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Litigation Journal

Winter 2022: Tribunals

Use and Abuse

Robert E Shapiro


  • The law, litigation, and lawyering seem to have become an industry all its own.
  • Sometime financial and career success, rather than doing justice or even law, are sometimes too much the core of the matter.
  • Litigation can be, and frequently is, acceptably used as negotiation by other means.
  • What is the role of litigation funding in this context?
Use and Abuse
Peter Dazeley via Getty Images

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“Champerty” and its generic form “maintenance” are terms that have the whiff of quill ink and wig powder about them. Certainly, they play almost no role in our modern-day litigation practice. They arose and had their heyday in an era when the legal system and litigation itself served a less immediate role in everyday social and economic life. Then, the legal system existed to specify the outer bounds of good (and bad) conduct, preserve the peace, and resolve those occasional disputes that escaped resolution within the norms of custom and good sense prevailing in the local community. Litigation itself was not just less often experienced but also somewhat frowned upon as a breach of good order. Certainly, then, it was unacceptable for an unconnected third party to stimulate or participate in it, particularly someone uninterested in the actual merits of the proceeding, let alone seeking to benefit personally in a financial way.

Maybe for better, though sometimes for worse, this is not our world. Today the legal system is regarded as part of social life and the economy itself, not something merely designed to set or regulate their outer limits. Like lawyering itself, which is now viewed as much more of a business than ever before, the legal system has become a means, directly or indirectly, of personal celebrity and moneymaking as well. There are mega-firms designed to reap huge profits from the system, and small ones with the same motive too. Litigation can be, and frequently is, acceptably used as negotiation by other means. The satires of Jonathan Swift and Charles Dickens show that the public has long viewed trial lawyers more as serving their own interests than as righting society’s wrongs. But the legal profession has become a fulsome source these days of just such characters and characteristics very easily lampooned in the same way. Nor should it be lost on anyone that what was once viewed by these writers as a basis for ridicule is now more often seen as a reason for praise. Gossipy talk about lawyers has become not just a staple of contemporary media of all kinds but a sought-after professional goal, covered by what is broadly called “marketing,” a word Swift and Dickens would have had a field day with. And too often celebrity and commercial success are treated as proof of worthiness.

Don’t be fooled by where you sit in this new world photograph. Litigation as fee generation or personal fame is hardly the sole province of either the plaintiffs’ or the defendants’ bars, despite what each thinks of the other. For every plaintiffs’ lawyer out searching for contingency matters regardless of merit, there is a defendant’s counsel who calculates how the fees billed to the client can be maximized through the use of large litigation teams beyond the true needs of the case. On both sides of the v, there are lawyers searching for rock star trial lawyer status and making highly publicized law firm moves to improve their standard of living. In a word, the law, litigation, and lawyering would seem to have become an industry all its own, with all the warts, including those where financial and career success, rather than doing justice or even law, are sometimes too much the core of the matter.

Litigation Funding

Small wonder, then, that the idea that third parties can get in on the game—invest in it, one might say—would lose its malignant air. We now have new subindustries to consider, like litigation support companies for increasingly complex discovery activities and experts from academia garnering an income unheard of within the universities themselves. None of these new cottage industries is more salient, or controversial, than the new network of so-called litigation funders. These have taken a step beyond anything known before for financing a lawsuit, providing kind of a contingency fee arrangement on steroids, where not just the lawyer involved but a third-party fund provides the financial muscle to bring and maintain litigation and stands to gain from a favorable outcome.

Reactions to this practice differ. To hear the funders tell the story, they are a proper solution to a persistent problem in the contemporary legal system, which is that litigation is expensive, indeed too expensive, for ordinary mortals to bear, particularly for the indigent or downtrodden. A third-party funder can be just the remedy necessary to allow rank injustice to be well prosecuted and the outcome properly remunerative for those suffering it. Funding therefore should be a welcome addition to the litigation landscape.

Twaddle, say the opponents. No one should be permitted to profit in this way from the legal system, and there are remedies aplenty for those parties who need assistance, who are not usually the beneficiaries of the process litigation funders promote anyway. Besides, opponents say, consider the negative moral impact of leading the public to view the legal system as a kind of lottery or gaming source, which undermines respect for and compliance with the law. Back and forth the argument goes, with the funders charging opponents with hypocrisy and opponents decrying the funders’ ethics, neither one shedding very much light on the subject.

However you view the matter, there is a powerful sense that the broader shift in our perception of the legal system has not only spawned the issue but also already decided the matter. To say it again, the litigation world has changed. There can be nothing immoral or even imprudent in an additional third-party entrant of this kind into a system that’s less about instilling and preserving virtue than cultivating the pursuit of individual profit and fame. Rue this change in the legal system all you want, but it is an existential fact that litigation ain’t what it used to be, or used to be for, and litigation funders seem to be an idea whose time has come.

