10 ms·

Should You Be Allowed to Invest in a Lawsuit?

111 points by danmccorm 11y ago

mrleinad 11y ago
Is it an investment? Or more like a gamble, bet, or speculative movement?
- drdeca 11y ago
  It seems like many other types of things which are also termed "investments" involve a (significant) element of risk.
cornellwright 11y ago
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. 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's like saying we can solve the SF housing crisis by banning mortgages.
- tacotuesday 11y ago
  Didn't Microsoft do this with SCO vs Linux though? In that case, it was big incumbent interested in squashing a scrappy start-up disrupting the industry. In a case like that, it seems like a tool to perpetuate economic inequality.
  - cornellwright 11y ago
    Yes, but how do you stop that? Isn't any investment in a company involved in litigation implicitly an investment in the litigation? (Or at least a bet that the litigation isn't material to their business.) The whole SCO vs IBM case was pretty unscrupulous, sleazy, and opportunistic, I agree. I'm not arguing that I have the solution to stop abuses like this. I'm saying that limiting financing is not it.
    - JoshTriplett 11y ago
      > Yes, but how do you stop that? Not by limiting financing, but by recognizing and shutting down barratry and stunts.
  - magila 11y ago
    Microsoft only needed to go through SCO to hide their involvement in the case. If they hadn't cared about a possible DoJ investigation MS could have simply bought SCO and brought the suit themselves. Also, SCO's main lawsuit was against IBM, the complete opposite of a "scrappy start-up".
- 6stringmerc 11y ago
  I'm not entirely certain why, but the logic you employ here strikes me as very similar to the justifications used to support the Citizens United ruling. The abuse of the legal system is, from my perspective, extremely tied to the fiscal means of the involved parties. I say this having been called to potentially be on a jury involving a claim of breach of confidentiality over a Rothko painting, asking for more than $30 million (eventually the jury verdict was a pyrrhic victory of $500,000 - likely the cost of the suit in the first place). I guess what I'm saying is that for small-time folks, even judgments in small-claims court are tenuous in enforcement, because...well...there's not enough money involved for authorities and other entities to follow through. To me that's a distortion of the purpose of the legal system, and one where money certainly plays a role. Rather, economic inequality may result in justice inequality (a study of this would be very helpful).
  - hga 11y ago
    I'm not entirely certain why, but the logic you employ here strikes me as very similar to the justifications used to support the Citizens United ruling. I'm not certain why, either, seeing as how Citizens United was about core political speech, Federal government censorship of a video about a candidate for federal office, which if the First Amendment, specifically: Congress shall make no law ... abridging the freedom of speech, or of the press Means anything, it means such speech cannot be abridged.
    - 6stringmerc 11y ago
      I guess I mean in practical outcomes - that money equates to speech, therefore freedom of money in politics has done the exact opposite of campaign finance reform.
    - Frondo 11y ago
      No freedom is or has ever been absolute, certainly not 1st amendment freedoms (e.g. fraud).
      - hga 11y ago
paij 11y ago
Does anyone else think that this product could use a more professional video? https://youtu.be/54_Tb-PiATY https://youtu.be/54_Tb-PiATY
aorloff 11y ago
Good thing we also have the First Amendment. Citizens United v. FEC -- majority opinion essentially said that money is free speech ("Because spending money is essential to disseminating speech..."). And spending that money to fund litigation seems like a very strong kind of speech, whether or not its motivated by greed (profit).
- Animats 11y ago
  Now that's an interesting argument. The US allows champerty and maintenance already, so it's not an issue in the US.
- hga 11y ago
  And spending that money to fund litigation seems like a very strong kind of speech Not to me. Compare to Citizens United, which was about government censorship of core political speech, a video pertaining to a current candidate for office (or even a book, per the government's arguments). It's well established that "commercial speech", e.g. advertisements for products, can be subject to severe regulation (e.g. tobacco and alcohol) that's anathema to political speech. And this sure sounds more like commercial than political speech; heck, think of all the laws, rules and regulations that pertain to what you can "say" in a lawsuit, in your written pleadings, oral arguments, etc. Even talking to the public about it can be constrained.
  - teacup50 11y ago
    What does it mean in a one-vote/voice-per-citizen democracy when a small number of people with money can buy more "free speech", allowing them to dominate the political dialog and crowd out dissenting voices who have less money? To me, that seems to create a political field where citizens of great wealth are "more equal" than citizens with less.
    - hga 11y ago
