For decades the ability to invest in litigation was taboo in the United States, with laws and rules in place to discourage outside parties from backing parties in legal contention. But those rules are starting to thaw, and in multiple states the ability for a private company to offer money in return for a cut of courtrooms earnings is alive and well.
On Jan. 10, Illinois joined Texas, South Carolina, Massachusetts and Florida in a growing group of states that allow plaintiffs and defendants to accept outside money for legal activity.
The ruling to allow this activity was the result of a pretrial discovery dispute in which a federal magistrate judge in Illinois ruled that Miller U.K. Ltd had the right to accept money from other sources in its lawsuit against Caterpillar Inc. Despite Caterpillars attempts to obtain details about the arrangement, the judge has rejected that they should be made available.
Caterpillar claimed during pre-trial that the use of outside money violated Illinois statues that protect against “officious intermeddling,” the Wall Street Journal reports. It also asserted that the documented details of the funding should be made available because they would not be protected under standard attorney-client privilege.
"Caterpillar tried to use the fact that there was litigation investment as an attack on the party suing them for trade secrets. That failed," said Anthony Sebok, a professor at the Benjamin N. Cardozo School of Law at Yeshiva University in New York, in an interview with the WSJ.
Opponents of litigation funding argue that it could give outside entities undue influence over the workings of a particular lawsuit, and say that it could lead to frivolous lawsuits as investors look to cash in. But outside the United States, the practice is widespread, and those in favor of outside funding say that it allows litigants who may not have the funds to sue to pursue issues with deeper pocketed defendants.
The move from the Illinois judge could act as a bellwether for litigation investment in the United States.
For more on the economics of litigation check out these InsideCounsel stories.