Can and Should the New Third-Party Litigation Financing Come to Class Actions?

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Brian T. Fitzpatrick

Abstract

In the United States, there has been tremendous growth in a form of third-party litigation nancing where investors buy pieces of lawsuits from plaintiffs. Many scholars believe that this new nancing helps to balance the risk tolerance of plaintiffs and defendants and thereby facilitates the resolution of litigation in a way that more closely tracks the goals of the substantive law. In this Article, I ask whether these risk-balancing virtues of claim investing carry over into class action cases. This is a question that has not yet been addressed by scholars because many think it is not possible for nanciers to buy pieces of class action lawsuits in the United States. But I show that such investments are neither impractical nor unethical; indeed, it appears that they are already here. It is therefore worth considering whether the investments confer the same social bene ts they do in other cases. I argue that although class members do not need a risk transfer device in class action cases because they are almost always risk-neutral in light of their small losses, their lawyers do need such a device. Although this does not necessarily mean that claim investing is socially desirable overall in class actions, the social costs that have thus far been identi ed with claim investing seem modest compared to the bene ts. 

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Author Biography

Brian T. Fitzpatrick, Vanderbilt Law School

Professor of Law, Vanderbilt Law School. J.D., Harvard Law School. I am grateful to many people for comments on earlier drafts of this Article, including Tony Sebok and many who attended workshops, including those of Vanderbilt Law School, the University of Missouri Law School, George Mason Law School, Washington and Lee Law School, as well as this symposium at Tel Aviv University Law School. I would especially like to thank Ronen Avraham for his extensive commentary to this paper as well as several research assistants, including Cameron Norris, Kasey Youngentob, and Deanna Foster.