Understanding the Evolution and Impact of Litigation Finance

Litigation finance
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As an increasingly popular method of funding legal disputes, litigation finance is transforming the landscape of modern law. This complex financial instrument allows plaintiffs to fund their lawsuits through third-party investors, who in turn earn a share of any potential settlement or judgment.

In this comprehensive guide, we will delve into the intricacies and evolution of litigation financing. From its historical roots in medieval practices to its current application within commercial litigation and mass tort lawsuits, you’ll gain a thorough understanding of how this vital financing tool is providing access to justice for many.

We’ll also explore contentious doctrines such as maintenance, champerty and barratry that intersect with litigation finance. Furthermore, we’ll examine case studies illustrating successful transactions whilst highlighting key challenges like evaluating merits without privileged information access.

Understanding Litigation Finance

Litigation finance, also known as lawsuit funding or legal financing, is a practice that has been gaining traction in recent years. But what exactly does it entail? Let’s delve into its definition and historical roots to better understand this concept.

Definition and basics of litigation finance

In essence, litigation finance involves a third party providing capital to a plaintiff involved in litigation. If the plaintiff is successful, the financier will receive a share of any financial compensation. It’s an arrangement designed to help plaintiffs who may not have sufficient resources to pursue justice on their own.

Historical background and evolution

The origins of litigation finance can be traced back several centuries when feudal lords would financially back lawsuits against their rivals for personal gain. Over time though, concerns about profiteering led to laws being put in place against such practices – more on these later.

In modern times however, the landscape has changed significantly due largely to increased costs associated with pursuing legal action combined with growing income inequality making access to justice increasingly difficult for many people. As such, there’s been a resurgence of interest among investors looking to capitalize on the potential returns offered by successful lawsuits while simultaneously helping those unable to afford court fees get their day in court.

Societal views towards the concept of someone other than the litigant being invested in a case’s outcome have developed over time, not suddenly. Today, we see a diverse range of companies offering various forms of lawsuit funding solutions tailored to meet the needs of different types of clients, whether they’re individuals or businesses facing expensive and complex cases like class actions or personal injury claims, and so on.


Key Takeaway: 

Litigation finance, also known as lawsuit funding, is when a third party provides financial support to plaintiffs involved in legal cases. This practice has evolved over time due to increasing costs of litigation and limited access to justice for many individuals. Today, there are various companies offering different forms of lawsuit funding solutions tailored to meet the needs of clients facing expensive and complex cases.

The Doctrines Intersecting with Litigation Finance

When it comes to litigation finance, a few legal doctrines intersect and play crucial roles. These include maintenance, champerty, and barratry. Understanding these concepts can help shed light on the complexities of modern-day practices in litigation financing.

Maintenance Doctrine Explained

Maintenance is the act of supporting or promoting another person’s lawsuit by someone who has no legitimate interest in the case. In medieval times, this was considered illegal because it encouraged unnecessary lawsuits and potential exploitation. Learn more about Maintenance Doctrine here.

Champerty Doctrine Explained

Champerty is a form of maintenance where a non-party provides financial support to litigants in return for a share of the proceeds if successful. This doctrine originated from French law, which prohibited third parties from meddling in others’ disputes for profit. Learn more about Champerty here.

Barratry Doctrine Explained

Barratry involves repeated and persistent acts of litigation instigated solely to harass or subdue an adversary or for purposes unrelated to seeking justice. It was deemed unlawful due to its potential misuse leading to frivolous lawsuits that could clog court systems. Read more on Barratry here.

In essence, all three doctrines were designed as safeguards against possible abuse through excessive or fraudulent lawsuits funded by outsiders with ulterior motives rather than genuine concern over justice being served.

Transition from Medieval Practices to Modern Legal Industry

The journey of litigation finance has been a wild ride, starting way back in medieval England. The legal doctrines that come into play today – maintenance, champerty, and barratry – were basically tools for powerful feudal lords to settle their own scores.