Besides, to be fair, this dichotomy between virtue in the old way and economics in the new is more than a little overdone and misleading in any event. The old rules served complacency and prejudice too, protecting the privileged status quo often gussied up as custom, propriety, and “what’s done.” The proof lies in how the old ban on champerty and maintenance came to be eliminated by the courts in the first place, a history that bears an eerie resemblance to the end of the ban on lawyer advertising. In the latter case, the old rules prevented a do-good public service firm from advertising its low rates to needy prospective clients. The obvious disservice and disadvantage this created led the Supreme Court to set aside advertising restrictions in Bates v. Arizona. It is difficult, however, to distinguish taking worthy advantage of the media from less savory forms of advertising—use and abuse, if you will—through any general statement of principle, particularly where all the pressure from changes in the “industry” itself points one way. It is an old nostrum that any technology can be used for good or ill, needing sophisticated moral guidance to ensure a positive outcome. A legal system already in flux did not provide a suitable foundation for such a detailed analysis of pros and cons, correct use and corrupt abuse, of media activity by members of the bar.

So, too, the objection to third parties intruding themselves into litigation, or encouraging it, could not withstand the worthy exceptions. The old rules were too often being used to suppress challenges to a self-interested and even invidious preservation of the status quo. In NAACP v. Button, Virginia sought to use old maintenance rules to prevent the NAACP’s crowdsourcing and funding efforts in aid of its civil rights activities. The latter seemed too righteous to permit them to be hindered or stopped dead by the old restrictions, particularly as the character of litigation was changing. Thus did third-party participation in litigation become more acceptable and the old restrictions unsustainable. No one stopped to consider whether there was any basis to distinguish between proper intrusions and improper ones.

Even the most thorough and rigorous analysis might too have generated nothing different. It is well-nigh impossible to devise a simple rule—a law—that can clearly delineate what is and is not permissible in this context, particularly as our perception of the legal system remains so much in flux. Is there a difference between what public interest firms do and what those who use litigation funders do? And how would one articulate it? The truth is that general laws seem poorly suited to do so.

New Jersey’s Proposed Sunshine Law

Into this breach has now come the New Jersey bar, which has devised a solution (as of this writing merely proposed) that may seem to solve the dilemma. Those following developments in legal ethics would do well to keep apprised of New Jersey’s considered approach to such matters, which, among other things, has applied a unique ban on lawyer ratings publications when not grounded in demonstrably verifiable fact. If one is to be called a “super lawyer,” one must have objective means of proving it, or else it is improper puffery and risks misleading the public. In the case of litigation funders, New Jersey has proffered the idea that any party using such third-party funds might be required to disclose that it is doing so. Sunlight, as we always say, is the ultimate disinfectant. Let everyone know what’s happening, and the use will continue and the abuse stop.

The proposal was met with howls of protest from the litigation funders. Why? What’s so harmful about their activities being known? They are not far from the public eye to begin with, as the inboxes of most lawyers can attest. If the funders are doing no wrong, surely there is no harm, or even shame, in their activities being open to public view. Their objections suggest a bad conscience, an unshakable sense that, despite modern realities, there is something unseemly about the whole process. If that’s the case, New Jersey’s rule may have the temporary effect of dampening enthusiasm for the practice, which those opposed to litigation funding may like. Note, however, that with more disclosure will come greater familiarity, and eventually comfort, with the concept of litigation funders. For that reason, the New Jersey rule may actually accelerate the acceptance of such activity, once forced from the shadows, precisely the opposite of what opponents of the concept want.

A more potent objection to the sunshine law, which should also be of some comfort to funders, is that a requirement of disclosure would seem to be of no effect whatsoever. So what if a defendant knows that a case is being supported by a litigation funder? What value is there in that? Perhaps the New Jersey court has the idea that this may be mentioned or used in some part of the proceeding, valuable in mediation perhaps, or, far more extremely, a permissible matter of comment or evidence during the formal proceedings. It is difficult to see the impact in the former instance or the sense in the latter. The source of the party’s funding is largely irrelevant to a settlement. As for use in the litigation, funding source proves nothing about the merit or lack of merit in the case and would seem better excluded as irrelevant. Once the litigation funders get over their embarrassment (if that’s what it is), as they surely will, what kind of activity, let alone abuse, will this sunshine law stop? How does it distinguish sensibly between what’s acceptable and what’s not?

In the end, the rule seems ill-suited to the problem of distinguishing between proper and improper uses. And seems to be untimely in any event, given the fundamental shift in our thinking about litigation and the legal system, of which litigation funding is a mere avatar. Also, let’s not forget that public disclosure may have some negative, if unintended, effects, discouraging the use of practices that have had an unsavory use even in cases in which they may be beneficial. Think how the elimination of confidentiality provisions in settlement agreements involving sexual harassment and discrimination may have affected defendants settling solely to avoid unnecessary costs or even some plaintiffs wanting not to show how little they deemed their case was worth. The truth is that distinguishing good use from abuse requires a far more sophisticated analysis than the policymakers have undertaken, focusing on the larger context of contemporary litigation as well as individual cases or practices.