In recent years, third-party litigation funding (TPLF) has faced significant scrutiny, with critics claiming it undermines the legal system, poses national security risks, and reduces plaintiffs' financial recovery. However, these arguments often miss the broader picture, as TPLF provides critical benefits for both plaintiffs and the legal process. Let’s address these misconceptions and explore how TPLF plays an essential role in leveling the playing field for litigants.
Critics argue that litigation funders exert undue control over cases, influencing decisions that should remain solely with plaintiffs and their legal teams. The truth, however, is quite different. Reputable litigation funding firms operate as passive investors, allowing plaintiffs and their lawyers to maintain control over case strategy. Funders are primarily concerned with the financial return, not interfering with legal decision-making.
Moreover, regulatory frameworks in several jurisdictions already mandate transparency and protect client autonomy, ensuring that lawyers remain independent and committed to their clients. Funders often reject cases without merit, as taking on non-viable lawsuits would harm their business.
Some argue that foreign interests use litigation funding to manipulate the U.S. legal system, potentially accessing sensitive information or evading sanctions. While foreign investments exist in the TPLF industry, framing this as a national security risk is overstated. The industry's established actors, especially in the U.S., work under strict legal and ethical guidelines to avoid conflicts of interest and ensure transparency. Moreover, courts and regulators increasingly demand disclosure of foreign investments, especially in sensitive cases.
Legislation already exists in several U.S. states requiring the disclosure of litigation funding agreements, and similar federal legislation is in the works to address potential risks. These steps ensure that litigation funders operate within the bounds of national security without compromising legal integrity.
One of the more pervasive arguments is that plaintiffs ultimately take home less money because of the funders’ share of any settlement or award. While funders take a portion of the recovery, this fails to account for the fact that many plaintiffs wouldn’t have the financial means to pursue their claims at all without litigation funding. TPLF enables plaintiffs to access the legal system without facing insurmountable costs, providing a critical path to justice.
Litigation funding empowers plaintiffs to withstand long legal processes, helping them negotiate better settlements or see their cases through to trial, where they often receive higher awards. Using TPLF gives plaintiffs a greater chance to secure the compensation they deserve; without it, many would be forced to accept lower settlements or drop their cases entirely.
While critics focus on the perceived drawbacks, the benefits of TPLF for the legal system are significant. It enables plaintiffs to stand up to well-funded defendants, promotes access to justice, and supports law firms by providing financial stability during long and complex cases. Furthermore, it reduces financial risk for plaintiffs and law firms, allowing them to pursue cases that may have been abandoned due to a lack of resources.
Litigation funding can be a game-changer for small and mid-sized law firms. It allows them to take on large cases that might otherwise be beyond their financial reach, providing a way to compete with larger firms. Ultimately, TPLF promotes fairness by ensuring that financial limitations don’t prevent justice from being served.