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Martin KenneyManaging Partner at Martin Kenney & Co., Solicitors
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What Price Justice?

November 05, 2012 by Martin Kenney


Last week the U.S. Chamber of Commerce Institute for Legal Reform issued a report in which it called for the regulation of entities offering funding for litigation to those who cannot afford the costs of taking their claim to the Courts.  The Chamber has been a critic of third party funders for some time, offering the opinion that “third-party investments in litigation represent a clear and present danger to the impartial and efficient administration of civil justice in the United States.”  I would like to know on what basis such a conclusion was reached.  The paper issued by the Chamber puts forward the view that third party litigation financing creates the threat of at least four negative public policy consequences for the administration of civil justice:    

  • it can be expected to increase the volume of abusive litigation. Litigation financing companies view disputes as investments – and they can hedge any “investment” against their entire portfolio of cases. This makes them more willing to put money into cases that are weak on the merits – but have at least a chance of a large award.   
  • It undercuts plaintiff and lawyer control over litigation because the litigation financing company, as an investor in the plaintiff’s lawsuit, presumably will seek to protect its investment, and can therefore be expected to try to exert control over the plaintiff’s and counsel’s strategic decisions.   
  • It prolongs litigation by deterring plaintiffs from settling. The litigation investor is a third party that, like the plaintiff and the plaintiff’s lawyer, demands a share of any litigation proceeds. The plaintiff’s obligation to satisfy this extra demand makes reasonable settlement offers less attractive.   
  • it compromises the attorney-client relationship and diminishes the professional independence of attorneys by injecting a third party into disputes. Lawyers will inevitably feel at least some obligation to the investors, who are paying their bills and who might be a source of future business. As a result, counsel may give less attention to the clients’ interests, which should be counsel’s sole concern.   

 These bald assertions are evidently based on mere supposition, not only do they not have any sound basis in fact they run counter to common business sense in a number of key respects.  For example, why would a third party litigation funder agree to invest in unmeritorious litgation or in litigation that has little chance of success?  Given the often exorbitant cost of litigation why would any reasonably minded business engaged in investment in litigation consider it wise to prolong litigation?  Surely a quick settlement is in everyone’s interests, provided of course that justice is done.    

In the UK, far from taking a bullish approach to litigation, funders are remarkably cautious, most will not touch a case unless it has at least a 70% prospect of success. Does that souns like a practice that fuels unmeritorious litigation?  As for the argument that a litigation funder can be expected to exert control over Counsel’s strategic decisions, or that Counsel may give less attention to a client’s interests, that goes against the most fundamental principles of the attorney client relationship and is quite frankly an insult to the legal profession.   The law profession is a strictly regulated one and to date no regulating body, to my knowledge, has endorsed the view of the Chamber in this respect.  In the United Kingdom the Civil Justice Council endorsed third party funding as long ago as 2007 in its report, “Improved Access to Justice – The Future Funding of Litigation.”        

The Chamber proposes a three-pronged approach to federal oversight of third party finance of litigation: (a) designation of a federal agency to oversee litigation investors and make regulations concerning litigation investments; (b) a regime of statutory safeguards to be enforced by the federal agency; and (c) court rules requiring disclosures when third party litigation fiinancing is being used.      

It is lamentable that the paper does not rely on any referenced research to back up its empty claims, it is not apparent that any survey was condcuted or any opinions (other than those of big business) elicited. Thus on the basis of unsupported conclusions and biased reporting the Chamber advocates federal control of third party litigation funding.  It is interesting to note that while the American Bar Association in February of this year cautioned lawyers to take care of their professional responsibilities when dealing with litigation funders, it did not recommend any changes to its rules on professional conduct. The New York City Bar Association issued a formal ethics opinion on the issue in June of last year in which it stated that such funding “provides to some claimants a valuable means for paying the costs of pursuing a legal claim, or even sustaining basic living expenses until a settlement or judgment is obtained. It is not unethical per se for a lawyer to advise on or be involved with such arrangements.”     

The New York City Bar Association strikes a chord with its reference to some claimants being unable to pay the costs of pursuing a legal claim, or even sustain basic living expenses if they do.  The reality is that many claimants just do not have the means or wherewithal to pursue meritorious claims, or they are dissuaded by the high cost of legal fees.  Access to justice is the primary public policy consideration that should drive and inform any discussion about litigation funding or any proposed regulation. Litigation funding is an industry which must be allowed to develop and expand in the interests of access to justice. Over-regulation threatens to stifle the industry’s growth and inhibit the development of competitive forces required to lower the cost of litigation funding services. This is a view held widely by those involved in the regulation of the legal profession.  In the U.K. Lord Jackson in his Report considering the cots of litigation, issued in 2009, declared "in principle, third party funding is beneficial and should be supported, essentially for five reasons". Those five reasons are:     

  • it provides an additional means of funding litigation, possibly the only means for some and therefore promotes access to justice;    
  • it is better to recover a part of the damages rather than none at all;    
  • it does not impose an additional burden on the other side (unlike no win no fee arrangements, or Conditional Fee Agreements (CFAs), which presently increase the costs recoverable from the losing party);    
  • it will become increasingly important as a means of funding when the recoverability of success fees for CFAs is abolished, as the government now propose; and    
  • the third party funders filter out unmeritorious cases.     

 The U.S. Chamber of Commerce would have us believe that the position is otherwise.     

Just who does the Chamber think it is?  Let’s look at the facts, the U.S. Chamber of Commerce is a powerful business lobbying group in the United States that some would argue is a fully functional part of the partisan Republican machine. As of November 2nd, 2012 the U.S. Chamber of Commerce has reportedly spent $35.3 million towards influencing the elections, $27 million has been used in attacking Democrats according to U.S. Chamber of Commerce Profile.    

The Chamber claims on its website that its mission is to "advance human progress through an economic, political and social system based on individual freedom, incentive, initiative, opportunity, and responsibility."  It claims to represent more than 3 million businesses and organizations of every size, sector, and region.  However the New York Times reported in October 2010 that half of the Chamber's $140 million in contributions in 2008 came from just 45 big-money donors, many of whom enlisted the Chamber's help to fight political and public opinion battles on their behalf (such as opposing financial or healthcare reforms, or other regulations).  This is the very same Chamber that in 2009 lobbied against climate change legislation introduced by Congress.  I could go on, let it suffice to say that the Chamber has an agenda and its a big business agenda.  One can only hope that its plea for regulation to make justice unattainable for many will fall on deaf ears.     










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