      My preferred general approach is that the answer to speech you don't like is more speech. Very specifically, large numbers of people can in turn collectively buy their own "free speech" through various forms of non-profits. Right now, compare the 5 million members of the NRA vs. Michael Bloomberg, who is the only person currently putting serious money into gun control. In a way, that supports your case, in the Colorado, Washington and Oregon wins he's achieved (through non-profits fronts he's established, after Mayors Against Illegal Guns became so notorious for the number of criminal mayors in it). But not generally, nationally the needle hasn't moved aside from Obama and Hillary! publicly calling for the confiscation of the nation's handguns and semi-auto long guns (!). But our response is not to try to muzzle him, let alone support a law like McCain-Feingold which muzzled the NRA and therefore its 5 million members working in collective action prior to it being spiked by Citizens United. I'll also note that money only gets you a hearing, I simply don't believe that big money can "dominate the political dialog and crowd out dissenting voices who have less money" without concurrent capture of gatekeepers (like the Federal government in the case of McCain-Feingold...). The examples are legion, the latest being ¡Jeb! Bush's total failure to gain any traction outside of big money sources. (I recently came across an analysis that to win the Presidency, you've got to do well at both getting "big" and "small" money. Hmmm, like Obama did. By that metric, watch Cruz, and of course Trump is a wildcard, not needing either and currently not playing that game at all.)
rrggrr 11y ago
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.
- fiatmoney 11y ago
  This already happens, routinely. Some libertarians play up the advantages of a "loser pays" system in ameliorating that problem, but AFAICT it just raises the stakes, again to the detriment of the party with less tolerance for losses.
  - hguant 11y ago
    Well, yes and no. It makes it less onerous to defend against certain types of lawsuits (patent trolls come to mind). How many times do we hear stories of some "little guy" who is in the right who gets screwed over because s/he was facing years of litigation that would have bankrupted them even if they won the case? The other major benefit to a loser pays system is that it does raise the stakes - for frivolous lawsuits. Legal action is, in some ways, very cheap in the United States. Making the loser foot the bill is a good way to make corporations and their ilk take a second glance litigation as a tool.
seibelj 11y ago
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'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.
- Gustomaximus 11y ago
  Absolutely this would increase frivolous but likely successful lawsuits. Much like patent law today. Justice IMO should not be tied to financial gain as much as is realistic.This is why I much prefer systems were personal trauma/compensation settlements are not near the levels you read about in some US cases, more about covering direct costs. That said if they did do something like this I suspect the most reasonable way would be to treat it like political donations, similar to some countries where only citizens can donate, donations are transparent and capped as lower levels.
- marklgr 11y ago
  "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." Considering the amount of problems that currently exist and that forced nobody to do much, I don't think the "if <bad thing>, then <debate> and <better society>" idea is a particularly good bet.
  - schoen 11y ago
    It's akin to the originally Marxist notion of "heightening the contradictions". http://acceleratethecontradictions.blogspot.com/2010/04/accelerate-contradictions-notes-towards.html http://acceleratethecontradictions.blogspot.com/2010/04/acce... The theory is that some system is inherently bad or broken but people in general don't quite realize it, so if it gets worse it will be more obviously bad and then they'll then actually deal with it. Although sometimes this kind of behavior does happen (for example, someone choosing to go to a doctor only after an illness takes a serious turn for the worse), it seems like a risky theory of social change. Maybe the powers or institutions you oppose are more entrenched or more adaptable than you expect, or maybe the public is less sympathetic to your analysis of the situation than you expect, or less motivated or more defeatist.
Afforess 11y ago
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. 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.
- x5n1 11y ago
  Not only that, consider all the other parties that wish to do you or your company harm could invest in lawsuits against you brought by parties that have nothing to do with them.
  - deleted 11y ago
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- eridius 11y ago
  Wouldn't such behavior be considered unethical and possibly grounds for disbarment? After all, that's definitely not in the interests of the client.
  - Gustomaximus 11y ago
    Delaying vs being thorough would be incredibly tough to prove. To a degree this happens already with large vs small company law suits, where the larger company maintains proceeding in some form til the other small business runs out of cash or gives up.
  - BinaryIdiot 11y ago