Role of Feudal Lords in Early Lawsuit Financing

Back in the day, rich folks and feudal lords would bankroll lawsuits for those who couldn’t afford it. This allowed them to manipulate the outcomes and tighten their grip on power. But, surprise surprise, it often led to justice being twisted for personal gain.

That’s where maintenance (supporting someone else’s lawsuit), champerty (sharing the spoils of a successful suit), and barratry (being a nuisance in court) came in. These practices were seen as meddlesome interference by parties who had no real stake in the matter, other than making a quick buck.

Laws Against Meddling Meddlers

To put a stop to this shady business, laws were passed during medieval times to ban third-party funding based on these doctrines. Smart folks say these laws were meant to protect honest litigants from being taken advantage of by money-hungry financiers who cared more about profit than justice.

The transition from those dark times to the modern legal industry wasn’t a smooth ride, but more like a slow crawl. It was influenced by changes in society and the economy over the centuries. Present-day legal industry has transformed significantly due to the introduction of new technologies, worldwide integration and evolving social perceptions. Despite the historical stigma, people are starting to recognize the potential of third-party financing in helping those who can’t afford to pursue valid claims on their own. Some places have even loosened the restrictions, allowing regulated forms of these arrangements under certain conditions. But hey, some jurisdictions are still holding on tight to the old ways, echoing sentiments from the past.


Key Takeaway: 

Litigation finance has a long history, originating from medieval practices where powerful feudal lords would fund lawsuits for their own gain. Laws were eventually put in place to prevent this meddling interference, but modern society is starting to recognize the potential benefits of third-party financing for those who can’t afford legal representation.

Current Views on Maintenance, Champerty & Barratry

In the legal world, some old-school rules like maintenance, champerty, and barratry are starting to feel as outdated as a flip phone. But, you know, sometimes money makes the rules bend–there are exceptions to every regulation. Let’s dive into why these doctrines are losing their shine and how they impact litigation finance today.

Obsolescence Argument for Old Doctrines

Back in the day, maintenance (supporting a lawsuit by a stranger), champerty (sharing in litigation proceeds without a stake), and barratry (vexatious incitement to litigate) were meant to prevent legal shenanigans and profiteering. But times have changed, and many argue that these medieval concepts are about as useful as a suit of armor in a modern courtroom.

One big argument against these doctrines is that they limit access to justice for those without deep pockets. Funding is a key issue when dealing with class action lawsuits involving numerous plaintiffs.

Exceptions Recognizing Influence of Finances on Justice

While some states stick to their guns and strictly prohibit third-party financing agreements, others have loosened their grip. They recognize that sometimes, money talks, and it can help level the playing field. Take New York, for example, where champertous contracts are allowed if the principal amount at stake exceeds $500K (excluding expenses).

This shift in thinking shows that courts are waking up to the reality that not everyone can afford a legal battle against big corporations or government bodies. By allowing third-party financing, they’re giving everyone a fair shot at justice, regardless of their bank account balance.

Evolving Legal Landscape: A Case Study Example

Let’s take a look at a real-life example that showcases the changing views on these old doctrines. In a 2018 decision by the Delaware Supreme Court in Lawsuit Financial LLC v Curry, the court ruled that a contract wasn’t automatically unenforceable just because it violated the state’s champerty prohibition. Instead, they focused on the intent behind the agreement and whether it promoted speculation or unnecessary litigation. Judging an agreement not just by its outward appearance, but also considering the intention behind it. Read the full judgment here.


Key Takeaway: 

Old legal doctrines like maintenance, champerty, and barratry are becoming outdated in the modern legal world as they limit access to justice for those without financial resources. However, some states have recognized the influence of finances on justice and have allowed third-party financing agreements to level the playing field. A case study example from Delaware shows a shift in thinking towards these old doctrines by focusing on the intent behind contracts rather than automatically deeming them unenforceable.

Case Studies Supporting Litigation Financing Transactions

The intricate realm of litigation finance is multifaceted, with various nuances that could potentially affect the result of a legal matter. Let’s dive into some recent cases involving third-party funding entities to better understand these complexities.

