Should You Be Allowed to Invest in a Lawsuit? • Hacker News Board

Re: Should You Be Allowed to Invest in a Lawsuit?

#101

Post by Mickydtron » Fri, Oct 23, 2015, 5:39 PM UTC

Afforess wrote: post #12

I think the concern with investing in lawsuits should be focused on secondary motives. Lawsuits with lots of investors will have attorneys with secondary motives, such as keeping the case active as long as possible to continue to attract more investors, rather than resolve it. Perpetual cases could bog down courts in never-ending lawsuits and countersuit challenges, a legal version of Mutually Assured Destruction. Do…

It seems like the funding coming from outside investors wouldn't really increase the incentive for lawyers to drag things out. If they're paid by the hour, then they already have that incentive, and resist it or not at their own discretion. If they're paid contingently, then their motivation is to get a win as quickly as possible, or drag things out if that will make the payment much larger. Again, they have that motivation regardless of who's paying them. What this would change is make it possibly less likely that the 'client' would run out of money before you can finish the job.

Re: Should You Be Allowed to Invest in a Lawsuit?

#102

Post by snowwrestler » Fri, Oct 23, 2015, 8:24 PM UTC

petegrif wrote: post #91

snowwrestler wrote: post #63

Earlier quoted context omitted.

I think the secondary motive to be concerned about is not length of time in court, but the filing of marginal lawsuits because they can attract financing. Lawsuit financing is a speculative investment. We've seen repeatedly that the more money there is to invest speculatively, the more people and companies start pushing the envelope to attract investment. In the last 20 years we've seen big bubbles in Internet servic…

Outside investors don't invest in 'marginal lawsuits.' One of the absolutely critical considerations for lawyers undertaking contingency cases is that they believe the case isn't marginal. I fail to see why an outsider would embrace more risk than such lawyers.

This is analogous to saying "one of the absolutely critical considerations for banks undertaking mortgage lending is that they believe each loan is likely to be paid back. I fail to see why an outsider would embrace more risk than such banks."

But that is precisely what happened leading up to the 2008 financial crisis. And it happened because of outside financing. When banks were risking their own money, they maintained careful underwriting standards. When banks were risking someone else's money--and reaping fees instead--they relaxed their underwriting standards to increase volume.

A law firm undertaking a contingency case better be damn sure they are likely to win, because they are risking their own capital. A law firm with outside financing will get paid whether or not they lose.

Re: Should You Be Allowed to Invest in a Lawsuit?

#103

Post by hackuser » Fri, Oct 23, 2015, 8:47 PM UTC

brianlweiner wrote: post #92

hackuser wrote: post #82

Earlier quoted context omitted.

> The difference is that if private institution that issues "toms safety certification" takes a bribe it is a very shortsighted strategy ... Government-powered institutions can take bribes for years, or even decades without ever being punished for that, or being put out of business. That's a theory, but the theory does not describe reality. Reality is that human beings defraud each other frequently, and in fact that…

Maybe I'm confused, but reality definitely includes several independent certification organizations. e.g UL, NSF International. And of course when I buy a house the government doesn't provide an inspector, instead I have to choose from any number of independent home inspectors (some better than others). Now of course they're often confirming that construction has been done to code (plumbing, electrical, etc), but it'…

> it's not a far jump to say that these codes could be established and maintained by independent groups like IEEE rather than the specific city and state authorities.

It's a bit of a jump. The "independent" groups are not independent but are run by the inudstry being regulated, and will act accordingly. Government is responsible to its citizens.

Re: Should You Be Allowed to Invest in a Lawsuit?

#104

Post by rayiner » Fri, Oct 23, 2015, 9:08 PM UTC

petegrif wrote: post #94

rayiner wrote: post #56

The arguments against litigation funding are not compelling. In particular, funded lawsuits tend to be much higher quality than contingency ones. Funders are investors. They do due diligence on the merits of the cases because they want to get their money back. And their cost structure doesn't really support funding cases where the hoped-for resolution is a hundred grand in "go away" money. If someone is willing to si…

I think it is extremely unlikely that 'funded lawsuits tend to be much higher quality than contingency ones.' I can imagine them being of slightly higher quality but not much for the simple reason that contingency cases involve attorney's making an investment decision and those attorneys frequently sink millions of dollars into cases and 'want to get their money back.' The only reason one could argue that funded case…

Are you disagreeing with me or agreeing with me? Lawsuits financed by litigation funders are much higher quality than ones where attorneys are working on contingency. Attorneys working contingency have committed time, the opportunity cost of which may or may not be that high. If they can get away with not investing much time, they might be happy with a small nuisance settlement.

A litigation funder, on the other hand, will commit hundreds of thousands or millions of dollars up front. They can hire experts to assess each case, and won't finance a case if they don't think they have a high probability of a significant recovery. And their cost model is such that it makes no sense for them to finance a case hoping for a nuisance settlement.

Re: Should You Be Allowed to Invest in a Lawsuit?

#105

Post by anonbanker » Sat, Oct 24, 2015, 4:00 AM UTC

teachingaway wrote: post #33

Champerty! Champerty is the (largely defunct) rule against funding someone else's lawsuit. I always thought that was a funny word. Champerty. But TIL that it comes from the fact that in "England, litigants could hire ‘champions’ to represent them in ‘trial by battle.’ By the late 13th century, these strongmen were being compared to prostitutes, and their prevalence hastened the movement of dispute resolution to the c…

https://en.wikipedia.org/wiki/Champerty_and_maintenance

Still illegal in canada[0]:

Although the type of conduct that might constitute champerty and maintenance has evolved over time, the essential thrust of the two concepts has remained the same for at least two centuries. Maintenance is directed against those who, for an improper motive, often described as wanton or officious intermeddling, become involved with disputes (litigation) of others in which the maintainer has no interest whatsoever and where the assistance he or she renders to one or the other parties is without justification or excuse. Champerty is an egregious form of maintenance in which there is the added element that the maintainer shares in the profits of the litigation. Importantly, without maintenance there can be no champerty.

0. http://www.canlii.org/en/on/onsc/doc/2012/2012onsc5053/2012o...

Re: Should You Be Allowed to Invest in a Lawsuit?

#106

Post by msandford » Sun, Oct 25, 2015, 2:16 AM UTC

petegrif wrote: post #89

msandford wrote: post #84

Earlier quoted context omitted.

That's a strategy both sides choose to employ actually. Imagine BigCo suing LittleCo notionally for infringing one of its patents, but really it's to drain LittleCo's coffers so that LittleCo is out of business and can't compete with BigCo in market X any longer.

But in this scenario BigCo isn't the one needing outside financing, is it?

> But in this scenario BigCo isn't the one needing outside financing, is it?

No, I was refuting the idea that only defendants stretched litigation out. The entity with more money stretches litigation out, doesn't matter which side they're on.

Re: Should You Be Allowed to Invest in a Lawsuit?

#107

Post by 6stringmerc » Sun, Oct 25, 2015, 4:31 PM UTC

hga wrote: post #85

Frondo wrote: post #76

Earlier quoted context omitted.

No freedom is or has ever been absolute, certainly not 1st amendment freedoms (e.g. fraud).

The only speech I'm talking about, the only speech which was the subject of Citizens United , is core political speech. In that context, in the traditional US context, there's no "fraud", AKA criminal libel. Although I don't agree with the extremes of New York Times Co. v. Sullivan , which removed useful feedback in the system in the civil law arena, current case law makes protection of core political speech all but…

To paraphrase the late great Hunter S. Thompson:

"There was a rumor going around the circle of journalists, and while I was the one who started the rumor, its existence meant I could report it as a fact."