Can and Should the New Third-Party Litigation Financing Come to Class Actions?

Theoretical Inquiries in Law, Vol. 19.1 (2018)

Vanderbilt Law Research Paper No. 18-07

16 Pages Posted: 1 Feb 2018

Date Written: January 30, 2018

Abstract

In the United States, there has been tremendous growth in a form of third-party litigation financing where investors buy pieces of lawsuits from plaintiffs. Many scholars believe that this new financing helps to balance the risk tolerance of plaintiffs and defendants and thereby facilitates the resolution of litigation in a way that more closely tracks the goals of the substantive law. In this Article, I ask whether these risk-balancing virtues of claim investing carry over into class action cases. This is a question that has not yet been addressed by scholars because many think it is not possible for financiers to buy pieces of class action lawsuits in the United States. But I show that such investments are neither impractical nor unethical; indeed, it appears that they are already here. It is therefore worth considering whether the investments confer the same social benefits they do in other cases. I argue that although class members do not need a risk transfer device in class action cases because they are almost always risk-neutral in light of their small losses, their lawyers do need such a device. Although this does not necessarily mean that claim investing is socially desirable overall in class actions, the social costs that have thus far been identified with claim investing seem modest compared to the benefits.

Keywords: Class actions, third party litigation finance, law and economics, discovery, risk

Suggested Citation

Fitzpatrick, Brian T., Can and Should the New Third-Party Litigation Financing Come to Class Actions? (January 30, 2018). Theoretical Inquiries in Law, Vol. 19.1 (2018); Vanderbilt Law Research Paper No. 18-07. Available at SSRN: https://ssrn.com/abstract=3113818

Brian T. Fitzpatrick (Contact Author)

Vanderbilt Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-322-4032 (Phone)

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