    You'd think but there are issues like this today and it's difficult to prove depending on the circumstances (at least prove to the point where they can get in trouble with the bar). Anecdotally when my father was going through his divorce his lawyer told him not to take the settlement with his now ex-wife and his lawyer promised she could get him better terms and an expedited divorce and would only need to go to one court appearance. Two additional retainers later and she told my father he had to settle for what was offered at the court house which was a worse settlement and that she event told him she didn't feel comfortable negotiating beyond what was offered because it was "a great deal". I have a hard time believing she had my father's best interests in mind and just kept the case going for a bit longer. I would expect a system like this would exacerbate this type of behavior.
suneilp 11y ago
This will perpetuate a broken system and widen the economic gap as companies start profiting on the demise of the opposition. It's one thing when someone invests as a form of aid, however, I see this being gamed for profit.
brandall10 11y ago
Interesting. A few years back I led a project at a Startup Weekend that was about crowd-sourced legal defense. (LVLR) http://sandiego.startupweekend.org/2011/03/08/9-new-startups-launch-at-sw-sd/ http://sandiego.startupweekend.org/2011/03/08/9-new-startups... Of course it wasn'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's down to a) investing, b) getting some sort of other reward/product or c) more directed alternative to typical charity. What's discussed in the article was one of the ideas my product guy and I bandied about, but it didn'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? Right now I'm the lead engineer for a crowd-funded charity site and sometime in the not-too-distant future I'd like to return to this.
Hermel 11y ago
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.
- littletimmy 11y ago
  Why do you think that's unethical? Doesn't it give lawyers the incentive to fight for their clients? What if a poor client cannot pay upfront and percentage of winnings is what convinces a lawyer to fight in the first place?
  - Hermel 11y ago
    Because it gives lawyers a stronger incentive to escalate conflicts, instead of deescalating them, which is not in the interest of society. Lawyering up is a zero-sum game, so the economy is better off if the money in question stays in a productive sector. Take a divorce, for example. Do you prefer lawyers to have an incentive to say "calm down, I'll talk to the other lawyer, and we will find a fair deal" or "give me 20% and I'll make that bitch suffer"? Note that a poor client who cannot pay upfront can still agree to pay after they win, just not a percentage of the awarded sum.
    - littletimmy 11y ago
      That makes sense.
    - petegrif 11y ago
      That does not make sense. Lawyers who are taking contingency cases have no incentive to 'escalate conflicts.' Their only interest is to make their case and reach a settlement. Ironically, it is in cases where lawyers are paid hourly that they have an interest to 'escalate conflicts' to draw cases out and keep drawing fees.
      - dragonwriter 11y ago
        Escalating conflict may be a way of increasing the perceived uncertainty, cost, and risk to the other party, and thus increasing the likelihood and size of a settlement to make the case go away, so there may be an incentive to escalate conflict with contingency. Its probably less than with hourly fees, and more than with flat-rate fees (which ISTR are occasionally offered by some for some things like simple divorces.)
teekert 11y ago
Should lawsuits be open to lobbying and allow corrupt judges to make a lot of money on certain cases?
joshuaheard 11y ago
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't see why this would not conform to existing law, assuming you comply with SEC regulation on the sale of securities. It's an interesting idea. However, the financial crisis of '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. The arguments for and against it in the article seem to mirror the arguments regarding a lawyer'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.
- vessenes 11y ago
  It might be spectacularly bad judgment, but I really like the idea of creating derivatives based on slicing up tranches of lawsuit results. Okay, that's almost certainly a bad idea. Even if you could model the payouts in Haskell, as we learned earlier today.
brianclements 11y ago
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'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.
goodmachine 11y ago
Let's call this 'crowdsuiting'. Oh, wait: somebody has http://crowdsuit.com/ http://crowdsuit.com/
teachingaway 11y ago
Champerty! Champerty is the (largely defunct) rule against funding someone else's lawsuit. I always thought that was a funny word. Champerty. But TIL that it comes from the fact that in "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."
- occsceo 11y ago
  huh, TIL.
  - deleted 11y ago
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- branchless 11y ago
  a taboo against usury - pity it didn't last...
  - deleted 11y ago
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  - jaredhansen 11y ago
    What? Most states have usury laws right now [1], as do plenty of places outside the US. [1] http://www.alqlist.com/interestratesummary.html http://www.alqlist.com/interestratesummary.html
    - domdip 11y ago
      And most of them have loopholes big enough to drive a truck through. (See payday loans, title loans, hard money loans, merchant cash advance, etc., etc.)
- 11y ago
nikanj 11y ago
If I remember correctly, Makers by Cory Doctorow had this as a big plot element
kriro 11y ago
