United States: Funding Litigation And Treatment: Leveling The Playing Field Or Exploiting The Little Guy?

Is litigation funding a creative way to help "the little guy" or the resurrection of a practice that even the Athenians deemed impolitic?1 In an environment where many posit that access to the courts can be at least somewhat dependent on a person's financial viability, does outside financing of litigation level the playing field between the Davids and the Goliaths? Some say yes; some say no. And each side says so vehemently. Those in favor argue that an infusion of funds helps the smaller players pursue more complex, long-term, high-stakes lawsuits. Those opposed maintain that the practice proliferates unmeritorious claims and that reasonable settlements for valid suits would occur more quickly if the stakes were not escalated by monied meddlers with no "skin in the game" other than the bottom dollar (or "first dollars"). Adding to concerns is the fact that there is very little – read: no – regulation over this type of investing. And there is disagreement over whether plaintiffs should have to disclose that they have "investors," who those investors are, what has been told to the investors about the claim, and the amount and contingencies of the investment. While much remains unclear about how this practice will evolve, everyone seems to agree that it will continue to grow.


Third party litigation funding is the practice of an otherwise disinterested investor providing financing to litigants in exchange for a percentage of a successful outcome – whether a jury verdict or a favorable settlement.2 These agreements typically are non-recourse, meaning the investor takes nothing if the plaintiff loses. To justify the shouldering of this risk, some funding contracts call for quite high interest rates.

A new offshoot of litigation funding is treatment or surgical funding. Under this scenario, a plaintiff contractually allows her treating surgeon to discount his bill and sell it to a medical lender, which then places a lien – not just for the discounted note but the entire cost of care – against any legal reward.3 In particular circumstances, liens "can spiral to as much as 10 times what health insurers would pay for the same procedures."4 Some medical funders also offer "concierge" services, such as cash advances, hotel rooms for recovery after the funded surgery, and travel arrangements – also available at high interest rates.5



As noted above, the demarcation lines are pretty starkly drawn. For those in favor, the first "virtue" of litigation finance is that it "can help the powerless avail themselves of our civil justice system."6 Proponents make the unremarkable point that "litigation is expensive," and that funding provides access to the courts for those unable to afford it.7 But is that not the point of contingency fees?

Such funding can go beyond access to the courts, however, and stretch to include living costs8 or operating costs for a business. And any recovery is held hostage until repayment of the loan and the interest. The service also can morph into funding for either uninsured surgeries, deductibles, or surgeries performed by out-of-network doctors.9 The advantage trumpeted for this controversial practice is akin to that for litigation finance – it helps the vulnerable, economically disadvantaged person have access to that which he formerly could not. In this circumstance, the argument is that it facilitates surgery or other treatment by "top doctors."10

Another outcome lauded by advocates is that it helps manage risk – either in a commercial setting 11 or perhaps mass tort. Who, they ask, is better able to handle the uncertainty associated with high litigation costs juxtaposed against a high and likely – but not guaranteed – return? The single company who has this promising claim but perhaps little free excess capital to expend on lawyers? (Again, the question of the purpose of contingency fees arises.) Or ... a litigation finance company/hedge fund? The enthusiasts champion the latter because diversification is protection: "the risk of holding an entire portfolio of litigation claims is lower than the risk of holding a single claim, just like the risk of holding a portfolio of stocks is lower than the risk of holding a single stock."12 Defenders also suggest that a business that monetizes its claim frees itself and its money to stick with – as Michael Corleone said, albeit in a different context – "strictly business."13

Lastly, some supporters claim "litigation finance might actually reduce the time and cost of litigation."14 The idea as espoused is two-fold and, actually, self-contradictory. First, they theorize that defendants will settle more quickly when they realize that a plaintiff is backed by outside funds and able to hold his own in a discovery war of attrition. But such conjecture requires the acknowledgement that "litigation finance might prolong the litigation by allowing for robust discovery."15 The latter outcome is quickly embraced, however, by noting that "there's nothing wrong with that – the record should be properly developed before the parties decide how to resolve the case."16


