November 15, 2010
NY Times Story on Litigation Financing
Sunday’s New York Times contains an article Investors Put Money on Lawsuits to Get Payouts, which begins:
Large banks, hedge funds and private investors hungry for new and lucrative opportunities are bankrolling other people’s lawsuits, pumping hundreds of millions of dollars into medical malpractice claims, divorce battles and class actions against corporations — all in the hope of sharing in the potential winnings.
The loans are propelling large and prominent cases. Lenders including Counsel Financial, a Buffalo company financed by Citigroup, provided $35 million for the lawsuits brought by ground zero workers that were settled tentatively in June for $712.5 million. The lenders earned about $11 million.
Most investments are in the smaller cases that fill court dockets. Ardec Funding, a New York lender backed by a hedge fund, lent $45,000 in June to a Manhattan lawyer hired by the parents of a baby brain-damaged at birth. The lawyer hired two doctors, a physical therapist and an economist to testify at a July trial. The jury ordered the delivering doctor and hospital to pay the baby $510,000. Ardec is collecting interest at an annual rate of 24 percent, or $900 a month, until the award is paid.
In some cases, but not all, this new phenomenon of third-party funding could lead to cases being decided or settled on the basis of merit. In other cases, it conceivably could have the opposite effect, giving artificial "legs" to bogus claims that would otherwise fall flat. But I wonder whether sophisticated investors would bet on bogus claims, when they can fund meritorious ones instead. In any event, another effect of this trend probably will be a further acceleration of the shift to offshore legal outsourcing. Corporate legal departments, already under cost pressure, will see that pressure increase, with the rise of well-funded plaintiffs' suits. And litigation investors, eager to get the best possible return, and treating litigation as a business, naturally will want to increase efficiencies through legal process outsourcing. So one of the big winners in the lawsuit funding area is likely to be the LPO industry.
high-end legal outsourcing
Posted by: Priya Kumar | Dec 9, 2010 10:19:02 PM