Miller UK Ltd v Caterpillar Inc.: A Legal Tango

The court was tasked with determining if the defendant could access correspondences between the plaintiff’s attorney and their funding source. Turns out, some documents were protected, while others were fair game due to the common interest doctrine exceptions. Talk about a legal tango.

Devon IT Inc., v IBM Corp: The Precedent Setter

In this case, it was established that any communication between a litigant and their financier is protected under attorney work-product privilege if it was made in anticipation of litigation. This ruling set an important precedent for future transactions involving third-party funders. Way to set the stage.

Maintaining confidentiality is key to ensuring the separation of privileged and non-privileged information, allowing parties to abide by legal regulations while protecting sensitive data. It’s like keeping your secrets safe while still playing by the legal rules.

Evaluating Merits Without Sneaky Peeks

So, how do firms like LexShares’ managing member WealthForge evaluate case merits without peeking into privileged attorney-client communications? They focus on documents subject to discovery or legal team assessments. It’s all about playing fair and staying within ethical boundaries. No sneaky peeks allowed.

Evaluating Merits Without Privileged Information Access

Legal funding firms like LexShares and its managing member WealthForge have come up with a clever way to evaluate cases without snooping on attorney-client secrets. They focus on public documents, subject discovery, or legal team assessments.

This practice is not only ethical but also crucial in maintaining the integrity of the litigation finance industry. It ensures that sensitive information remains confidential while allowing third-party funders to make smart investment choices.

The Importance of Confidentiality in Legal Proceedings

Keeping things hush-hush between lawyers and clients is super important in any legal proceeding. Trust is the foundation of any legal proceeding, allowing clients to share information without fear of repercussions.

The same goes for litigation financing. Funders need to respect these boundaries by focusing only on non-secret info during their evaluation process.

Focusing on Subject Discovery Documents

Most of the time, you can find plenty of juicy info in documents made public through subject discovery procedures. These might include court filings, deposition transcripts, expert reports, and other evidence presented during trials.

  • Pleadings: These are fancy written statements filed with a court that outline each party’s claims and defenses. They give you a peek into both sides’ arguments, helping you assess the strengths and weaknesses of a case.
  • Deposition Transcripts: Depositions are like juicy tell-alls from witnesses under oath before a trial. They can help you spot key issues that might sway the outcome.
  • Court Rulings: Previous rulings by judges give you a sense of how the courts interpret the laws in similar situations. This helps you assess the risks associated with specific cases.

Relying on Legal Team Assessments

In addition to digging into subject discovery materials, funders often chat with the plaintiffs’ legal teams. They get non-secret insights about case strategies or progress updates while keeping attorney-client privilege intact. These interactions help investors understand potential returns and consider different scenarios, like settlements or appeals. So, even without privileged data, thorough due diligence is still possible, leading to smart investment decisions that benefit everyone involved.


Key Takeaway: 

Legal funding firms like LexShares and WealthForge evaluate cases in the litigation finance industry without accessing privileged information, focusing on public documents, subject discovery, or legal team assessments. This ethical practice maintains confidentiality while allowing funders to make informed investment decisions based on non-secret information such as court filings, deposition transcripts, expert reports, previous court rulings, and discussions with plaintiffs’ legal teams.


In conclusion, understanding litigation finance is crucial for anyone facing a legal issue.

From its historical roots to modern practices, the doctrines of maintenance, champerty, and barratry have shaped the landscape of lawsuit financing.

While some argue that these old doctrines are obsolete in today’s legal industry, there are exceptions recognizing the influence of finances on justice.

Through case studies and evaluating merits without privileged information access, it becomes clear that litigation finance plays a significant role in leveling the playing field for individuals seeking justice.

Realizing the importance of litigation finance can be a great aid in your pursuit for justice, regardless if you are dealing with an injury case or class action lawsuit.

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Staff Writers

The team of staff writers at AskLegally works in unison to bring you unique and compelling content covering a wide range of subjects, including class action lawsuits and updates from the legal world. Through their collaborative efforts, these writers ensure that you receive fresh and insightful information, providing you with valuable insights and keeping you informed about the latest developments in the legal landscape.

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