You know things have gone awry when Spider-Man enters the fray. But yes, even Spidey has gotten caught in "the web of litigation finance."17 Elliott Management Corp., a hedgefund giant, helped bankroll a lawsuit by Stan Lee Media Inc. against Walt Disney Co. over profits made from comic book characters such as Spider-Man. But this investment went belly-up when a federal judge dismissed the lawsuit.18 So does the plight of our hero, who in the movies lives hand to mouth as Peter Parker, epitomize equal access to justice for the little guy? Or was this a bad investment from the start and a lawsuit that never should have been brought?

Some business groups, the U.S. Chamber of Commerce and U.S. Chamber Institute for Legal Reform (ILR) chief among them, say "the practice gives outside undue influence over cases and drives up the cost of litigation."19 According to the ILR, there is no question but that "[l]itigation financing is a sophisticated scheme for gambling on litigation, and its impact on American companies is unambiguous: more lawsuits, more litigation uncertainty, higher settlement payoffs to satisfy cash-hungry funders, and in some instances, even corruption."20

Opposers also note that litigation funders might have conflicting interests. For instance, a funder typically has as part of the agreement that he takes "first dollars."21 This means that he recoups his investment (and generally some percentage on anything above his investment) first before any trickle down of funds to the actual plaintiff or plaintiff's lawyer. If the prospects of the case have dimmed with time and a settlement offer is made that would allow the financier to break even and also perhaps have a little cushion, he might push for resolution despite the fact that the plaintiff takes little to nothing. The flip side of that same bad coin is that "a litigation financier may set a threshold amount for a settlement, which may force the litigation into later stages in the hope of obtaining a larger damage award at trial or through settlement."22

And while proponents of the practice argue, as noted above, that a plaintiff company can focus on its business as opposed to the litigation with the help of outside litigation finance, what of the defendant company? Opponents say it is exactly the opposite as litigation costs increase and "companies may be diverted from investing their own capital in the economic markets and may not be able to invest their own capital into research and development."23 Those increased costs, as we all know, get passed down. Perhaps litigation truly is expensive.


While there are many issues left for discussion, including the legal and ethical implications of funding practices, the role of mass advertising, and how the existence and particulars of these agreements might be discovered24 (all of which, teaser, might be addressed in a later issue), the question here is a pretty simple one: Is litigation funding and surgical funding good for the little guy?

To recap, the person typically predisposed to enter a financing agreement is someone who needs or thinks he needs additional money – whether it's our hero Peter Parker living hand to mouth or a small company going up against a much larger company. The "little guy" already is at a disadvantage and, as critics note, some funders gouge plaintiffs by charging sky high interest rates that leave a paltry amount, if anything, for the plaintiff while ensuring returns sometimes as high as 200% for finance companies.25 Additionally, with that kind of return for investment, even in the light of the risk involved, it is difficult to see how proponents argue with a straight face that the practice will not engender more litigation.

Other potential pitfalls include the very real risk that Plaintiff counsel's independent professional judgment might be affected. In fact, while sounding somewhat ominous but without providing much actual guidance, the ABA warns that "attorneys must approach transactions involving alternative litigation finance with care."26 Conflicts of interest, which are anathema, could abound. They might even unwittingly adhere to defense counsel or judges who would not know it unless the existence and identity of any funder is revealed at the outset.

