Should You Be Allowed to Invest in a Lawsuit?

Champerty!<p>Champerty is the (largely defunct) rule against funding someone else&#x27;s lawsuit. I always thought that was a funny word. Champerty. But TIL that it comes from the fact that in &quot;England, litigants could hire ‘champions’ to represent them in ‘trial by battle.’ By the late 13th century, these strongmen were being compared to prostitutes, and their prevalence hastened the movement of dispute resolution to the courtroom. During the Middle Ages, this concept of ‘champerty’ — assisting another person’s lawsuit in exchange for a share of the proceeds — emerged as part of the larger ecclesiastical taboo against usury.&quot;

I think the concern with investing in lawsuits should be focused on secondary motives. Lawsuits with lots of investors will have attorneys with secondary motives, such as keeping the case active as long as possible to continue to attract more investors, rather than resolve it. Perpetual cases could bog down courts in never-ending lawsuits and countersuit challenges, a legal version of Mutually Assured Destruction.<p>Do lawsuit claimants have a right to consume unbounded judicial time and public money (to pay for judical staff, the courts)? Legal cases stuck in court for years consume time and energy that could be directed at resolving other legal challenges. Time spent in court is ultimately a tax on the public, regardless of the outcome.

Yes of course you should. This is no different than a lawyer taking a case on contingency. It provides people without the means to hire a legal team a way to take on more well-financed opponents.<p>While abuse of the legal system is certainly a problem, the way to solve it is not limit financing. That only increases economic inequality. It&#x27;s like saying we can solve the SF housing crisis by banning mortgages.

My gut tells me that this is bad. However, intellectually I know that our court system is heavily skewed towards people and organizations with lots of money. So if this is a tool to help level the playing field, I&#x27;m all for it. If this swamps the courts, all the better, because that will force legislators to act, which will then cause a debate, which will be useful to society.

Consider that many civil legal disagreements end in a settlement because one or both of the parties cannot afford the time and the stress of a legal battle. In that case a third party who pledges support to either of them might easily influence the settlement agreement.<p>Consider this very realistic scenario: Two parties jointly own a piece of real estate. One of the parties wants to sell the property but the other party does not, because the market is not prime for it. They also cannot afford to buy the others share themselves. So they have a legal disagreement. This will most likely end in settlement as none of them wants to actually go to court. Now a property developer comes in and pledges to fund the guy who wants to sell. That skews their settlement agreement in favour of him and the other guy is forced to sell (to the property developer obviously) at below market value.

While in theory, I agree that this could really give underdogs a way to crowd-fund against well funded adversaries, I think in practice, the added obstacle of needing to organize will always give singular entities that are already wealthy the upper hand to jump in with large sums of money and turn the tables. This is exactly what has happened with the Citizens United ruling. In theory, it gives everyone equal chance, but that&#x27;s assuming that wealth and prosperity and the ability or organize is equal amongst all interested parties. And that is turning out to be very far from the truth.

Interesting. A few years back I led a project at a Startup Weekend that was about crowd-sourced legal defense. (LVLR)<p><a href="http:&#x2F;&#x2F;sandiego.startupweekend.org&#x2F;2011&#x2F;03&#x2F;08&#x2F;9-new-startups-launch-at-sw-sd&#x2F;" rel="nofollow">http:&#x2F;&#x2F;sandiego.startupweekend.org&#x2F;2011&#x2F;03&#x2F;08&#x2F;9-new-startups...</a><p>Of course it wasn&#x27;t a product that was more than a prototype, but I am fully onboard with crowd funding playing a much larger role in the world than it currently does - whether it&#x27;s down to a) investing, b) getting some sort of other reward&#x2F;product or c) more directed alternative to typical charity.<p>What&#x27;s discussed in the article was one of the ideas my product guy and I bandied about, but it didn&#x27;t seem plausible at the time... although, when the JOBS act was passed I did feel that maybe it was possible if you could somehow incorporate your lawsuit?<p>Right now I&#x27;m the lead engineer for a crowd-funded charity site and sometime in the not-too-distant future I&#x27;d like to return to this.

A cause of action (a lawsuit) has always been like a property interest. As such, through an assignment, you can buy and sell it, mortgage it, put a lien on it, and do about everything else you could do with a property interest. I have never heard of anyone selling shares in a cause of action, though I don&#x27;t see why this would not conform to existing law, assuming you comply with SEC regulation on the sale of securities.<p>It&#x27;s an interesting idea. However, the financial crisis of &#x27;08 happened in part because wall street innovation allowed for the selling of shares of mortgage portfolios, so I would be cautious where this goes.<p>The arguments for and against it in the article seem to mirror the arguments regarding a lawyer&#x27;s contingent fee interest. Some would say contingency fees have done harm to the legal system. In fact, some states limit contingency fee awards in medical malpractice to limit those types of lawsuits. So, if your goal is to limit lawsuits, this kind of arrangement probably would be bad.

