Third Party Litigation Funding: Panacea or More Problems?

Abstract

Third party litigation funding (“TPLF”) is controversial. To its detractors, TPLF creates serious ethical and national security risks, and results in defendants paying out large “blackmail settlements” based on marginal (if not wholly frivolous) claims. To its supporters, TPLF helps ensure access to justice by putting plaintiffs and their lawyers on a more equal footing with well-resourced defendants, and the willingness of sophisticated third parties to invest their own money is an unambiguous signal that a plaintiff’s case has merit. 

Our paper makes three contributions: we begin by identifying the similarities in political economy of the campaign against TPLF to the campaigns waged in favor of tort reform. Second, we evaluate the substantive merits of certain arguments against TPLF, treating the rules of professional responsibility as instrumental, rather than ends in themselves. Finally, we explore the importance of agency costs in the market for TPLF. We conclude with some recommendations on how to regulate TPLF. 

Keywords: Third Party Litigation Funding, TPLF, Litigation, Funding

JEL Classification: K13, K41