A Model Litigation Finance Contract

Abstract

Litigation financing is nonrecourse funding of litigation by a non-party for a profit. It is a burgeoning and controversial phenomenon that has penetrated the Unites States in recent years. Since "most of the important phenomena of modern litigation are best understood as results of changes in the financing and capitalization of the bar," it is not surprising that litigation financing has been dubbed by RAND as one of the "biggest and most influential trends in civil justice" and by the Chamber of Commerce "a clear and present danger to the impartial and efficient administration of civil justice in the United States." In the past couple of years it has captivated equally the law reviews, the daily mainstream media, regulators, legislatures and the courts.

However, there is a complete absence of information about or discussion of litigation finance contracting, even though all the benefits and risks embodied in litigation funding stem from the relationships those contracts shape and formalize. In A Model Litigation Finance Contract we (i) set out the efficiency and justice case for a model contract; (ii) build on previous work to make the case for using venture capitalism as analog and starting point for modeling contracts; (iii) describe the ethical and economic challenges faced by the parties entering into litigation finance contracts and narratively explain the contractual solutions they have devised to eliminate or minimize such pitfalls; (iv) provide a model contract and; (iv) conclude by mapping out a research agenda for the new field of litigation finance contracting.

Keywords: Litigation Finance, Litigation Funding, Third Party Funding, Litigation Costs, Litigation Proceeds, Champerty, Venture Capital

JEL Classification: K22, K41