RECENT DEVELOPMENTS IN LITIGATION FUNDING
As the litigation funding industry continues to grow, its increasing visibility has led to challenging questions about how it should be regulated. In the US, despite the magnitude of litigation funding activity – according to self-reported data collected by litigation funding firm Westfleet Advisors, litigation funders invested $2.8bn in US commercial lawsuits in 2021, $3.2bn in 2022 and $2.7bn in 2023 – the relevant law remains fragmented, inconsistent and evolving.
Historically, the practice was constrained by statutory and common law prohibitions on champerty, which is an agreement “to divide litigation proceeds between the owner of [a] litigated claim and a party unrelated to the lawsuit who supports or helps enforce the claim”, as well as related prohibitions on barratry (“the offense of frequently exciting and stirring up quarrels and suits between other individuals”) and maintenance (“an officious intermeddling in a suit that in no way belongs to one, by maintaining or assisting either party with money or otherwise, to prosecute or defend [the suit]”). Over time, several states have relaxed or even abolished their prohibition on champerty, but the public policy concerns that had animated the doctrine retain much of their vitality, which can make outcomes difficult to predict when litigation funding practices are challenged in court. Further complicating matters is the lack of relevant federal legislation and the inconsistent patchwork of existing and emerging state legislation.
Jul-Sep 2024 issue
Cleary Gottlieb Steen & Hamilton LLP