In a November 15, 2010 New York Times article entitled “BETTING ON JUSTICE: Putting Money on Lawsuits, Investors Share in the Payouts,” Binyamin Appelbaum reported on the growing trend for banks and other investors to invest in lawsuits. Mr. Appelbaum does a nice job of describing the history of the legal finance industry, though he incorrectly refers to the process as “lending” rather than providing advances. Lawsuit funding advances are not loans or lending because they are non-recourse, i.e. no repayment is required if there is no recovery.
Mr. Appelbaum reported on a study by the New York Times and the Center For Public Integrity which showed that lawsuit funding advances are leveling the playing field for plaintiffs and plaintiffs’ attorneys and giving “more people a day in court”:
“The rise of lending to plaintiffs and their lawyers is a result of the high cost of litigation. Pursuing a civil action in federal court costs an average of $15,000, the Federal Judicial Center reported last year. Cases involving scientific evidence, like medical malpractice claims, often cost more than $100,000. Some people cannot afford to pursue claims; others are overwhelmed by corporate defendants with deeper pockets.
A review by The New York Times and the Center for Public Integrity shows that the inflow of money is giving more people a day in court and arming them with well-paid experts and elaborate evidence. It is helping to ensure that cases are decided by merit rather than resources, echoing and expanding a shift a century ago when lawyers started fronting money for clients’ lawsuits.”
The article recognized the merit of the litigation funding industry in counteracting the deep pockets of defendants and insurance companies, and quoted experts stating that lawsuit funding provides a social service to those in need.
Mr. Appelbaum correctly noted that the lawsuit funding industry has succeeded in courts and legislatures of various states in overturning outdated laws that prohibited companies from providing lawsuit funding advances. This, he said, is a result of changing ideas about the value of litigation; it is viewed more now as a means of correcting social wrongs rather than a social ill. Mr. Appelbaum noted that:
“The industry’s great innovation, and still its defining trait, is the willingness to lend based on the potential value of unresolved cases.”
He also reported that banks have begun to provide lawsuit funding advances and what he called “lawsuit loans”, singling out LawCash® and Esquire Bank®:
“The founders of LawCash®, a Brooklyn lender, won a charter from New York in 2006 to establish Esquire Bank, the first American bank to specialize in the business of financing lawyers and lawsuits.”
All in all, this was a very nice piece, providing a good history of the legal funding industry and noting positive trends towards helping plaintiffs have their day in court.