Economic Conundrums in Search of a Solution: The Functions of Third-Party Litigation Finance

40 Pages Posted: 5 May 2014

See all articles by Joanna Shepherd

Joanna Shepherd

Emory University School of Law

Judd E. Stone

International Center for Law and Economics; Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C.

Date Written: May 2014

Abstract

Despite a rapid increase in economic significance and substantial increase in international use, third-party litigation financing remains poorly understood. No academic consensus takes account of the multiple economic conundrums that third-party litigation financing arises to solve, nor do legal scholars adequately consider obvious public and private substitutes for litigation financing that society rightfully recognizes as innocuous or outright beneficial. In this Article, we explore the economic challenges driving both business plaintiffs and sophisticated law firms to seek external litigation financing. We examine closely the key elements of the litigation financing arrangement itself, focusing on eligible cases and clients, devices financiers employ to ensure repayment without meaningful control over the litigation, and theorize conditions under which third-party litigation financing will be attractive to companies and firms. We then address several concerns regarding third-party litigation financing, ultimately finding them either unpersuasive in theory or undemonstrated in fact. We conclude by noting the variety of similar arrangements already safely beyond the scope of these concerns. Ultimately, litigation financing encourages both businesses and firms to make more efficient uses of capital. Any attempt to regulate or dissuade litigation financing must begin with an economically and legally sound appreciation for how the industry actually functions.

Keywords: third party litigation finance

JEL Classification: K00, K41

Suggested Citation

Shepherd, Joanna and Stone, Judd E. and Stone, Judd E., Economic Conundrums in Search of a Solution: The Functions of Third-Party Litigation Finance (May 2014). Available at SSRN: https://ssrn.com/abstract=2432610 or http://dx.doi.org/10.2139/ssrn.2432610

Joanna Shepherd (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-8957 (Phone)

Judd E. Stone

Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C. ( email )

International Center for Law and Economics

United States

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