I’ve been looking deeper into the idea of investing in lawsuits. In my last post on the subject I said this only works for me ethically when the investments are used for plaintiff’s medical and living expenses. I wrote “I’ll not be lending money to lawyers.” Since then I’ve learned more about the subject from litigation investment firms, and now my opinion is a bit more nuanced.
Before, I mentioned a “slip and fall” case that was brought against my architectural firm. It was a classic example of the kind of ambulance chasing lawsuit which has given the legal profession a bad name in America. The plaintiff didn’t even actually fall, for crying out loud. But it still cost me a $10,000 insurance deductible, and five days of my life. So I was robbed, and there’s still no way I would invest in anything that enables other attorneys to do the same. But I’ve learned this is usually a non-issue when it comes to investing in lawsuits, for several reasons.
Most predatory cases are personal injury lawsuits, and it turns out personal injury cases are very seldom funded by investment sponsors. One firm I contacted indicated that this kind of case accounts for only one quarter of one percent of the total cases in their portfolio. This may be because most of their investors agree with me about the ethics. It’s even possible a high percentage of investors have been victimized by predatory attorneys, just as I was. Investors obviously have money, and targeting people simply because they have money is what predatory attorneys do.
Also, investors want to allocate their money into assets where they will achieve the best returns. Naturally, that means the vast majority of litigation funding investments are made in lawsuits where big money is at stake. The potential settlement or judgment amounts in most personal injury lawsuits are small potatoes compared to class action or mass tort suits, in which multiple plaintiffs were allegedly harmed by a defendant which is usually a major corporation with very deep pockets.
I’m much more comfortable funding law firms which are representing plaintiffs in class action and mass tort suits because it’s far less likely that their lawsuits are frivolous.
I’m much more comfortable funding law firms which are representing plaintiffs in class action and mass tort suits because it’s far less likely that their lawsuits are frivolous. In our society, it’s easy for one unethical attorney to convince one greedy client to participate in a predatory lawsuit. But usually mass tort or class action suits involve dozens, hundreds, or even thousands of attorneys and plaintiffs, all of whom are independently convinced it’s worth the effort to sue. Whatever the facts of the case may be, when that many people are willing to go to court it’s unlikely their case is frivolous.
Next, there’s the issue of timing. It seems most law firms receive investment funding only after the “discovery” period of the lawsuit it complete. All the facts are in at that point, which does two things: 1) it reduces risk, because it’s possible to evaluate the likelihood of winning the case on its merits, and; 2) it reduces the possibility that the plaintiff has lied, exaggerated, or otherwise brought suit irresponsibly or unethically, because if that were true it would probably have been found out.
Because I know what it’s like to be on the receiving end of predatory lawsuits, at first I was not inclined to provide investment funds directly to law firms. But if I can provide funds to firms that are, for example, representing crowds of “little people” who were the victims of corporate fraud (such as the Enron scandal), or whose homes and neighborhoods were environmentally polluted by a company’s negligence, or who suffered health problems because of a drug known by the manufacturer to be defective, that seems like a good use of investment money in more ways than one.