I think it's perfectly fine to invest in civil lawsuits for a stake in the settlement/awarded money (haven't thought about criminal law but it's probably fine as well). You can invest in insurances which isn't much different from my POV. For big collective bargaining trials you can already invest in the outcome without the money going towards moving towards the outcome (short/long the company who is bieng sued)
lumberjack 11y ago
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. 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.
- Pyxl101 11y ago
  > the other guy is forced to sell (to the property developer obviously) at below market value. Why is he forced to sell at below market value? I'm not experienced at joint ownership of real estate, but I would assume that if you own real estate jointly with other partners, and the result of the lawsuit is that you're required to sell, then you can put the property on the market and fetch the current market price from the best available offer.
  - orf 11y ago
    Because the property developer funded the guy who wants to sell, meaning the other party has to fund a legal battle themselves or sell.
    - Pyxl101 11y ago
      It sounds like you're saying that the party might owe legal expenses. That's a different issue than the market value of the property. Edit: I agree it's somewhat ethically murky if the real estate developer, who also wants to buy the property, is funding the partner-who-wants-to-sell's lawsuit. However, I would expect that if that lawsuit is successful, the parties would be required to sell the property, but not necessarily to the real estate developer - rather, they would be required to put it on the market and fetch a fair market price like a normal real estate sale. I don't see why the other partner would be forced to accept less than the highest offer on the property, which might or might not be the developer.
dragonbonheur 11y ago
So, reality is about to catch up with Cory Doctorow (Makers) ?
bitdivision 11y ago
Interestingly, it seems there is already a crowd funding website for litigation: https://www.invest4justice.com/ https://www.invest4justice.com/
moomin 11y ago
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.
kitd 11y ago
If the right framework can be agreed for keeping cases free of vested interest and bias, I see benefits in this mechanism. 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.
rayiner 11y ago
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't really support funding cases where the hoped-for resolution is a hundred grand in "go away" money. If someone is willing to sink a million dollars or more into a case, that's an indication that it's not frivolous.
- petegrif 11y ago
  I think it is extremely unlikely that 'funded lawsuits tend to be much higher quality than contingency ones.' I can imagine them being of slightly higher quality but not much for the simple reason that contingency cases involve attorney's making an investment decision and those attorneys frequently sink millions of dollars into cases and 'want to get their money back.' The only reason one could argue that funded cases may even be of slightly higher quality is that it is harder for the investor to assess the merits of the case than for the lawyers bringing the suit. But even this argument is pretty weak because any such potential investors can hire experts to assess the case.
  - rayiner 11y ago
    Are you disagreeing with me or agreeing with me? Lawsuits financed by litigation funders are much higher quality than ones where attorneys are working on contingency. Attorneys working contingency have committed time, the opportunity cost of which may or may not be that high. If they can get away with not investing much time, they might be happy with a small nuisance settlement. A litigation funder, on the other hand, will commit hundreds of thousands or millions of dollars up front. They can hire experts to assess each case, and won't finance a case if they don't think they have a high probability of a significant recovery. And their cost model is such that it makes no sense for them to finance a case hoping for a nuisance settlement.
pratyushag 11y ago
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.
crb002 11y ago
Isn't that what an insurance company is? Defendants pool their resources to fight off torts, share the judgements against them.
mikikian 11y ago
Purchasing lawsuits / judgments is commonplace in bankruptcy. It is considered an asset for the estate. Here's a list of past sales on our site, Inforuptcy.com: https://www.inforuptcy.com/marketplace?f[0]=im_taxonomy_vid_16:6140&f[1]=im_taxonomy_vid_16:6199&f[2]=is_deal_expiry:[*+TO+1445659200]&search_type=marketplace&keys=claim https://www.inforuptcy.com/marketplace?f[0]=im_taxonomy_vid_...
meatysnapper 11y ago
Wait for it.... he has an idea... and then we'll package them into lawsuit-backed securities!
ryanmarsh 11y ago
VC-backed litigation crowd-funding platforms in 3.. 2.. 1..
Mickydtron 11y ago
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't have access to this method of financing their lawsuit, and Miller'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. 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. To me, the real problem is that the civil justice system is so expensive as to be out of reach for many/most people, or at least putting a limit on how big a size difference the two parties can have. All told, this isn'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.

