Investing in Injury Lawsuits; What are the Ethical Implications?

officeLitigation funding from third-party sources is nothing new in personal injury cases, where injured victims, out of work and short on cash, have been permitted to borrow against the expected return on their pending cases for years now. But what about the prospect of investing money in someone else’s legal proceeding? A new report from the New York Times magazine has highlighted this growing trend, using a classic David v. Goliath story in the process.
At the heart of this news story is a lawsuit involving Miller UK, a small British company, and Caterpillar, the American construction equipment behemoth. Their dispute centers over a particular model of equipment and the intellectual property involved in its design.  The unique part of this dispute lies with the method Miller is using to fund its side of the case.  Rather than paying its legal team straight from the company coffers, Miller has turned to an outside entity called Arena Consulting to front the money for its legal costs.  If Miller is unsuccessful in the suit, Arena will walk away empty-handed.  However, if Miller wins, Arena will stand to gain a significant portion of the proceeds, perhaps into the tens of millions of dollars.
This type of litigation finance is relatively new, but it is already causing a great deal of controversy.  Those in favor argue that this outside funding allows the little guy to have its day in court when they could never afford to fund such a case on its own, particularly when going up against such well-funded opposition.  Nevertheless, detractors of this practice worry that this type of investment could drive the already high costs of our legal system even higher and that the interests of investors and litigants may not always be perfectly aligned.  Whatever the outcome of the Miller case, this topic is just beginning to pique the interest of legal scholars, and we should expect a great deal of debate on its merits in the years to come.