Lawsuit Funding

Written by Patricia Tunstall
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Lawsuit Funding Gives Plaintiffs Emergency Help

Lawsuit funding is a phenomenon of recent years, and, therefore, still controversial. Simply put, providing money to plaintiffs who have none is becoming increasingly attractive to investment companies. On the surface, it seems an innocent activity, but your perspective depends a lot on whether you are a financially-strapped plaintiff trying to win litigation against a large corporation--or you are the corporation.

One thing is clear. Lawsuit funding enables plaintiffs to carry on litigation after all their financial resources are gone. In this sense, such legal funding has been seen by many as championing the underdog. On the other hand, some business groups, for instance, see such plaintiff funding as contributing to unnecessary lawsuits that would fold without outside help.

Funds Are Not a Loan

A common-sense definition of a "loan" is money that has to be repaid to the lender, whether a family member or a financial institution. When you borrow money from anyone, and you promise to pay it back, that is a loan. Lawsuit funding, however, is not a loan, but a strictly business/financial arrangement that in no way affects the independence or strategy of the attorney in a case.

Various litigation financing companies have differing requirements: some only fund appeals, some fund any approved pre-settlement claims. This is such a new area that the future is bound to bring creative investment firms into the picture to generate new approaches that assist plaintiff's case to go forward. If justice is to be meaningful, it surely must include ethical lawsuit funding to enable deserving plaintiffs to carry on their lawsuits despite being poor.

Plaintiff's Claim as an Investment

Traditionally in common law--the English law that preceded statutory law and is the original basis for law in the United States--there was a strict rule against an attorney paying for a lawsuit for a client in return for some part of the award by the court. Obviously, with the prevalence of contingency fees in this country, perspective on that rule has changed with modern times. Now, with the advent of the concept of lawsuit funding as an investment, a further modification of the common law view is underway.

Why not, some declare, consider a plaintiff's claim an investment in which those with expertise perceive a chance to help an unfortunate person and possibly further positive social policy as well? The fact that an investment group might make money if the plaintiff wins the case is beside the point, they argue. Furthermore, they say, a proper claim of an injured person against a defective product or negligent business can ethically be viewed as an asset.

Lawsuit Funding in Civil Litigation

An investment group may consist of investors and attorneys, or just investors, and they take a portfolio approach to decisions to finance a plaintiff's claim. They spread their own risk by taking on strong legal cases in a variety of fields, perhaps, or use their internal expertise to accept the best cases, in their opinion. At any rate, they look at individual cases the way Wall Street brokers look at stocks and mutual funds and diversify as much as feasible.

Groups whose purpose is lawsuit funding accept only civil claims; criminal cases are an entirely different realm that would be wholly inappropriate to consider for this endeavor. A plaintiff--the person who files the claim--should turn to these groups as a last resort, when all other financial alternatives are gone. Why give up a portion of an award to a third party if you do not need to? If, however, you have no other recourse, assistance that lets your lawsuit continue when it would otherwise end, is truly a financial and legal lifesaver.


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