Financiers as Monitors in Aggregate Litigation
Elizabeth Chamblee Burch
University of Georgia Law School
April 9, 2012
87 N.Y.U. L. Rev. 1275 (2012)
UGA Legal Studies Research Paper No. 1968961
This Article identifies a market-based solution for monitoring large-scale litigation that proceeds outside of Rule 23’s safeguards. Although class actions dominate the scholarly discussion of mass litigation, the ever-increasing restrictions on certifying a class mean that plaintiffs’ lawyers routinely rely on aggregate litigation (through multidistrict litigation and liberal joinder devices like Rules 20 and 42) to seek redress for group-wide harms. Despite sharing key features with its class-action counterpart, like attenuated attorney-client relationships, attorney-client conflicts of interest, and high agency costs, no monitor exists in aggregate litigation. Informal group litigation not only lacks Rule 23’s judicial protections against attorney over-reaching and self-dealing, but the plaintiffs themselves cannot adequately supervise their attorneys’ behavior. A lawyer may represent hundreds or thousands of geographically dispersed plaintiffs, which fosters collective-action problems and makes individual, case-specific information hard to obtain.
The answer to this monitoring problem lies in an unlikely and potentially controversial source: alternative litigation financing. Self-dealing and high agency costs arise principally because of the contingent-fee attorney’s dual roles as agent and investor. These roles can pull lawyers in divergent directions; because attorneys front massive litigation costs, they may be tempted to coerce clients into settling so that they can recoup and profit from their investment. Third-party litigation financing can ameliorate this critical conflict by allowing the financier to bear that financial risk. Shorn of financial self-interest, the lawyer is then free to act as a faithful agent. But alternative litigation financing, which involves hedge funds, private investors, and venture capitalists investing in and profiting from large-scale litigation, raises problems of its own and has already sparked a chorus of criticism. Although wedding profit-seeking capitalists and aggregate litigation is certain to spark fireworks, this Article seeks to engineer their union in a way that benefits society as a whole and plaintiffs in particular.
Number of Pages in PDF File: 66
Keywords: third-party financing, alternative litigation financing, multidistrict litigation, MDL, class actions, arbitration, Wal-Mart Stores, Inc. v. Dukes, AT&T Mobility v. Concepcion, nonclass aggregation, aggregate litigation, agency problems, contingent fees
JEL Classification: K10, K13, K31, K41
Date posted: December 7, 2011 ; Last revised: September 30, 2015