The Evolutionary War: Overcoming the ABA’s Inertia and Closing the Justice Gap

Blog - The Evolutionary War
Ken Epstein
Senior Investment Manager and Legal Counsel - United States

The legal industry evolves slowly, as it should. The changes we make to our processes, standards and regulations have profound effects that extend far beyond courtrooms and contracts – they impact the fundamental foundations of commerce, government and individual rights. But progress is necessary. Lawyers must take the initiative to effectively control our own course into the future, meet our clients on common ground and deliver justice to all parties, regardless of resources or privilege.

As a licensed attorney for over 20 years, I am proud to support and preserve the core values of the legal profession.  And as an investor in litigation, I am equally devoted to ensuring that claimants and law firms have the resources they need to prosecute meritorious legal claims, in line with their litigation risk tolerance and regardless of their financial circumstances. Naturally, there are opponents who look to limit the financial ability of parties to bring litigation, but their pocketbook concerns do not outweigh the legal community’s interest in justice for all.

Unfortunately, most low-income Americans do not have ready access to affordable legal representation and many injustices go unchallenged as a result. Litigation finance has enabled thousands of claimants to seek redress in ways that would not otherwise have been possible. There are countless examples.  Recently, the law firm PGMC received $100 million from a litigation funder to help poor and indigent victims of a dam collapse in Brazil pursue claims for faulty construction and engineering. The company I work for, Omni Bridgeway, is supporting multiple class actions involving contamination from PFAs, a poisonous man-made industrial compound. We believe that local residents and business owners deserve compensation for the damages they have suffered as a result of the contamination.

To be sure, law firms and litigants of all sizes have made use of litigation funding as a risk mitigation and allocation tool to help meet their business objectives. Over the last decade, we have seen a robust market develop among a broad swath of firms and companies, small and large, who recognize the benefits that litigation finance offers to any party facing complex, protracted commercial litigation. Litigation finance is not a one-size-fits-all solution, and it certainly has expanded beyond the traditional David v. Goliath proposition that it primarily solved for in the past. Yet the impecunious claimant remains even today a major beneficiary of what litigation finance offers—namely, access to an often cost-prohibitive civil justice system.

Innovation in the legal industry over centuries has increased the overall quality of legal representation and somewhat narrowed the gap in the provision of justice. Today, technology helps litigators handle voluminous discovery in a more streamlined and cost-effective manner. Improved proprietary search engines and databases allow lawyers to conduct legal research faster and more precisely. In recent years, law firms have adapted to appeals from internal constituencies and influential clients to take diversity and environmental responsibility more seriously. As we have innovated in the areas of technology, process and inclusiveness, our industry must also be willing to explore new methods of financing and resource adaptability.

To promote more equal access to justice and provide key resources for underfunded claimants, several states have amended or eliminated the rule prohibiting lawyers form sharing fees with non-lawyers.  Their principle is that well-structured third-party investment in law firms will foster innovation and long-term investment, leading to efficiencies and delivery of legal support to presently underrepresented populations. These efforts should be supported and encouraged, along with prudent guideposts to ensure integrity in the practice of law.

However, certain headwinds will need to be addressed and overcome to move forward. In July, the legislative body that sets policy for the American Bar Association passed Resolution 402, effectively rejecting further study and experimentation in this field. With little real dialogue, and over the objection of many of its committees, the ABA reaffirmed its existing policy against non-lawyers sharing legal fees and owning equity in law firms. While the Association has no authority to create law, states often look to the organization for guidance on ethical issues.

It is incumbent on the ABA to reconsider this determination, and openly discuss the impacts of broadening the litigation finance aperture. The organization should consider the findings of the New York City Bar Association Litigation Funding Working Group, who, after careful consideration and a period of public comment, recommended revising Rule 5.4 and concluded that both lawyers and clients benefit when “lawyers have less restricted access to funding.” The study resulted in a lengthy report and generated two substantive proposals to enable law firms to receive portfolio litigation financing in compliance with the ethical rules.

Both law firms and financial investors are ready. Now it is incumbent on the ABA to encourage the states to experiment with various ways to address the justice gap with well-controlled sandbox experiments, and to revisit its own position on the benefits of litigation financing with a comprehensive, collaborative, and thoughtful dialogue that engages all interested parties.

As attorneys, we have been rightfully trained to avoid making rash and spontaneous changes to our industry. However, we must be equally mindful of impulsively reaffirming old methods that hold back progress and disservice justice for those individuals and smaller companies who simply cannot risk all of their resources on a claim – even if it is meritorious. The growth of litigation finance in the U.S. represents innovation, an evolution of the practice of law and is key to improving the quality and availability of legal services.