111 points by danmccorm 11y ago

mrleinad 11y ago

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

drdeca 11y ago
It seems like many other types of things which are also termed "investments" involve a (significant) element of risk.

cornellwright 11y ago

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. 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's like saying we can solve the SF housing crisis by banning mortgages.

tacotuesday 11y ago
Didn't Microsoft do this with SCO vs Linux though? In that case, it was big incumbent interested in squashing a scrappy start-up disrupting the industry. In a case like that, it seems like a tool to perpetuate economic inequality.
- cornellwright 11y ago
  Yes, but how do you stop that? Isn't any investment in a company involved in litigation implicitly an investment in the litigation? (Or at least a bet that the litigation isn't material to their business.) The whole SCO vs IBM case was pretty unscrupulous, sleazy, and opportunistic, I agree. I'm not arguing that I have the solution to stop abuses like this. I'm saying that limiting financing is not it.
  - JoshTriplett 11y ago
    > Yes, but how do you stop that? Not by limiting financing, but by recognizing and shutting down barratry and stunts.
- magila 11y ago
  Microsoft only needed to go through SCO to hide their involvement in the case. If they hadn't cared about a possible DoJ investigation MS could have simply bought SCO and brought the suit themselves. Also, SCO's main lawsuit was against IBM, the complete opposite of a "scrappy start-up".
6stringmerc 11y ago
I'm not entirely certain why, but the logic you employ here strikes me as very similar to the justifications used to support the Citizens United ruling. The abuse of the legal system is, from my perspective, extremely tied to the fiscal means of the involved parties. I say this having been called to potentially be on a jury involving a claim of breach of confidentiality over a Rothko painting, asking for more than $30 million (eventually the jury verdict was a pyrrhic victory of $500,000 - likely the cost of the suit in the first place). I guess what I'm saying is that for small-time folks, even judgments in small-claims court are tenuous in enforcement, because...well...there's not enough money involved for authorities and other entities to follow through. To me that's a distortion of the purpose of the legal system, and one where money certainly plays a role. Rather, economic inequality may result in justice inequality (a study of this would be very helpful).
- hga 11y ago
  I'm not entirely certain why, but the logic you employ here strikes me as very similar to the justifications used to support the Citizens United ruling. I'm not certain why, either, seeing as how Citizens United was about core political speech, Federal government censorship of a video about a candidate for federal office, which if the First Amendment, specifically: Congress shall make no law ... abridging the freedom of speech, or of the press Means anything, it means such speech cannot be abridged.
  - 6stringmerc 11y ago
    I guess I mean in practical outcomes - that money equates to speech, therefore freedom of money in politics has done the exact opposite of campaign finance reform.
  - Frondo 11y ago
    No freedom is or has ever been absolute, certainly not 1st amendment freedoms (e.g. fraud).
    - hga 11y ago

paij 11y ago

Does anyone else think that this product could use a more professional video? https://youtu.be/54_Tb-PiATY https://youtu.be/54_Tb-PiATY

