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Should the Law Preserve Party Control? Litigation Investment, Insurance Law and Double Standards

61 Pages Posted: 30 May 2013 Last revised: 3 May 2014

Anthony J. Sebok

Yeshiva University - Benjamin N. Cardozo School of Law

Date Written: May 1, 2014

Abstract

Litigation investment, sometimes known as litigation finance, is becoming increasingly accepted around the world. Once prohibited as champerty, it is now embraced in England, Canada, and Australia, as well as in many civil law nations. In the United States the development of a robust market for investment in litigation has been met by various objections. These include that it interferes with the autonomy of lawyers and that it would promote frivolous litigation.

This article takes up a popular argument against litigation investment: That the legal system should not encourage parties to sell their control over litigation that would vindicate their rights. This criticism is based on an unspoken assumption that private law theory requires that party control stay with the original rightholder, and that contracts that allow the sale of party control to a stranger should be struck down, either for being contrary to public policy or some other legal basis.

While I briefly consider justifications rooted in moral philosophy for the view that party control should not be sold, I focus mostly on arguments based on the common law. I argue that arguments against the sale of party control based on the structure or nature of the common law are anachronistic. Such arguments, which once constrained the sale of party control before the middle of the Nineteenth Century, were abandoned by courts and legal commentators as society evolved. Liberal attitudes about the sale of party control were first seen in the gradual elimination on rules limiting the assignment of choses in action. Liberalization was next seen in insurance. I will demonstrate that as the role of insurance in society grew, courts reinterpreted common law practices to permit the alienation of control of litigation for profit in various contexts, including subrogation, and liability insurance.

The article concludes by arguing that we can learn from the evolution of insurance law how rigid attitudes about the relationship between victims and wrongdoers can bend to fit social needs. It takes note of the growing consensus in the United States, as well as other common law nations, over the social benefits of litigation investment. Finally, I argue that, given the appetite for litigation investment among the public, courts and policymakers should be skeptical of arguments that use party control as a justification to block this new form of financing for lawsuits.

Keywords: litigation finance, litigation, insurance law, torts, Champerty, contracts

JEL Classification: K13, K41

Suggested Citation

Sebok, Anthony J., Should the Law Preserve Party Control? Litigation Investment, Insurance Law and Double Standards (May 1, 2014). William & Mary Law Review, Forthcoming; Cardozo Legal Studies Research Paper No. 428. Available at SSRN: https://ssrn.com/abstract=2271762

Anthony J. Sebok (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States

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