Litigation Funding: Justice or High-Stakes Gambling?

By: Erin McNeill. This was posted Thursday, October 6th, 2011

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Sands Anderson Risk Management Group Leader Terrence Graves wrote the following article for the DRI: Litigation Funding Equals Big Money. The article was inspired by this recent Wall Street Journal article “Funds Spring Up to Invest in High-Stakes Litigation.” (This article is available to subscribers, or those who sign up for a two week free trial. You may review the Wall Street Journal’s related blog article for free. ) This type of funding raises an interesting debate. As litigation becomes more expensive, this could be the only way some parties can afford to pursue a meritorious claim. On the other hand, not requiring a war chest can fund high risk claims that have little merit but a high potential payout. For example, a defendant may decide to settle a case that he has a 90% chance of winning, if he loses $10 million dollars the 10% of the time something goes awry and he loses the case, particularly if he can settle it for less than $100,000. Poker players may be familiar with this way of thinking about risk assessment and potential payouts.

What do you think? Is letting non-parties gamble on the outcome of litigation an innovative way to fuel the expensive American justice system, or another sign of a system that has gotten too far from the concept of justice?

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