“Waiting For Good Dough”: Professor Gillers Weighs In On Champerty And “The Specter of a Stranger In Our Midst”

Waiting for Godot by humanskin

Prominent New York University Law School Professor Stephen Gillers does two things brilliantly in his article “Waiting for Good Dough:  Litigation Funding Comes to Law” published in the Akron Law Review in April 2010.  First, Professor Gillers briefly canvasses the myriad ways non-lawyer involvement in litigation is completely accepted by our legal system.  Second, he surveys -- and debunks -- arguments claiming commercial and consumer funding cause more expensive settlements and wasteful trials.  

 Professor Gillers’ article was inspired by what he calls his “mental list of the worst court decisions in the area of lawyer regulation” (and, of course, the title was inspired by Samuel Beckett’s “Waiting for Godot”).  On that esteemed list of “worst decisions” is Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217 (Ohio 2003), and he dedicates “Waiting for Good Dough” to an analysis of Rancman.   Professor Gillers states from the onset that “[t]he court’s treatment on one issue it raised – the issue of champerty – is myopic, hostile, and superficial.   The resolution on this issue on the facts before the court promotes injustice” and arises from the perception of having “the specter of a stranger in our midst.”  

Indeed, Bentham focused on a similar topic at its first Litigation Funding Roundtable which took place in September 2013 in New York City.   The preeminent group of lawyers and academics who assembled at this Bentham IMF-organized event discussed, among many other important topics involving litigation funding, a comparison between how insurance companies manage their litigations (and their relationships with hand-picked defense counsel) and how commercial litigation funders engage and communicate with their clients.  A chart comparing the two industries can be found at the January 2014 “Bentham IMF Litigation Roundtable: Key Issues and Best Practices” Report.   http://www.benthamimf.com/docs/default-source/default-document-library/bentham-report-final-10-01-14.pdf?sfvrsn=2.  

In “Waiting for Good Dough,” Professor Gillers identifies some of the perfectly acceptable instances where non-lawyers may have influence or even control over lawyers.  Some of these examples include:

  1. Corporate clients instruct in-house counsel and have “vital control over the terms and conditions of a lawyer’s professional life.”
  2. Non-lawyers can pay lawyers, per ABA Model Rule 1.8(f), including insurance companies with repeat business.
  3. Malpractice carriers can effectively govern how law firms reduce risk in exchange for lower premiums.
  4. Banks are allowed to “monitor how law firms are run as businesses” in order to assess the extension of credit to those firms.In addition, firms are allowed to include non-legal personnel in retirement or compensation plans based on a profit-sharing model, yet that is not considered fee splitting. Professor Gillers notes that here, “[w]e choose not to see that as fee splitting on the somewhat artificial view that the non-lawyers’ participation is in the gross profit, not the recovery in any single case.”
  5. Concurrent client representations (and/or conflicts) implicitly favor the client with deeper pockets, who may tilt firm work in its favor as against other clients.
  6. Last but not least, “[n]on-lawyers may serve on the board of an manage not-for-profit organizations whose legal staffs represent clients and where the organization may have a social or political agenda that varies from, and is potentially inconsistent with, the best interests of any particular client”; “[w]e let law firms share court-awarded legal fees with lay-controlled not-for-profit entities that either co-counsel with the firms or merely recommend them”; and “[w]e let organizations run by lay individuals, like union legal service plans, represent their members.” These are all perfectly permissible and accepted way “lay interference is embedded in many client-lawyer relationships. Yet with either accept or overlook the risk.”

In the second main analysis in his article, Professor Gillers surveys and discredits arguments claiming that commercial and consumer funding cause later and more expensive settlements and wasteful trials.   Below is a portion of Professor Gillers’ analysis of litigation funding and certain concerns surrounding the practice.

  1. “Litigation funding encourages frivolous litigation.” Professor Gillers calls this claim “highly dubious.” Litigation funding provides non-recourse investments into litigation from a third party, and the funder only gets paid if the plaintiff wins. Therefore, “[c]ompanies that pay plaintiffs to bring frivolous cases will soon go bankrupt.” Funders choose their cases carefully, just like good contingency lawyers do.

     

  2. “Litigation funding exploits the vulnerable plaintiff.” Plaintiffs aren’t exploited, because they ask for, and get, needed capital to keep functioning (and/or to keep their case going).To compare, isn’t a defendant’s forcing a plaintiff into a dirt-cheap settlement more exploitive? As stated by Professor Gillers:“[i]n any event, the availability of litigation funding means she will be able to make a choice.”

     

  3. When a plaintiff stays in the battle to get a higher settlement (needed in part to pay the funder), the effect is to shift to the defendant the risk of the trial or higher settlement.This is not harmful for several reasons:

  • As a matter of policy, trials or later settlements after the merits are fully developed are not worse than desperate settlements at low figures;
  • Defendants can, of course, avoid a trial by paying a higher amount at an earlier stage of litigation;
  • The mere existence of funding, when discovered, means a defendant may want to offer more to settle, which may be a clear benefit to a plaintiff;
  • Since it is typical that the longer a case is in litigation, the higher the funder’s return is, a mid-course settlement may be smart for plaintiff, knowing it will pay more later;
  • Since funders want settlements, there is no reason to believe plaintiffs will risk it all at trial anyway; and
  • Finally, we have courts and judges for this purpose.That is our legal system.A small incremental increase in trials isn’t a problem; it’s the system at work.As Professor Gillers states so well:“[a]re we really prepared to say that a state’s justice system will not allow a plaintiff to get the funds she needs to persist in an effort to secure just compensation because then judges will have to try some number of cases that would otherwise have settled, a number we can’t even quantify?I hope not.”

These are just some of the highlights from Professor Gillers’ article.  The full text of his law review article is an educational and interesting read and can be found here:  http://www.uakron.edu/dotAsset/1034461.pdf