Before my life was consumed with briefing cases for class, poring over hornbooks, and drinking heavily to numb the existential angst that accompanies being a 1L, I worked for plaintiffs lawyers doing pharmaceutical litigation. Between the costs of expert witnesses, discovery, and general overhead, I was astounded to learn how much money was required simply to prove up a case, much less to cover the expense of a trial.
The issue of funding a lawsuit is a strategic one, and the tactic of making a suit prohibitively expensive is not lost on the defense. Plaintiffs' lawyers can and do run out of money for a litigation. More often, they simply won't take on cases that appear risky or are just plain out of their price range.
Enter the area of litigation financing. A November piece in the New York Times details the exploits of various lending firms and hedge funds who are willing to invest substantial amounts of money (stretching into the millions) to cash poor law firms with promising cases. Per the article:
"The rise of lending to plaintiffs and their lawyers is a result of the high cost of litigation. Pursuing a civil action in federal court costs an average of $15,000, the Federal Judicial Center reported last year. Cases involving scientific evidence, like medical malpractice claims, often cost more than $100,000. Some people cannot afford to pursue claims; others are overwhelmed by corporate defendants with deeper pockets"
The companies aren't doing this out of the kindness of their own hearts, however. As this article and a more recent Times follow-up report, lenders routinely charge rates above 15%, meaning that a plaintiff can be awarded a substantial verdict only to have it swallowed by interest accruing while the defendants appeal.
Further, these lawsuit funding loans exist in an unregulated wasteland in which the lawyer has no accountability to a client when deciding whether or not to contract with the lender. Thus, plaintiffs may go through a litigation only to find, after the fact and without their knowledge, that their lawyers borrowed money at an exorbitant rate and that their day in court, while successful, will end up costing them tens of thousands of dollars or even more.
The flip side is, of course, that not every case with outside funding is a lesson in skullduggery. These lenders can provide an opportunity for meritorious plaintiffs whose cases might not otherwise see the inside of a courtroom. It could also be noted that plaintiffs' lawyers' fees are often usurious with or without an assist from a lender, and for precisely the same reason: with risk comes reward.
I'm curious to see how this phenomenon evolves. At the moment, it smacks of payday lending, but a few tweaks to the most predatory aspects of the practice might open up a pretty compelling partnership between investment firms and plaintiffs. Yeesh, who knows...someday we might hear the phrase "Malpractice-Backed Securities."
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