Thursday, August 16 , 2018, 12:10 am | Fair 70º


Tom Donohue: Lawsuit Financing Isn’t Quite the Investment We Had in Mind

The practice of third-party investors is not about justice, and it hurts the economy

When every responsible party in America is focused on economic growth and job creation, some lawyers are looking for ways to line their own pockets — at the expense of jobs, the economy and even their own clients.

In their endless pursuit of new lawsuit opportunities, their latest tactic is to get financiers to back litigation. These so-called lawsuit investors put up the money for a lawsuit in exchange for a cut of the settlement.

Financing lawsuits is a total perversion of our legal system. It has absolutely nothing to do with justice. It encourages the filing of frivolous lawsuits. It invites testing questionable claims in court. It provides an incentive to prolong cases in hopes of getting a better return on investment.

It poses inherent conflicts of interest and raises serious ethical questions.

A number of these investment firms are actually owned or controlled by plaintiffs’ lawyers. Just whom is the attorney fighting for — the client or the lawsuit investors? What happens to attorney-client privilege? The practice also double-dips into clients’ settlements. It’s bad enough that attorneys claim 35 percent to 40 percent of their clients’ judgments. Now, victims will be third in line after the trial lawyers and the investors take their cuts.

The practice has gone global, with third-party financing gaining strength in European legal systems. The concept was initially pioneered in Australia, where lawsuits have risen 14 percent. And one of the largest Australian third-party litigation firms is opening a U.S. branch. We’re all for attracting business and investment into the United States, but this is not what we had in mind!

If you build a system conducive to lawsuits, they will come. The problem is that they will dramatically undermine our competitiveness.

Lawsuit abuse is already sucking the vitality out of some of our greatest companies. Lawsuits are sapping an already weak economy and inhibiting job creation. And they are contributing to the massive uncertainty that has paralyzed the business community and delayed recovery.

The U.S. Chamber of Commerce’s Institute for Legal Reform is working to root out this dubious practice. It is exposing the motivations behind third-party lawsuit financing and educating leaders about its harmful effects. It’s doing everything possible to ensure that the United States is not a magnet for lawsuits and that the U.S. legal system remains fair and just.

The bottom line is that third-party financing is another cynical ploy for a small number of lawyers to enrich themselves. The practice is not about justice; it’s about paydays. And it hurts our economy.

— Tom Donohue is president and CEO of the U.S. Chamber of Commerce.

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