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Should You Be Allowed to Invest in a Lawsuit?

nytimes.com

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

#41

Post by lumberjack »

Consider that many civil legal disagreements end in a settlement because one or both of the parties cannot afford the time and the stress of a legal battle. In that case a third party who pledges support to either of them might easily influence the settlement agreement.

Consider this very realistic scenario: Two parties jointly own a piece of real estate. One of the parties wants to sell the property but the other party does not, because the market is not prime for it. They also cannot afford to buy the others share themselves. So they have a legal disagreement. This will most likely end in settlement as none of them wants to actually go to court. Now a property developer comes in and pledges to fund the guy who wants to sell. That skews their settlement agreement in favour of him and the other guy is forced to sell (to the property developer obviously) at below market value.

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

#42

Post by tankenmate »

lumberjack wrote: post #41

Consider that many civil legal disagreements end in a settlement because one or both of the parties cannot afford the time and the stress of a legal battle. In that case a third party who pledges support to either of them might easily influence the settlement agreement. Consider this very realistic scenario: Two parties jointly own a piece of real estate. One of the parties wants to sell the property but the other pa…

In some jurisdictions this third party involvement or support may in some circumstances be considered illegal; it is heavily frowned upon and may even lead to a criminal charge of barratry if the suit is seen to be frivolous or harassing (i.e. forcing someone to settle when they otherwise would not have).

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

#43

Post by Pyxl101 »

lumberjack wrote: post #41

Consider that many civil legal disagreements end in a settlement because one or both of the parties cannot afford the time and the stress of a legal battle. In that case a third party who pledges support to either of them might easily influence the settlement agreement. Consider this very realistic scenario: Two parties jointly own a piece of real estate. One of the parties wants to sell the property but the other pa…

> the other guy is forced to sell (to the property developer obviously) at below market value.

Why is he forced to sell at below market value? I'm not experienced at joint ownership of real estate, but I would assume that if you own real estate jointly with other partners, and the result of the lawsuit is that you're required to sell, then you can put the property on the market and fetch the current market price from the best available offer.

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

#44

Post by orf »

Pyxl101 wrote: post #43
lumberjack wrote: post #41

Consider that many civil legal disagreements end in a settlement because one or both of the parties cannot afford the time and the stress of a legal battle. In that case a third party who pledges support to either of them might easily influence the settlement agreement. Consider this very realistic scenario: Two parties jointly own a piece of real estate. One of the parties wants to sell the property but the other pa…

> the other guy is forced to sell (to the property developer obviously) at below market value. Why is he forced to sell at below market value? I'm not experienced at joint ownership of real estate, but I would assume that if you own real estate jointly with other partners, and the result of the lawsuit is that you're required to sell, then you can put the property on the market and fetch the current market price from…

Because the property developer funded the guy who wants to sell, meaning the other party has to fund a legal battle themselves or sell.

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

#45

Post by Pyxl101 »

orf wrote: post #44
Pyxl101 wrote: post #43

Earlier quoted context omitted.

> the other guy is forced to sell (to the property developer obviously) at below market value. Why is he forced to sell at below market value? I'm not experienced at joint ownership of real estate, but I would assume that if you own real estate jointly with other partners, and the result of the lawsuit is that you're required to sell, then you can put the property on the market and fetch the current market price from…

Because the property developer funded the guy who wants to sell, meaning the other party has to fund a legal battle themselves or sell.

It sounds like you're saying that the party might owe legal expenses. That's a different issue than the market value of the property.

Edit: I agree it's somewhat ethically murky if the real estate developer, who also wants to buy the property, is funding the partner-who-wants-to-sell's lawsuit. However, I would expect that if that lawsuit is successful, the parties would be required to sell the property, but not necessarily to the real estate developer - rather, they would be required to put it on the market and fetch a fair market price like a normal real estate sale. I don't see why the other partner would be forced to accept less than the highest offer on the property, which might or might not be the developer.

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

#49

Post by kitd »

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…

But the investors want to make money, and that only comes when a judgement is reached. I can envisage the financial imperative putting a time limit on the investor/lawyer contract.

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

#50

Post by kitd »

If the right framework can be agreed for keeping cases free of vested interest and bias, I see benefits in this mechanism.

One possible upside is that David-vs-Goliath cases as described here would be the ones most attractive to investors. The more obvious the injustice, the less risky the investment.

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