New York Roundtable Interview with Professor W. Bradley Wendel on the Acceptance of Litigation Funding

What features do you think US litigation funding should adopt to expand their acceptance in the US? (as transcribed)

One thing that IMF has done well in Australia is to emphasize transparency and there is a lot of talk about litigation funding in the US around.

No one knows what these funding agreements look like and those who work in this area have a hard time getting a hold of contracts. So everyone is left to speculate about what the terms of these contracts are and to think about what they might provide.  It might be helpful for potential users of funding, and critics of the industry to know what these financial contracts look like, what the contractual obligations parties have to one another. Greater transparency works well in Australia and once people understand what commercial litigation funding is all about it will seem less scary and threatening.

What needs might be served by permitting funders to actively participate in litigation?
(as transcribed)

I think one thing that small businesses lack and that large businesses have is the in-house legal talent that can supervise and monitor, select and grade the performance of outside counsel.  What insurance does for defendants is to provide an institutional mechanism to retain and monitor the performance of lawyers.  And so any third party insurance contract gives the insured the peace of mind that some professionals will be looking out for them in litigation.  And large corporations have this.  They have in-house counsel but small businesses, medium size businesses, don’t necessarily have in-house legal counsel.  They might find it useful to go to an outside entity, a third party, to obtain both funding for litigation expenses and also expertise in dealing with lawyers. Understanding how the litigation process works, knowing about the lawyers in a particular area, knowing the reputation of counsel and then being able to monitor their performance and seeing if they are providing good services to the client.

Where do you see litigation funding evolving in the next five years? (as transcribed)

Well I think the Australian example shows that if there is demand, it will grow.  So as more potential clients hear about it and understand litigation funding and its advantages, they may start enquiring into it. It seems like it is an industry that is growing as clients perceive that it is in their own interest that they have needs that can be met.  Whether it’s for capital management or consulting with outside experts, or something. Clients are finding that they benefit from third party financing.

Analogies have been drawn between the insurance industry and litigation funding, please talk a little about the comparison and advantages the insurance industry has now and why they are not in place for the funding industry. (as transcribed)

Maybe I’ll talk about it not in terms of advantages but in terms of some of the risks in connection of funding.  People talk about interfering with lawyer-client relationship and with the lawyers’ professional judgment but all of these risks are of course present in the context of liability insurance. But we accept them and we accept liability insurance as an institution because we believe in the benefits it provides to insureds that outweigh the risks and that the risks can be controlled through suitable regulation, common law duties of good faith or something else – and it seems strange that we accept it virtually without any second thought in the context of liability insurance for defendants yet when plaintiffs seek to obtain 3rd party litigation funding, all of a sudden it seems like this really innovative scary, crazy thing.  Oh my G-d, it’s going to interfere with the lawyer-client relationship. What about independent judgment? We’re comfortable with that on the defense side – but yet uncomfortable on the plaintiffs’ side. That suggests to me that there is something else going on. There’s kind of a suspicion about litigation funding in general or a sense that these are frivolous lawsuits or something like that. That the issue really isn’t about interference with the attorney-client relationship but that’s some kind of stalking horse for something else.

Cornell Law School