’s Latest Backer

Last summer we posted an article on the growing trend of third party investors in litigation. Since countries such as the UK and Australia have already accepted this practice, some American companies were eager to jump on board. Litigation has become increasingly expensive and as a result many smaller companies with fewer resources are forced to settle. Litigation funding would help the “little guys” put up a stronger fight with a bigger team of lawyers and the ability to pay for discovery costs.

Why would an investor want to put his or her money in a lawsuit? For the settlement fees, of course. This seems a small price to pay for a better chance at winning an unwanted lawsuit.  However, the Chamber of Commerce voiced concerns over the disclosure of privileged documents to these third parties, as well as an increase in litigation.

In 2011 litigation funding continues to expand with new players such as Bentham Capital LLC and BlackRobe Capital Partners LLC (the latter classifies themselves as Commercial Claim Investor and “extra-legal management” experts). Larry Ribstein, contributor to the academic blog ‘Truth on the Market,’ argues that litigation funding creates jobs for lawyers. Through advising companies on how to redirect funds and by providing greater capital, Ribstein postulates that the need for attorneys will also rise.

Continuing in that vein, Barry Ostrager, senior partner at Simpson Thatcher & Bartlett, believes that litigation funding provides an “extra measure of security that the legal fees are going to be paid without incident.” That being said, everyone from the contract attorneys to the litigation support specialists can give a sigh of relief knowing that they will be paid. So what is the downside to litigation funding? An article in the Wall Street Journal exposed the other side of the coin by describing an investment that only ended in more litigation.

With the current battle between growing litigation costs and an attempt to contain discovery, where will that leave third party investors? Will these investors actually help clients to improve their litigation, or is it just another bill waiting for you at the end of the day?

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