Law Professor Argues Some Funders ‘Will Never Be Passive Partners’
Debates over the role of third-party litigation funding have grown increasingly contentious over recent years, with interest groups and policymakers wading into the discussion with assertions that funders operate in the dark and have exerted control over litigation processes and outcomes. A new academic essay dives into this topic with renewed focus, offering an assessment of the current funding landscape and specifically highlighting the role of ‘opaque capital’ as an aggressive and chaotic force in the funding of torts. In an article published in Volume 133 of The Yale Law Forum, Samir D. Parikh, professor of law at the Lewis & Clark Law School, examines the relationship between ‘opaque capital and mass-tort financing,’ and the dangers that third-party funding may pose to mass torts. In the essay, he starts from the position that litigation funders ‘will never be passive partners,’ because ‘all the tools necessary for a financier to create and control a mass-tort case are available and unregulated.’ At the heart of Parikh’s paper is the idea of the ‘Alchemist’s Inversion’, which he describes as ‘the process of employing unethical and potentially illegal tactics to create, enhance, and marshal apparently low-value claims with the hope of turning them into gold.’ Whilst he is quick to emphasise that this kind of behaviour is not currently widespread among funders, he suggests that lessons can be learned from the actions of opaque financiers in other markets and that ‘recent cases demonstrate that the arsenal is available, and deployment is underway.’ In his examination of the funding market, Parikh separates third-party financiers into three types: dedicated, sporadic, and opaque capital. The ‘dedicated funder’ category encompasses the major litigation funders who have ‘an arguably transparent business model and willingness to engage in public debate about litigation finance.’ Parikh’s ‘sporadic funders’ are categorised as smaller players who operate less systematically, often focusing on smaller lawsuits such as personal-injury claims, and who only ‘receive public scrutiny only when they engage in some sort of malfeasance or unethical conduct.’ Most worrying to Parikh are the ‘opaque capital’ financiers, a group of ‘aggressive hedge funds and private-equity firms’ whose ‘chase for yield requires direct engagement in high-stakes, big-ticket disputes.’ He argues that these opaque funders are notable for their desire to increase their control over the outcome of litigation by ‘exerting leverage at each process point’, with a relationship between the funder and claimant which ‘allows clandestine maneuvering and influence that could undermine cases and litigants in unforeseen ways.’ The rest of the article provides an analysis of how these funders ‘can create chaos in this space’, looking at various case studies and examples to argue that ‘creation and control are the governing dynamics.’ Whilst Parikh describes the article as ‘a primarily descriptive treatment in order to spotlight the challenges posed by opaque capital,’ he concludes by suggesting that it also shows the need for reform and the introduction of measures to ensure greater oversight of funder activities. He puts forward the idea that such proposals could include enhanced disclosure requirements for funding arrangements, introducing ‘a fee to file a claim’, as well as reforms to the ‘regulation of claims marshalling’ and ‘the ways courts and attorneys verify claims. The essay can be read in full here.