aorloff 11y ago

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

Animats 11y ago
Now that's an interesting argument. The US allows champerty and maintenance already, so it's not an issue in the US.
hga 11y ago
And spending that money to fund litigation seems like a very strong kind of speech Not to me. Compare to Citizens United, which was about government censorship of core political speech, a video pertaining to a current candidate for office (or even a book, per the government's arguments). It's well established that "commercial speech", e.g. advertisements for products, can be subject to severe regulation (e.g. tobacco and alcohol) that's anathema to political speech. And this sure sounds more like commercial than political speech; heck, think of all the laws, rules and regulations that pertain to what you can "say" in a lawsuit, in your written pleadings, oral arguments, etc. Even talking to the public about it can be constrained.
- teacup50 11y ago
  What does it mean in a one-vote/voice-per-citizen democracy when a small number of people with money can buy more "free speech", allowing them to dominate the political dialog and crowd out dissenting voices who have less money? To me, that seems to create a political field where citizens of great wealth are "more equal" than citizens with less.
  - hga 11y ago
    My preferred general approach is that the answer to speech you don't like is more speech. Very specifically, large numbers of people can in turn collectively buy their own "free speech" through various forms of non-profits. Right now, compare the 5 million members of the NRA vs. Michael Bloomberg, who is the only person currently putting serious money into gun control. In a way, that supports your case, in the Colorado, Washington and Oregon wins he's achieved (through non-profits fronts he's established, after Mayors Against Illegal Guns became so notorious for the number of criminal mayors in it). But not generally, nationally the needle hasn't moved aside from Obama and Hillary! publicly calling for the confiscation of the nation's handguns and semi-auto long guns (!). But our response is not to try to muzzle him, let alone support a law like McCain-Feingold which muzzled the NRA and therefore its 5 million members working in collective action prior to it being spiked by Citizens United. I'll also note that money only gets you a hearing, I simply don't believe that big money can "dominate the political dialog and crowd out dissenting voices who have less money" without concurrent capture of gatekeepers (like the Federal government in the case of McCain-Feingold...). The examples are legion, the latest being ¡Jeb! Bush's total failure to gain any traction outside of big money sources. (I recently came across an analysis that to win the Presidency, you've got to do well at both getting "big" and "small" money. Hmmm, like Obama did. By that metric, watch Cruz, and of course Trump is a wildcard, not needing either and currently not playing that game at all.)

rrggrr 11y ago

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.

fiatmoney 11y ago
This already happens, routinely. Some libertarians play up the advantages of a "loser pays" system in ameliorating that problem, but AFAICT it just raises the stakes, again to the detriment of the party with less tolerance for losses.
- hguant 11y ago
  Well, yes and no. It makes it less onerous to defend against certain types of lawsuits (patent trolls come to mind). How many times do we hear stories of some "little guy" who is in the right who gets screwed over because s/he was facing years of litigation that would have bankrupted them even if they won the case? The other major benefit to a loser pays system is that it does raise the stakes - for frivolous lawsuits. Legal action is, in some ways, very cheap in the United States. Making the loser foot the bill is a good way to make corporations and their ilk take a second glance litigation as a tool.

seibelj 11y ago

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'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.

Gustomaximus 11y ago
Absolutely this would increase frivolous but likely successful lawsuits. Much like patent law today. Justice IMO should not be tied to financial gain as much as is realistic.This is why I much prefer systems were personal trauma/compensation settlements are not near the levels you read about in some US cases, more about covering direct costs. That said if they did do something like this I suspect the most reasonable way would be to treat it like political donations, similar to some countries where only citizens can donate, donations are transparent and capped as lower levels.
marklgr 11y ago
"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." Considering the amount of problems that currently exist and that forced nobody to do much, I don't think the "if <bad thing>, then <debate> and <better society>" idea is a particularly good bet.
- schoen 11y ago
  It's akin to the originally Marxist notion of "heightening the contradictions". http://acceleratethecontradictions.blogspot.com/2010/04/accelerate-contradictions-notes-towards.html http://acceleratethecontradictions.blogspot.com/2010/04/acce... The theory is that some system is inherently bad or broken but people in general don't quite realize it, so if it gets worse it will be more obviously bad and then they'll then actually deal with it. Although sometimes this kind of behavior does happen (for example, someone choosing to go to a doctor only after an illness takes a serious turn for the worse), it seems like a risky theory of social change. Maybe the powers or institutions you oppose are more entrenched or more adaptable than you expect, or maybe the public is less sympathetic to your analysis of the situation than you expect, or less motivated or more defeatist.

