How technology is reshaping litigation funding

Filing a lawsuit can be expensive. Even in the best of circumstances, clients who work with lawyers on an unforeseen basis may not have to pay upfront fees, but they may also be unable to pay their bills while waiting for their case to find its way through the legal system. It is an untenable agreement that means that only those with family support or other independent wealth can easily afford to take their case to court. Fortunately, changes in litigation funding can change the terms of the contract.

Assessment of the field

The best way to understand litigation funding is to look at the arc of evolution over the past decade – but why such a short span of time? Simply put, ten years ago the United States did not have litigation funding as we know it now. Although such third party funding groups existed in the UK and Australia, it had not developed here. What has changed?

In essence, the US courts realized that there was no legal reason to prohibit this as long as donors did not interfere in the cases. With this confirmation, donors pushed into the field known for its historically high returns. In the meantime, a significant number of alternative avenues have emerged, competing with traditional funders.

Crowdfunding: The “popular” option

While the courts may have upheld the use of third-party funding, the relative novelty of the area means that many potential borrowers have not heard of the industry. Instead, many plaintiffs have turned to crowdfunding to pay for legal advice and settle their bills. This is a simple extension of all of the other ways Americans are using crowdfunding to meet overwhelming expenses.

Third-party funding: The standard

When the courts ruled that third party funding was a viable option, that third party funding decision was made under conceptual guidance from international legal systems. This model, also known as pre-settlement funding, allows victims to pay their bills until a resolution is found. Additionally, many funders encourage customers to use funds prior to settlement to avoid the pressure to settle early. Desperation – like being unable to pay for medical treatment or rent – can cause vulnerable patients to settle down quickly when they can recover much more.

Possible concerns

The pre-settlement funding was cleared by the U.S. courts as it was unlikely to be a major conflict of interest, and that’s true. That being said, this type of funding is used almost exclusively for personal injury claims like car accidents or work-related injuries. And before litigation funding emerged, many trade cases were receiving third-party funding due to the extreme size of their lawsuits. In these cases, however, funders are much more likely to intervene, which is why both state and federal legislatures have urged plaintiffs to disclose third-party funding in the name of transparency.

Whether or not disclosure becomes the norm in large third-party funded cases is of little concern to the individual plaintiffs who need financial assistance to continue their claims. For these individuals, pre-settlement funding is a simple means of support and could ultimately lead to more justice in our legal system, where money so often determines power.

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