Legal Policy Focus: Third Party Financing
The Buying and Selling of Lawsuits
- Third party litigation financing is big business in the United States and possibly the most important civil justice development in recent times..
- Third party litigation financing involves the financing of a lawsuit in exchange for a percentage of a damages award or settlement.
- State law used to forbid the buying and selling of lawsuits.
- With the relaxation of state laws prohibiting third party financing, the industry has exploded, but is still largely unregulated.
- The insertion of a third party funder into a lawsuit can lead to all sorts of mischief from creating perverse incentives and conflicts of interest to increasing frivolous litigation and court backlog
- Third party financing operates in the shadows, as the Federal Rules of Civil Procedure do not currently require disclosure of a financing agreement.
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