This Sunday’s “60 Minutes” featured a segment on the growth of litigation funding. Host Leslie Stahl highlighted the industry’s important role within the Legal Services sector, but also pointed out the lack of regulatory oversight which can lead to ethical concerns.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
This Sunday’s “60 Minutes” featured a segment on the growth of litigation funding. Host Leslie Stahl highlighted the industry’s important role within the Legal Services sector, but also pointed out the lack of regulatory oversight which can lead to ethical concerns.
“Litigation funding can help in cases where otherwise the little guy who’s suing would just get crushed or lowballed by defendants with deep pockets,” Stahl explained as part of her opener on the necessity of the funding industry. “The problem is, this market is exploding, with almost no rules or oversight.”
Stahl profiled a litigation funding claimant: Craig Underwood’s family farm. Underwood had one customer—a hot sauce maker. When that customer pulled out of a contractual obligation, Underwood faced financial ruin. He sued his former client and won a breach of contract claim. But the hot sauce maker appealed, and Underwood couldn’t afford to keep fighting. That’s when he heard of litigation funding, and found Burford Capital. Underwood took $4MM from Burford to continue fighting, and won the appeal and the $23MM.
When it was all said and done, Underwood still had to pay his attorneys, and then compensate Burford to the tune of $8MM. Asked whether he thought that payment amount was predatory, Underwood emphatically said no, given that Burford stepped in and funded his case when no one else would. “They basically rescued us.”
Christopher Bogart, co-founder and CEO of Burford, noted that on average, the funder will double its money on a successful outcome, explaining that funders take enormous risk, given the non-recourse nature of their investments. He emphasized that Burford has a roughly 90% success rate.
Stahl then interviewed Maya Steinitz, law professor at University of Iowa, who pointed out the ethical considerations at play here. Steinitz explains that although funders like Burford claim not to interfere in how a case is managed, there is nothing legally stopping a funder from compelling a client to settle.
Consumer Legal Funding was also featured prominently in the program, where Stahl explained that the funding helps poor people pursue their legal claims. Yet she also pointed out how claimants are routinely charged very high interest rates by funders, highlighting RD Legal Funding’s alleged ‘predatory behavior’ in the 9/11 victims’ compensation fund case.
The program concluded by pointing out how essential litigation funding is to American society. “Accessing the courts in a civil process is a luxury good in America” explained Maya Steinitz. “It’s simply too expensive to bring your case in a court.” That said, Steinitz is calling for more oversight of this largely unregulated industry.
