On Sunday, 60 Minutes aired a segment titled: Litigation Funding: A multibillion-dollar industry for investments in lawsuits with little oversight.
During the piece, Lesley Stahl spoke with a business owner who entered a third-party litigation funding (TPLF) agreement; a former NYPD officer who turned to TPLF while waiting for money he was owed from the 9/11 Victim Compensation Fund; the CEO of the world’s largest litigation funder Burford Capital; and a law professor with expertise in litigation finance.
Stahl did not specifically discuss the connection between TPLF and meritless patent litigation, but a number of the key points she raised expose problems within the TPLF industry as a whole, including its disproportionate investment in the patent space.
Funders are transforming the U.S. legal system
Stahl’s conversation with Maya Steinitz, a law professor at the University of Iowa, gets to the crux of the issue. Mainly, that litigation funders are “reshaping every aspect of the litigation process” without transparency or oversight. As Steinitz says, “we have one of the three branches of government, the judiciary, that’s really being quietly transformed.” As Steinitz properly notes, and others like the Swiss Re Institute have pointed out, TPLF influences which cases are brought, how long they continue, and when and how they are settled. These decisions are not necessarily based on the plaintiffs’ best interests, but instead on how the funders can make the most money.
The piece also correctly references that the growing industry is bringing new players into our legal system (or at least bringing them in more frequently), like hedge funds, foreign government funds, and wealthy individuals. When it comes to TPLF, these groups’ primary motive is generating large returns or gaining a competitive edge.
Funders are making huge profits
Third-party funders, even by Burford Capital’s own admission, are using our legal system as a tool to bring in massive profits. Christopher Bogart, Burford’s CEO, says that his multi-billion dollar company, on average, doubles the initial investment that they make in a case. This is true of the business owner Stahl interviewed, who ended up paying Burford $8 million of his settlement, a 100% upcharge on the original $4 million Burford provided.
Stahl later presses Bogart on whether Burford Capital ever walks away with more money than the plaintiff they are claiming to help. With no legal limits on what percentage of a settlement or award funders can take, and given that agreements are confidential, his answer (unsurprisingly) is yes.
Funders are not regulated
At multiple points over the roughly 13 minute segment, conversation returns to the fact that litigation funders operate with virtually no oversight.
Whereas attorneys are legally obligated to execute their clients’ wishes, investors like Burford have no similar requirement. The 60 Minutes piece highlights that there is nothing stopping investors from pressuring their clients to settle, or otherwise influence legal decisions, all while their involvement in cases and their agreements with clients remain undisclosed. As we have discussed previously on Patent Progress, this lack of required transparency fuels waste and abuse.
Stahl’s discussion with former NYPD officer Donald Sefcik and his attorney also demonstrate that the TPLF industry is also not subject to the same type of restrictions that are in place for others. There are laws that prevent predatory lending in other areas, but because litigation financing is an “investment” not a “loan” investors are not bound by similar restrictions, putting plaintiffs at greater risk.
Where do we go from here?
In order to limit abuse, lawmakers need to take a close look at regulating the TPLF industry just like any other financial institution or loan provider. In the meantime, there must be basic transparency measures implemented that allow lawmakers, courts, and plaintiffs to see who exactly is funding cases and what those funding deals include.
We will continue to discuss developments in the litigation finance transparency space, and hope that more information coming to light about litigation funding arrangements will make it clear that additional oversight is necessary to rein in abuse.