Revolution in Progress: Third-Party Funding of American Litigation


There is a growing phenomenon of for-profit investment in U.S. litigation. In a modern twist on the contingency fee, third-party lenders finance all or part of a plaintiff’s legal fees in exchange for a share of any judgment or settlement in the plaintiff’s favor. There are a number of international corporations, both public and private, that invest exclusively in this new “market.”

Critics contend that third-party litigation finance violates the common law doctrines of “maintenance,” or interference in a legal proceeding by a stranger to the suit, and “champerty,” or maintenance for profit. Critics also raise numerous arguments based on the purported negative consequences of a widespread system of third-party finance. These include serious ethical considerations, the possibility of compromising attorney-client privilege, and an alleged tendency to encourage frivolous lawsuits while discouraging settlement.

This Comment argues that these critiques are flawed and that third-party litigation finance should be permitted but regulated to guard against its fairly limited dangers. I argue, first, that the common law doctrines of maintenance and champerty are inconsistent with our contemporary view of litigation. Over the past century, Americans have come to see lawsuits as a valid means of settling personal disputes, vindicating individual rights, and correcting social ills. Moreover, the procedural reforms of the early twentieth century were designed to liberalize rather than limit access to the courts. I conclude that third-party litigation finance is in keeping with our current values because it facilitates the filing of claims that might otherwise go unheard. This Comment contends, therefore, that such agreements should be legal and enforced in the United States. Finally, I suggest that the potential adverse consequences of the practice are in most cases unlikely to occur, and in cases where negative consequences are likely, they can be effectively addressed through enforcement of existing ethical and procedural guidelines or by adoption of new regulations.

About the Author

Michael T. Masin Scholar, J.D. Candidate, UCLA School of Law, 2011.

By uclalaw