Good thing we also have the First Amendment.<p>Citizens United v. FEC -- majority opinion essentially said that money is free speech (&quot;Because spending money is essential to disseminating speech...&quot;). And spending that money to fund litigation seems like a very strong kind of speech, whether or not its motivated by greed (profit).

Purchasing lawsuits &#x2F; judgments is commonplace in bankruptcy. It is considered an asset for the estate. Here&#x27;s a list of past sales on our site, Inforuptcy.com:<p><a href="https:&#x2F;&#x2F;www.inforuptcy.com&#x2F;marketplace?f[0]=im_taxonomy_vid_16:6140&amp;f[1]=im_taxonomy_vid_16:6199&amp;f[2]=is_deal_expiry:[*+TO+1445659200]&amp;search_type=marketplace&amp;keys=claim" rel="nofollow">https:&#x2F;&#x2F;www.inforuptcy.com&#x2F;marketplace?f[0]=im_taxonomy_vid_...</a>

This seems like a broken patch to a broken system. To use the main example from the article, Cat would crush Miller if Miller didn&#x27;t have access to this method of financing their lawsuit, and Miller&#x27;s lawsuit looks at least plausible, so them being crushed out of hand is a bad outcome. So, it does somewhat fix the problem of smaller litigants being able to go up against larger defendants without just being automatically crushed out of hand.<p>However, it does seem that there are some obvious failure states for this new system. If venture litigation becomes the norm, then only litigants who are either extremely large themselves or can attract financing will even have a chance of victory. So, the financiers become the de facto arbiters of the judicial system.<p>To me, the real problem is that the civil justice system is so expensive as to be out of reach for many&#x2F;most people, or at least putting a limit on how big a size difference the two parties can have. All told, this isn&#x27;t that different than someone taking out a mortgage to fund a lawsuit, and that is fairly obviously allowed. The fact that someone might need to take a mortgage or seek outside funding in order to seek justice is the problem, not the mortgage or financing itself.

No. No. No. Not unless the court can level the playing field by ordering the recipient to disgorge invested funds if the opposing party can prove need. Otherwise well funded litigants will bury cash strapped kitigants in fees.

The arguments against litigation funding are not compelling. In particular, funded lawsuits tend to be much higher quality than contingency ones. Funders are investors. They do due diligence on the merits of the cases because they want to get their money back. And their cost structure doesn&#x27;t really support funding cases where the hoped-for resolution is a hundred grand in &quot;go away&quot; money. If someone is willing to sink a million dollars or more into a case, that&#x27;s an indication that it&#x27;s not frivolous.

Let&#x27;s call this &#x27;crowdsuiting&#x27;. Oh, wait: somebody has <a href="http:&#x2F;&#x2F;crowdsuit.com&#x2F;" rel="nofollow">http:&#x2F;&#x2F;crowdsuit.com&#x2F;</a>

I find it already unethical for lawyers to take a percentage of the awarded damages, a practice which is fortunately illegal in many European countries.

If the right framework can be agreed for keeping cases free of vested interest and bias, I see benefits in this mechanism.<p>One possible upside is that David-vs-Goliath cases as described here would be the ones most attractive to investors. The more obvious the injustice, the less risky the investment.

This will perpetuate a broken system and widen the economic gap as companies start profiting on the demise of the opposition.<p>It&#x27;s one thing when someone invests as a form of aid, however, I see this being gamed for profit.

The problem is a legal system where the side with money can bury the other. This stuff is just a symptom of that. Stopping one without fixing the other is just a free pass for the powerful.

Interestingly, it seems there is already a crowd funding website for litigation:<p><a href="https:&#x2F;&#x2F;www.invest4justice.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.invest4justice.com&#x2F;</a>

I think it&#x27;s perfectly fine to invest in civil lawsuits for a stake in the settlement&#x2F;awarded money (haven&#x27;t thought about criminal law but it&#x27;s probably fine as well). You can invest in insurances which isn&#x27;t much different from my POV.<p>For big collective bargaining trials you can already invest in the outcome without the money going towards moving towards the outcome (short&#x2F;long the company who is bieng sued)

Isn&#x27;t that what an insurance company is? Defendants pool their resources to fight off torts, share the judgements against them.

Should lawsuits be open to lobbying and allow corrupt judges to make a lot of money on certain cases?

Does anyone else think that this product could use a more professional video?<p><a href="https:&#x2F;&#x2F;youtu.be&#x2F;54_Tb-PiATY" rel="nofollow">https:&#x2F;&#x2F;youtu.be&#x2F;54_Tb-PiATY</a>

Wait for it.... he has an idea... and then we&#x27;ll package them into lawsuit-backed securities!

So, reality is about to catch up with Cory Doctorow (Makers) ?

VC-backed litigation crowd-funding platforms in 3.. 2.. 1..

If I remember correctly, Makers by Cory Doctorow had this as a big plot element

Is it an investment? Or more like a gamble, bet, or speculative movement?

Only if the funds are shared between the two people fighting the lawsuit... In the current market, the entity spending the most money generally wins. This needs to go away first and it can go away if both (or all) entities in a lawsuit have to pool and divide the resources. This should help equalize the ground a little bit.