The Chamber Is Right: A Response to the Legal Funding Industry.

The CEO of Burford Group, one of the best-funded of the litigation financiers that has appeared on the scene in recent years, has made public attacks on efforts by the U.S. Chamber of Commerce to limit the spread of third-party litigation funding.  In comments published in The American Lawyer, Christopher Bogart attacked the Chamber for trying “to scare people and keep the money flowing in [to the Chamber].”

Bogart implies that the only issue at hand is whether businesses with meritorious lawsuits that lack the cash to fund them should have an additional option—i.e., Burford—to enable them to pursue those lawsuits.

That’s a red herring.  First of all, there’s no sound evidence—aside from some anecdotal suggestions from questionable sources like Burford itself—that any business has ever had to forgo a meritorious lawsuit because it couldn’t fund it.

Second, there is a very sound reason to believe that litigation funding increases litigation.  That reason is a principle of Economics 101: if you throw money at an activity, you will increase that activity.  The litigation funding industry collectively represents a very large pool of funds in search of lawsuits to back.  Such lawsuits will tend to be at the margins, or beyond them: by definition they are lawsuits that the plaintiffs don’t want to pay for themselves, or can’t find firms willing to risk their own capital to fund.  Increased litigation is, of course, a very legitimate concern for all businesses (except financiers of such litigation), and thus is a core issue for the Chamber.

Third, there are multiple grounds for concern in the very concept of legal funding that legal scholars and judges—in addition to the Chamber—have frequently identified, including that it interjects profit-seeking financiers into a relationship that has traditionally been limited to members of the bar with well-defined professional ethical duties.  Third-party litigation funding also poses risks of disclosure of confidential information.  And it by definition increases litigation in what is already the most litigious legal system that the world has ever known.

Finally, the fact that Burford funds only commercial BvB lawsuits doesn’t mean that the same is true of the rest of the industry.  At any given time there are dozens of small, medium, and large litigation funders looking for individual personal-injury plaintiffs and others to underwrite.  These are plaintiffs who can’t find a contingency-fee law firm to represent them (or can’t find one that is willing to risk its own money), which is a strong indicator of the lack of meritoriousness of those actions.  Financiers are willing to take on bundles of risky lawsuits because they can spread out the risk.  Thus, many suits, which should not ever have been brought had they been judged one by one on their own merits, will be filed because they each pose (say) a one-in-a-hundred shot at a big payoff.

The Chamber is opposed to the legal funding industry’s plan to self-regulate and self-police, sometimes under the very mild guidance of state regulations that the funders drafted and lobbied for themselves.  If third-party funding is such an ethical, wise, and socially beneficial activity, why do the funders fear greater scrutiny?