Afforess 11y ago

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. 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.

x5n1 11y ago
Not only that, consider all the other parties that wish to do you or your company harm could invest in lawsuits against you brought by parties that have nothing to do with them.
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eridius 11y ago
Wouldn't such behavior be considered unethical and possibly grounds for disbarment? After all, that's definitely not in the interests of the client.
- Gustomaximus 11y ago
  Delaying vs being thorough would be incredibly tough to prove. To a degree this happens already with large vs small company law suits, where the larger company maintains proceeding in some form til the other small business runs out of cash or gives up.
- BinaryIdiot 11y ago
  You'd think but there are issues like this today and it's difficult to prove depending on the circumstances (at least prove to the point where they can get in trouble with the bar). Anecdotally when my father was going through his divorce his lawyer told him not to take the settlement with his now ex-wife and his lawyer promised she could get him better terms and an expedited divorce and would only need to go to one court appearance. Two additional retainers later and she told my father he had to settle for what was offered at the court house which was a worse settlement and that she event told him she didn't feel comfortable negotiating beyond what was offered because it was "a great deal". I have a hard time believing she had my father's best interests in mind and just kept the case going for a bit longer. I would expect a system like this would exacerbate this type of behavior.

suneilp 11y ago

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

brandall10 11y ago

Interesting. A few years back I led a project at a Startup Weekend that was about crowd-sourced legal defense. (LVLR) http://sandiego.startupweekend.org/2011/03/08/9-new-startups-launch-at-sw-sd/ http://sandiego.startupweekend.org/2011/03/08/9-new-startups... Of course it wasn'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's down to a) investing, b) getting some sort of other reward/product or c) more directed alternative to typical charity. What's discussed in the article was one of the ideas my product guy and I bandied about, but it didn'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? Right now I'm the lead engineer for a crowd-funded charity site and sometime in the not-too-distant future I'd like to return to this.

Hermel 11y ago

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.

littletimmy 11y ago
Why do you think that's unethical? Doesn't it give lawyers the incentive to fight for their clients? What if a poor client cannot pay upfront and percentage of winnings is what convinces a lawyer to fight in the first place?
- Hermel 11y ago
  Because it gives lawyers a stronger incentive to escalate conflicts, instead of deescalating them, which is not in the interest of society. Lawyering up is a zero-sum game, so the economy is better off if the money in question stays in a productive sector. Take a divorce, for example. Do you prefer lawyers to have an incentive to say "calm down, I'll talk to the other lawyer, and we will find a fair deal" or "give me 20% and I'll make that bitch suffer"? Note that a poor client who cannot pay upfront can still agree to pay after they win, just not a percentage of the awarded sum.
  - littletimmy 11y ago
    That makes sense.
  - petegrif 11y ago
    That does not make sense. Lawyers who are taking contingency cases have no incentive to 'escalate conflicts.' Their only interest is to make their case and reach a settlement. Ironically, it is in cases where lawyers are paid hourly that they have an interest to 'escalate conflicts' to draw cases out and keep drawing fees.
    - dragonwriter 11y ago
      Escalating conflict may be a way of increasing the perceived uncertainty, cost, and risk to the other party, and thus increasing the likelihood and size of a settlement to make the case go away, so there may be an incentive to escalate conflict with contingency. Its probably less than with hourly fees, and more than with flat-rate fees (which ISTR are occasionally offered by some for some things like simple divorces.)

teekert 11y ago

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

joshuaheard 11y ago

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't see why this would not conform to existing law, assuming you comply with SEC regulation on the sale of securities. It's an interesting idea. However, the financial crisis of '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. The arguments for and against it in the article seem to mirror the arguments regarding a lawyer'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.

vessenes 11y ago
It might be spectacularly bad judgment, but I really like the idea of creating derivatives based on slicing up tranches of lawsuit results. Okay, that's almost certainly a bad idea. Even if you could model the payouts in Haskell, as we learned earlier today.

brianclements 11y ago

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'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.

goodmachine 11y ago

Let's call this 'crowdsuiting'. Oh, wait: somebody has http://crowdsuit.com/ http://crowdsuit.com/

teachingaway 11y ago

Champerty! Champerty is the (largely defunct) rule against funding someone else's lawsuit. I always thought that was a funny word. Champerty. But TIL that it comes from the fact that in "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."

