As litigation funding gains mainstream acceptance, there have been more and more headline-making allegations which are casting a shadow over the industry. Despite the funding community’s best efforts to assuage such ethical concerns, they persist and continue to plague the nascent market.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
As litigation funding gains mainstream acceptance, there have been more and more headline-making allegations which are casting a shadow over the industry. Despite the funding community’s best efforts to assuage such ethical concerns, they persist and continue to plague the nascent market.
As reported in Forbes, litigation funding fills a genuine gap in the market – not only for claimants who must face the prospect of excessive legal costs if they are to attain access to justice, but also for law firms who accept additional risk in order to meet client demand and offer contingency-fee arrangements (as opposed to the traditional billable hour model).
Litigation funding reduces risk for both the claimant and the law firm, and does so without the onerous terms of a traditional loan. Consider that commercial banks offer loans at 5-7% interest, collateralized by an attorney’s personal assets. Middle-market lender can charge upwards of 10-13%, and hard-money lenders 18-24%. That is some costly recourse financing.
Litigation funding offers non-recourse financing, which is much more attractive to risk-averse attorneys and claimants. That said, the ethical considerations of whether funders are indeed leveraging their stake in the claim to influence case strategy, as well as issues of privileged communication and even champerty and maintenance are continuously espoused by industry opponents. On the one hand, financing makes attorneys and claimants more independent (they are not beholden to financial concerns when pursuing their case). On the other, they may in fact be beholden to those who control the purse strings (the litigation funders).
Critics of the industry contend that while litigation funding offers liquidity to claimants and attorneys, it can also be subjected to abuse, and therefore requires oversight. It is worth considering whether a clarified set of regulations around third party funding would actually benefit the industry, if only to assuage such ethical concerns.
