But firms that offer to finance lawsuits often have bad reputations, in part because lawsuits themselves often have bad reputations. So litigation financing has suffered from some repugnance, including legislation limiting it.
A new marketplace for litigation financing, called Mighty, has just been launched. It is intended to allow potential investors to bid to support meritorious cases, and thus bring some market discipline to the process.
I earlier had a chance to chat with one of its founders, Joshua Schwadron, who accompanied the launch with this essay: Power to the Plaintiff, from which these quotes are taken:
"Well aware of plaintiffs’ precarious situations, insurance companies often prolong the legal process, waging a war of attrition to get plaintiffs to accept quick, less-than-fair settlements. This happens even in the most clear-cut cases. It’s called “frivolous defense,” a phrase you will have heard much less frequently than “frivolous lawsuits,” even though many scholars believe it is the former that causes our courts to clog, not the latter. And frivolous defense works — it almost always does. It’s a systemic scandal.
“[The defendant] is under no time pressure. It is, furthermore, the only authorized purchaser of [the plaintiff’s] claim, the only one allowed to bid on it. Now it requires no MBA to recognize that if one person is under duress and needs to sell something and another person is the only one legally allowed to buy it, the buyer has an enormous advantage.”...
" Plaintiff financing provides plaintiffs with funds that enable them to live their lives while they wait for fair settlement offers. It’s not a loan; it’s an investment, which yields a return to the investor only if a plaintiff’s case settles or is won.
"The insurance industry has consistently fought the adoption of plaintiff financing. Just last year, The National Association of Mutual Insurance Companies awarded State Legislature of the Year Awards to three legislators who helped regulate plaintiff financing out of existence in Tennessee.
"If plaintiff financing is such a commonsense solution, why is it not more widespread? First, the market is nascent. A handful of early participants have been bad actors and stifled the practice’s growth by engaging in opaque tactics. Second, skeptics claim that plaintiff financing could lead to an increase in frivolous litigation. But in reality, empirical studies have shown that plaintiff financing does not increase non-meritorious litigation because investors are rational actors who invest only in the cases most likely to win. Finally, plaintiff financing can be rhetorically reduced to the “financing of lawsuits,” a description that is plagued by the ick factor and offends the sensibilities of many."
Here is a WSJ blog post: Personal Injury Plaintiffs May Benefit from New Litigation Funding Marketplace
Here are some older links to litigation financing, and it's repugnance...
February 10, 2015 Updated 02/11/2015
Litigation-finance firms bet on the little guy
Hedge funds, private-equity players fund small businesses' lawsuits.
Litigation Finance Firm Raises $260 Million for New Fund
Litigation Financing Firm Exits Tennessee As New Law Goes Into Effect
By Andrew G. Simpson | July 3, 2014
By WILLIAM ALDEN
LITIGATION OR LAWSUIT FUNDING TRANSACTIONS 2014 LEGISLATION summary of state laws