Perhaps most troubling are the pitfalls attendant to litigation financing's younger brother, surgical funding. Consider the incentives for surgical treatment in this scenario: (1) the plaintiff need not pay for the surgery or claim it on insurance because it is funded by outsiders, (2) the plaintiff has access to a surgeon now billed as a "top doctor," (3) the doctor might have his own separate agreement with the funder that financially incentivizes him to perform more surgeries, and (4) the value of the plaintiff's damages increases with each surgery or subsequent treatment. The potential problems are manifest. First, a plaintiff could be encouraged to have unnecessary treatment because it increases the value of his claim, but costs him nothing ... at the time. Or a plaintiff who truly does need treatment could be forced into signing an unconscionable agreement where he essentially signs away his potential legal recovery. Lastly, a defendant could face artificially inflated damages claims where a funder seeks upwards of 10 times the cost of treatment. It is little wonder that the Consumer Financial Protection Board has been called upon to examine the practices of the medical funding industry.27


One last consideration is this: what effect does financing have on the profession itself? Is it a good thing for our profession or our society in general to allow outsiders to profit on legal disputes? Methinks maybe not. As one author aptly put it:

Over the last century, many have come to see lawsuits as a means of expression, a political weapon and a powerful deterrent against those who might do wrong. And yet creating lawsuits is not the same as creating something like the [Volkswagen] Bug. Litigation is a zerosum industry – every dollar in damages taken home by the winner, minus fees, must be wrung out of the loser. Litigation also helps shape legal precedent, defining the terms under which civil justice may be sought. It's hard to imagine how billions in outside capital won't wind up changing the justice system. The only question is how.28

And how much. At whose peril.


1 Schwartz, Should you be allowed to invest in a lawsuit?, New York Times Magazine (Oct. 22, 2015) (noting "members of Athenian political clubs would back each other in lawsuits against their rivals" until the practice was banned by Emperor Anastasius).

2 General Thurbert Baker, Paying to Play: inside the Ethics and Implications of Third Party litigation Funding, 23 Widener L.J. 230 (2014); see also Bjornlund and Hanofee, How Third-Party litigation Financing May be Affecting Your Practice, For The Defense 18 (July 2015).

3 Frankel and Dye, U.S. business groups call for probe of medical funding industry, Reuters (Aug. 26, 2015).

4 Id.

5 Frankel and Dye, Special Report: Investors profit by funding surgery for desperate women patients, Reuters (Aug. 18, 2015).

6 Lat, 6 Virtues of Litigation Finance, Above the Law (Nov. 24, 2015).

7 Id.

8 Id.

9 Frankel and Dye, Hip implant maker claims surgical funder inflated patients' bills, Reuters (Sept. 28, 2015).

10 See supra Reuters, Special Report.

11 See supra Above the Law, Virtues.

12 Id.; see also Barrett, Hedge Fund Betting on Lawsuits is Spreading, Bloomberg Business (Mar. 18, 2015). In personal injury litigation, however, law firms large enough to handle mass torts typically already have a diversified inventory – thus diluting this argument in this setting.

13 Supra Above the Law, Virtues.

14 Id. (emphasis in original).

15 Id.

16 Id.

17 Copeland, Litigation Finance is a Tangled Web: Just Ask Spider-Man, MoneyBeat Wall Street Journal (Mar. 24, 2014).

18 Id.

19 Id.; see also Lat, 5 Ethical Issues with Litigation Finance, Above the Law (Dec. 2, 2015).

20 Supra Above the Law, 5 Ethical issues (quoting ILR President Lisa A. Rickard).

21 Id.

22 See supra For the Defense.

23 Id.

24 Even Congress is interested in the details of this practice. N ews Releases (Aug. 27, 2015) (noting Senators Chuck Grassley and John Cornyn sent letters of inquiry to three of the largest commercial litigation financing firms) ( http://ww2.cfo.com/legal/2015/08/gop-senators-seek-details-litigation-finance/) (last accessed Feb. 5, 2016).

25 Supra For the Defense; supra Above the Law (5 Ethical Issues).

26 Am. Bar Ass'n Comm'n on Ethics 20/20, Informational Report to the House of Delegates, White Paper on Alternative Litigation Finance (Feb. 2012) (a 39-page single-spaced novella with no less than 163 footnotes).

27 Supra Reuters, U.S. business groups call for probe of medical funding industry.

28 Schwartz, Should you Be Allowed to Invest in a Lawsuit?, New York Times Magazine (Oct. 22, 2015).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions