Litigation Finance predators: champerty loves company

Litigation Finance involves loaning people money in return for the right to finance a lawsuit in their names. On its face, there's lots to love about this: it's a financial jiu-jitsu that turns every abusive act from a giant company into a target for an investor. The bigger the bully — the deeper its pockets — the more financiers there'll be waiting to sue it on your behalf when it screws you over.

This practice, called champterty, has a checkered legal reputation. I used it as a major plot element in my novel Makers, and I've proposed it as a serious strategy for slaying copyright and patent trolls.

Modern litigation financing is dominated by rapacious, hedge-fund-backed players who target really vulnerable people (a favorite: poor old women who live in agony thanks to a discredited surgery called "transvaginal mesh implantation"). These companies make deals with their surgeons to overcharge for the surgeries and then sue recalcitrant insurers for the inflated bill.

The article outlines the following scheme: financiers find women who need this surgery, based on a defective medical part, but don't have the money for it and whose insurance companies won't immediately cover it. They offer them the financing now in return for part of the eventual settlement with the company that was responsible for the faulty mesh. But then they make a deal with a surgeon to overcharge for the surgery, and they inflate the costs as well, and at the end of the whole thing they take a large part of the settlement which the woman was entitled to, and sometimes the woman even ends up owing them money.

It's horrible, but it's really just one example of a large industry of what is known as litigation finance, which just means the world where people with lots of money decide to bet on outcomes of court cases.

Mathbabe's scorching denunciation of the practice prompted a defense from the CEO of a lawsuit funding company who says that the industry may be dominated by bad actors, but that the good ones do something important and useful.

Funding does more than ensure fair and complete compensation for the injured—it ensures that our justice system is blind to an individual's economic standing.

Pre-settlement funding empowers small plaintiffs against big insurance companies. Just as attorneys litigate and treatment centers heal, the funder adds value to the case by granting the plaintiff financial stability. Solid financial footing helps them reject early lowball settlement offers from insurance companies, who always seek to take advantage of a person's vulnerable economic position.

No matter how obvious the negligence or big the damages, insurance companies always delay compensation. It's the oldest and most effective trick in the book: gain leverage by inducing desperation. The adjuster capitalizes on this desperation by offering the plaintiff a lowball offer in exchange for a quick and early payout. Funding the plaintiff takes the leverage away from the adjuster, which results in a big win for the small guy.

Litigation finance: a terrible idea
[Cathy O'Neil/Mathbabe]

(Image: 4 Easy Steps to prepare for a Vaginal Mesh Lawsuit Claim

(via Naked Capitalism)