Third-Party Litigation Financing 101

By: Lucy Nashed, TLR Communications Director

For those of us who only play lawyers on TV, the legal world and its jargon can be perplexing.

Being deposed in the legal world doesn’t (usually) involve any sort of Game of Thrones-like coup. You might want to keep your Latin dictionary handy if you’re doing any light legal reading, and what’s with all this talk about barratry, anyway?

Fortunately, we at TLR are here to help shed some light on the lesser known areas of the legal system that still deserve our close attention.

One such area is third-party litigation finance. A quick Google search will pull hundreds of articles touting its merits and decrying its pitfalls. But what exactly is it?

According the U.S. Chamber of Commerce’s Institute for Legal Reform (ILR), third-party litigation financing is “the practice of providing money to a party to pursue a potential or filed lawsuit in return for a share of any damages award or settlement.” The money can be used to cover legal fees and court costs, but it can also be used for living expenses as a lawsuit is ongoing.

ILR (dis)credits Australia as the birthplace of third-party litigation financing, where it continues to flourish and fuel class action litigation, even as it spreads around the world. Stateside, you may have heard of it in relation to the recent concussion lawsuits filed by former football players against the NFL.

Proponents of third-party litigation financing contend that it provides litigants with the money they need to pursue a claim in court. You’re only on the hook to pay it back if there’s a financial award at the end of the lawsuit (which isn’t guaranteed), so the funders are really the ones making a risky investment. Opponents, like ILR, point out the issues that can arise when a third party, whose only interest in a lawsuit is the financial outcome, is added to the equation. Is the resolution of that dispute really in the best interest of the litigant, or are decisions being made in order to maximize the return on the funder’s investment?

While there are certainly a number of issues left to sort out in this area, many of the conversations about this topic overlook the root of the problem.

Why is it that so many people can’t afford to use the legal system without mortgaging their future settlements in order to do so?

The answer is that, for many, the time and cost of taking a dispute to court is too high to pursue. Inefficiencies in the legal system, abusive tactics that extend the time and cost of litigation and even the cost of hiring an attorney can be too much for the average individual to handle.

We should not allow a person’s economic status to cut off their right to the courts. You also shouldn’t have to sign away part of your settlement in order to afford to pursue your dispute in the first place.

TLR has long worked to make the legal system more efficient and less expensive so all Texans can pursue their legitimate disputes in court. Those efforts will continue in the upcoming legislative session, so look for more on our proposals in the coming weeks.