For years, certain lenders have agreed to fund all or part of a party’s litigation costs, usually in exchange for an agreed share of any recovered proceeds, as part of a practice called “third-party litigation funding.” This has spawned widespread debate over the propriety of such funding and the degree of transparency parties and courts should have as to the nature and amount of the funding (as well as the identity of the funders themselves).
Many types of third-party litigation funding arrangements exist, including investor-based class action funding. According to the U.S. Chamber of Commerce’s Institute of Legal Reform, third-party litigation financing from investors has been on the rise in the United States dating back to 2007. Third-party funding of mass litigation and class actions is also on the rise in other countries.
Proponents of third-party litigation financing of class actions assert that it allows plaintiffs with limited resources to bring legitimate claims that otherwise might not be asserted. Opponents believe the practice unhinges litigation strategy and related considerations, including the plaintiffs’ motivations or willingness to settle. Opponents also question the adequacy of representation in the appointment of class counsel and if class counsel is motivated to protect the interest of the class, or to protect the investors bankrolling the suit. Continue Reading