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Monday, January 08, 2018

Litigation Finance, Technology, and Access to Justice

Thanks to Howard and the Prawfs community for having me back as a guest this month.  Like many readers, I just returned from the AALS annual meeting where I spoke on a panel titled Procedure as Technology/Technology as Procedure.  Panelists--Frank Pasquale (Maryland), Thomas Main (UNLV), Simona Grossi & Aaron Ghirardelli (Loyola--LA), Alan Trammell (Arkansas), and Ira Nathenson (St. Thomas-FL)--discussed some really interesting topics, and I encourage readers to listen to the podcast that AALS will make available soon here.  My talk addressed the topic of litigation financing--specifically, how some firms are using algorithms to decide whether to fund lawsuits and the impact that might have on access to justice, which was the theme of this year's meeting.

Litigation finance, as I'm sure most readers are aware, is the practice whereby third parties who have no involvement in a lawsuit provide capital to one of the parties (usually plaintiff) in exchange for a portion of any settlement or damages.  Though litigation finance is not new, it has expanded significantly in recent years.  Advocates of the practice argue that it levels the playing field for plaintiffs litigating against deep-pocketed defendants, while critics like the Chamber of Commerce claim it encourages spurious lawsuits and potentially creates ethical problems.  Indeed, the Chamber and others have called for an amendment to Federal Rule of Civil Procedure 26 that would require the disclosure of such litigation financing arrangements. 

Until recently, litigation finance firms have relied primarily on lawyers and other experts (e.g., by having them review documents, interview plaintiffs/witnesses, etc.) to decide whether to invest in a case.  That is beginning to change, however, at least for start-up Legalist.  According to its website, Legalist uses "cutting-edge technology, data science, and court records to help plaintiffs get funded faster."  Specifically, based on data that it culled from 15 million state and federal cases, Legalist has developed a 58-variable algorithm that it uses to predict the outcome of litigation so it can decide relatively quickly and easily whether or not to fund a particular case.  According to co-founder Eva Shang, this technology allows Legalist to keep costs down so it can fund smaller cases than more traditional financing firms.  In short, Shang explains, Legalist provides access to justice much like contingency fee lawyers "but for commercial cases, where contingency fees aren't usually an option."   


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Posted by: Willian Sayward | Jun 7, 2018 7:49:11 AM

What is the problem with this? Couldn't a plaintiff assign its claims to someone else? How is it worse if the assignee is using methods to more accurately predict the outcome?
I understood that the problem with a lawyer taking a financial interest in the outcome is that that blurs his role as advisor to the plaintiff with the lawyer's own financial interests (akin to an agent self-dealing). If the investor is not the attorney, what potential conflict of interest is there?

Posted by: biff | Jan 9, 2018 9:32:55 AM

Very interesting post indeed , such practice of " litigation finance " using logarithm can have indeed certain efficiency , but not beyond it . It can reduce burden ( workload or costs ) on law firms , litigants , and courts . Yet , one should not forget :

It does predict typically from early momentum , but , later , there may come , very critical developments in litigation , not always predictable ( like revelation of new documents , held by the opponent , and then , there will be radical change in legal fronts ) .

However , if such logarithm , can also , suggest or give reasons for such or such chances rendering its consideration and calculation transparent , then , it is useful indeed ( to some extent only ) . But , if the outcome is only :Zero / one , then , it is too abstract or simplified for prediction indeed .


Posted by: El roam | Jan 9, 2018 7:12:50 AM

I don't understand how this is ethical. Contingency fees were close enough to barratry, but at least the lawyers involved are theoretically under the discipline of a professional code of conduct. Which regulatory body makes sure that Legalist doesn't cross any ethical lines?

Posted by: brad | Jan 8, 2018 7:35:54 PM

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