Litigation funding is a relatively new industry. It’s less than 20 years old as a whole, having first popped up in Europe and Australia in the late 1990s and only later making its way over to the United States. Nonetheless, it is possible that in its current manifestation, legal funding has been able to influence litigation trends and the behavior of potential offenders. The overall influence may be insignificant – in Australia, for example, less than one percent of litigants opt to use legal financing, and not enough is known about the industry in the UK or the US to give an accurate estimate, suggesting that the percentage is even fewer. However, assuming that litigation funding was to become more prevalent as more people become aware of its role, there is good reason to believe that it could have a noticeable, even positive, influence over litigation trends and defendant behavior.
One area in which litigation funding is likely to have a great influence, should the industry continue to develop, is the quality of cases granted court presence. Because legal finance companies are averse to high-risk cases, they perform meticulous due diligence on all applicants, both plaintiffs and plaintiffs firms. Funders prefer to take on cases with higher merit and a good chance of winning; in this way, weaker cases are filtered out. Some stronger cases will also be filtered out, of course; a case may have high merit and have a good chance of winning, but the estimated return from the case may be too small to expect any profit after repayment.
Filtering out lower-quality cases will not necessarily reduce the amount of cases that a court oversees. Indeed, litigation funders serve the purpose of allowing plaintiffs who would otherwise have no means of pursuing litigation obtain the resources to do so; or, in other instances, they allow litigants to maintain a normal quality of life while awaiting a settlement payment. However, by effectively weeding out weak cases and simultaneously providing funding only to high-quality litigants who would otherwise not have the funds to access legal services, litigation funders would improve the overall quality of cases that the court systems would receive.
Legal funding may also have a profound impact on defendant behavior, and, in the long run, may help reduce certain offensive behaviors. When a plaintiff seeks financial assistance through a litigation funder and is approved for funding, the defendant recognizes that the case is high value, because litigation funders prefer to take on low-risk, high merit cases. This reduces the bargaining power of the defendant, which could potentially lead to earlier settlements, or a trial verdict favorable to the plaintiff. Moreover, litigation funding may enable plaintiffs to bring cases to court that were previously underrepresented, thereby increasing the likelihood that certain offensive behaviors would be put to trial and condemned. With the publication of these favorable plaintiff verdicts, it is possible that others who might have performed the same offensive acts would opt otherwise. This could also reduce litigation in the long run.
Litigation funding may have an overall positive impact on courtroom practices. In the long run, litigation funding could allow a majority of high quality cases to be heard before the court, prevent time-wasting low-merit cases from being heard, and potentially curb certain offensive and disruptive behaviors. However, at this time, when the percentage of plaintiffs utilizing litigation funding is so low, it is difficult to draw any definitive conclusions. Perhaps as the industry grows, the positive effects will be seen more clearly.
Photo Credit: Tori Rector