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Abstract

Third-Party Litigation Funding (“TPLF”), which is also known as litigation finance, involves a financial arrangement in which a third party provides funding to support the plaintiff’s pursuit of a civil lawsuit. The third party, in return, receives a portion of the proceeds if the litigation is successful. Like a contingent-fee agreement, this type of funding model enables a party to bring a lawsuit even if that party does not have the resources to pay the up-front costs of the litigation. The important difference is that the litigation funder is not counsel to a party in the case, and that TPLF essentially creates a secondary market for litigation funding. Thus, hedge funds, banks, insurance companies, and other outside investors are providing funding for the attorneys and parties in the underlying case. TPLF has both potential costs and benefits. The most apparent benefits include providing access to justice for parties and lawyers who lack economic resources, spreading the risk of bringing (or possibly defending) litigation, and improving the level of information about potential claims. Drawbacks include a variety of ethical issues, as well as the potential for an increase in the amount of litigation.

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