Litigation Financing and the Birth of a Legal Market

33 Pages Posted: 19 May 2016 Last revised: 2 Sep 2016

Date Written: May 15, 2016

Abstract

Litigation financing is the practice whereby a noninterested third-party investor offers capital to a plaintiff in return for a share of a settlement, judgment, or verdict down the road. Fifteen years ago, litigation financing was nonexistent in the American legal system. Today, it is a multi-billion dollar industry. Simply put, litigation financing has converted the American legal system into a "legal market." Unfortunately, outside of those directly participating in the market, this market is a black box.

Currently, existing scholarship on litigation financing fails to define key aspects of the legal market. It cannot define how large or sophisticated the market is, how litigation financing firms make money, or where the market is likely to go. This paper attempts to close this aforementioned hole in existing scholarship by focusing solely on litigation financing's market aspect. This paper analyzes how litigation financing firms make money, forecasts the future of the market, and predicts what distortive effects a future market could have on our legal system. In doing so, this paper provides a foundational understanding of the current state of litigation financing, and forecasts its future as it grows more sophisticated by the day.

Keywords: litigation financing, litigation funding, diversification, portfolio, securitization, market, regulation

Suggested Citation

Russell, David, Litigation Financing and the Birth of a Legal Market (May 15, 2016). Available at SSRN: https://ssrn.com/abstract=2780177 or http://dx.doi.org/10.2139/ssrn.2780177

David Russell (Contact Author)

Arnold & Porter ( email )

New York, NY
United States

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