Legal & Ethical Issues of Litigation Funding


Trends & Current Status of Litigation Funding Issues

Commercial litigation financing gives rise to certain legal and ethical issues for litigants and their lawyers. Litigation financing is permissible in some form in essentially every state, and the universal trend has been toward liberalization of any restrictions on these activities. Nonetheless, all parties to a litigation financing transaction must be cautious and deliberate in their approach to ensure compliance with all the relevant legal and ethical parameters.

Champerty, Maintenance, and Related Litigation Funding Issues

The doctrines of champerty and maintenance prohibited litigation financing in medieval England, and that nation has abolished these doctrines in the modern era. However, vestiges of these ancient laws can still be found in many U.S. jurisdictions. Nearly every U.S. state has either abolished champerty laws (or never adopted them in the first place) or significantly narrowed their application to situations in which an “officious intermeddler” promotes frivolous or abusive litigation, which is not a part of the modern commercial litigation finance industry. Nonetheless, litigation funding regulation laws vary state-by-state and careful attention must be paid.

Confidentiality and Privilege Waivers

Litigants and their attorneys are afforded certain protections against confidential information being subjected to discovery in litigation by an opposing party. The attorney client privilege and work product doctrine are both very important in the context of litigation financing, particularly since litigation funders must have access to information in order to conduct their investment diligence and appropriately monitor their investments.

The attorney client privilege is intended to encourage fulsome communication between the attorney and client, and thus, preserves the confidentiality of these exchanges unless they are disclosed to other parties that do not share a common legal interest.

The work product doctrine is intended to prevent an opposing party from gaining an unfair advantage arising from having access to information that was prepared as a result of or in anticipation of litigation. Information protected by work product includes a lawyer’s impressions, analysis, and strategies concerning the litigation.

The work product doctrine is much broader and less easily waived than the privilege. Although the law is still developing in this area, courts that have considered the application of the work product doctrine to litigation finance have overwhelmingly held that, as long as reasonable precautions are taken, work product protection is not waived as the result of disclosures of otherwise confidential information to litigation funders.

Other Resources:

Link to the RAND study

ABA Whitepaper

Sebok Law Review

Law Review Articles

Whose Claim is it Anyway?

Revolution in Progress: Third-Party Funding of American Litigation

Litigation Funding: Charting a Legal and Ethical Course

Screening Legal Claims Based on Third-Party Litigation Finance Agreements and Other Signals of Quality

The Litigation Finance Contract

The Growth of Litigation Finance in DOJ Whistleblower Suits: Implications and Recommendations

Other People’s Money: The Ethics of Litigation Funding

Alternative Litigation Finance and the Work-Product Doctrine

Harmonizing Third Party Litigation Funding Regulation

The Future of Mass Litigation: Global Class Actions and Third-Party Litigation Funding

A Market for Justice: A First Empirical Look at Third Party Litigation Funding

Third-Party Financing of Class Action Litigation in the United States: Will the Sky Fall?

Incorporating Legal Claims

For more information about legal and ethical issues related to litigation funding, please download Westfleet Advisors’ Guide to Litigation Financing. Please by contact us directly or call (615) 312-8255 for more specific details.