While it’s not the first time a celebrity has sued the news for violation of privacy, this instance just happened to shed light on a growing trend within our legal system – litigation finance. You see, Hogan’s legal smack down was financed by a third party: billionaire Silicon Valley entrepreneur Peter Thiel.
Also known as “lawsuit lending,” third-party litigation funders are not uncommon. What is uncommon here is Thiel’s motivation, which is a deviation from the normal drive of litigation funders – he had a personal vendetta against Gawker. Most litigation funders are in it for another reason: a payout.
Profit is the goal for the funders and investment funds that – in exchange for a cut of the judgement or settlement – put their money behind lawsuits. Payouts can be 20 to 40 percent of the recovery or more, which leaves plaintiffs with chump change from settlements. While personal injury lawyers in every state have ceilings on the contingency fee that they can charge, which is usually more than 30 percent, there is no ceiling on what the litigation finance company can take.
According to market experts, these aren’t lone wolf lawyers who need help fighting against big-moneyed interests. These are big firms building massive portfolio of lawsuits – which requires major funding.
More and more, personal injury lawyers are buying lawsuits from other firms or are recruiting groups of plaintiffs through extensive advertising and other forms of solicitation. Lawsuit promotion advertising is especially pervasive and almost impossible to avoid. Last year, personal injury lawyers spent roughly $75 million per month and almost $900 million total on television advertising. Online, they spend $52.6 million per year on Google keyword advertising alone.
Plaintiffs’ lawyers and firms then trade claims with other firms – in exchange for a piece of the contingency fees – who then aggregate these claims and turn to the litigation finance companies for this funding. The more claims involved, the larger the payout. The larger the payout, the more litigation funders, firms, and personal injury lawyers make money. Our justice system is being exploited by multiple players who are only seeking to maximize the return on their investments.
As covered in a recent story by Reuters, “litigation funding is profoundly influencing big personal injury cases.” This funding leads to the mass aggregation of claims, which increasingly enables plaintiffs’ lawyers to include illegitimate claims. Because of the excessive amount of claims, it’s easy for these illegitimate claims to fly under the radar and never be identified as false.
This certainly does not sound like justice, does it? Even worse, it’s only a part of a lawsuit abuse machine that exists to make money off of plaintiffs, who are treated like any other commodity. This is not why our legal system exists.