occsceo 11y ago
huh, TIL.
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branchless 11y ago
a taboo against usury - pity it didn't last...
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- jaredhansen 11y ago
  What? Most states have usury laws right now [1], as do plenty of places outside the US. [1] http://www.alqlist.com/interestratesummary.html http://www.alqlist.com/interestratesummary.html
  - domdip 11y ago
    And most of them have loopholes big enough to drive a truck through. (See payday loans, title loans, hard money loans, merchant cash advance, etc., etc.)
11y ago

nikanj 11y ago

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

kriro 11y ago

I think it's perfectly fine to invest in civil lawsuits for a stake in the settlement/awarded money (haven't thought about criminal law but it's probably fine as well). You can invest in insurances which isn't much different from my POV. For big collective bargaining trials you can already invest in the outcome without the money going towards moving towards the outcome (short/long the company who is bieng sued)

lumberjack 11y ago

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. 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.

Pyxl101 11y ago
> the other guy is forced to sell (to the property developer obviously) at below market value. Why is he forced to sell at below market value? I'm not experienced at joint ownership of real estate, but I would assume that if you own real estate jointly with other partners, and the result of the lawsuit is that you're required to sell, then you can put the property on the market and fetch the current market price from the best available offer.
- orf 11y ago
  Because the property developer funded the guy who wants to sell, meaning the other party has to fund a legal battle themselves or sell.
  - Pyxl101 11y ago
    It sounds like you're saying that the party might owe legal expenses. That's a different issue than the market value of the property. Edit: I agree it's somewhat ethically murky if the real estate developer, who also wants to buy the property, is funding the partner-who-wants-to-sell's lawsuit. However, I would expect that if that lawsuit is successful, the parties would be required to sell the property, but not necessarily to the real estate developer - rather, they would be required to put it on the market and fetch a fair market price like a normal real estate sale. I don't see why the other partner would be forced to accept less than the highest offer on the property, which might or might not be the developer.

dragonbonheur 11y ago

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

bitdivision 11y ago

Interestingly, it seems there is already a crowd funding website for litigation: https://www.invest4justice.com/ https://www.invest4justice.com/

moomin 11y ago

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.

kitd 11y ago

If the right framework can be agreed for keeping cases free of vested interest and bias, I see benefits in this mechanism. 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.

rayiner 11y ago

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't really support funding cases where the hoped-for resolution is a hundred grand in "go away" money. If someone is willing to sink a million dollars or more into a case, that's an indication that it's not frivolous.

petegrif 11y ago
I think it is extremely unlikely that 'funded lawsuits tend to be much higher quality than contingency ones.' I can imagine them being of slightly higher quality but not much for the simple reason that contingency cases involve attorney's making an investment decision and those attorneys frequently sink millions of dollars into cases and 'want to get their money back.' The only reason one could argue that funded cases may even be of slightly higher quality is that it is harder for the investor to assess the merits of the case than for the lawyers bringing the suit. But even this argument is pretty weak because any such potential investors can hire experts to assess the case.
- rayiner 11y ago
  Are you disagreeing with me or agreeing with me? Lawsuits financed by litigation funders are much higher quality than ones where attorneys are working on contingency. Attorneys working contingency have committed time, the opportunity cost of which may or may not be that high. If they can get away with not investing much time, they might be happy with a small nuisance settlement. A litigation funder, on the other hand, will commit hundreds of thousands or millions of dollars up front. They can hire experts to assess each case, and won't finance a case if they don't think they have a high probability of a significant recovery. And their cost model is such that it makes no sense for them to finance a case hoping for a nuisance settlement.

pratyushag 11y ago

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.

crb002 11y ago

Isn't that what an insurance company is? Defendants pool their resources to fight off torts, share the judgements against them.

mikikian 11y ago

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

meatysnapper 11y ago

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

ryanmarsh 11y ago

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

Mickydtron 11y ago

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't have access to this method of financing their lawsuit, and Miller'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. 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. To me, the real problem is that the civil justice system is so expensive as to be out of reach for many/most people, or at least putting a limit on how big a size difference the two parties can have. All told, this isn'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.