Alternative Litigation Financing in the United States

Alternative Litigation Financing in the United States: Issues, Knowns, and Unknowns

Steven Garber
Copyright Date: 2010
Published by: RAND Corporation
Pages: 66
https://www.jstor.org/stable/10.7249/op306lfcmp
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  • Book Info
    Alternative Litigation Financing in the United States
    Book Description:

    Alternative litigation financing (ALF)--also known as "third-party" litigation financing--refers to provision of capital by parties other than plaintiffs, defendants, their lawyers, or defendants' insurers to support litigation-related activity. This paper describes the ALF industry as of early 2010 and discusses the legal ethics, social morality, and, especially, potential economic effects of ALF.

    eISBN: 978-0-8330-5072-4
    Subjects: Law

Table of Contents

  1. Front Matter
    (pp. i-ii)
  2. Preface
    (pp. iii-iv)
  3. Table of Contents
    (pp. v-vi)
  4. Figures and Tables
    (pp. vii-viii)
  5. Summary
    (pp. ix-xii)
  6. Acknowledgments
    (pp. xiii-xiv)
  7. Abbreviations
    (pp. xv-xvi)
  8. SECTION 1 Introduction
    (pp. 1-2)

    During the past few years, “third-party” financing of litigation activity in the United States has grown considerably and attracted attention from journalists, researchers, and policy advocates. The phenomenon of interest is provision of capital (money) by nontraditional sources to civil plaintiffs, defendants, or their lawyers to support litigation-related activities. Becausethird-party financingdoes not accurately describe the phenomenon of interest, particularly in the United States, in this paper I propose and use a new term that is more descriptive of the phenomenon:alternative litigation financing(ALF).

    The termthird-party financinginvites confusion, particularly in the U.S. context, for the following...

  9. SECTION 2 Overview of This Paper
    (pp. 3-6)

    In this section, I describe the nature of the analysis, introduce five distinctions that many apparently fail to appreciate, and provide an overview of the organization of the remainder of the paper.

    This paper interprets and synthesizes information from many sources and offers opinions as well as analyses. Due to a dearth of systematic empirical information, much of the analyses is conceptual (theoretical) and applies standard microeconomic principles and perspectives. The conceptual analyses, however, are grounded in empirical information of various types and from various sources.

    My sources of empirical information are diverse. They include descriptive and analytical articles focusing...

  10. SECTION 3 A Snapshot of the U.S. ALF Industry, as of Early 2010
    (pp. 7-16)

    In this section, I describe—to the extent that available information allows—the state of ALF in the United States during the first few months of 2010. It appears that, at the present time, there is very little ALF for defendants, and, accordingly, the discussion here focuses on ALF that provides capital to plaintiffs or their attorneys.¹

    For clarity and economy in exposition, let us start by defining several terms:

    ALF demanders(orpotential recipients) of ALF are individuals or organizations that might be willing to pay money for litigation-related financing.² ALF demanders may or may not actually receive ALF—...

  11. SECTION 4 Different Meanings of Ethics and Implications for ALF Activity
    (pp. 17-20)

    The behavior of lawyers is regulated in various ways in various states, including common law, statutes, and rules of professional conduct. In this section, I discuss potential implications for ALF of laws and professional rules applicable to lawyers, as well as other perspectives on ethics. Some arguments that have been made against ALF or activities that might accompany or result from ALF boil down to “this is just plain wrong and, therefore, we should not allow ALF in the United States.” Such arguments are often couched in terms of ALF being “unethical.” But the termunethicalhas various meanings.

    The...

  12. SECTION 5 Microeconomic Perspectives on the Current and Near-Term Effects of ALF on Litigation
    (pp. 21-38)

    Much of the policy debate about ALF has focused on the effects of ALF on litigation and its outcomes. Many of the issues raised in this debate are, in principle, subject to empirical analysis. Empirical analysis, however, cannot get us very far at the present time because little or no systematic empirical information is available.

    The current paucity of empirical information useful for predicting the effects of ALF in the United States reflects several factors. First, ALF is fairly new in the United States, and it has not attracted the attention of empirically oriented researchers until quite recently. Second, much...

  13. SECTION 6 Policy Assessment and the Effects of ALF over Time
    (pp. 39-44)

    Despite some calls for major, immediate policy responses, it seems unwise currently to prohibit ALF or to implement regulations that fundamentally constrain the development of existing and potential future forms of ALF. First, there are major unknowns pertaining to the current effects of ALF in the three active segments, and we don’t know nearly enough to decide which segments and which activities within these segments have been socially advantageous and which have been socially disadvantageous. Second, the current and recent effects of ALF would provide unreliable bases for predicting the future effects of ALF because recent ALF activity is likely...

  14. SECTION 7 Concluding Comments
    (pp. 45-46)

    I have offered many somewhat detailed and specific ideas and suggestions. For current purposes of policymakers, however, details and specifics should not be important. This is because (1) almost all of the details and specifics offered here are preliminary and tentative, and many of them are likely to be useful only to policy researchers and analysts, and (2) even if all of the details and specifics are accurate, they would still not provide policymakers with enough information to design effective policies because, for example, ALF and ALF markets are in states of flux.

    In my view, the key lessons for...

  15. References
    (pp. 47-50)
  16. Back Matter
    (pp. 51-51)