Is Commercial Litigation Finance Legal?

(text adapted from video)

David Houston, Editor, Los Angeles Daily Journal:


Let's start with, is commercial litigation finance legal? What is the legality behind it? David, do you want to start there?

David Gallagher, Investment Manager, Bentham IMF:

Sure. Commercial litigation funding is legal in at least half of the 50 states. The only arguments raised against its legality could be the maintenance or champerty argument, which are really archaic doctrines that you hear about lots in law school and never again. 

It's basically the rule against the party that is a stranger to the lawsuit, supporting the filing of the lawsuit, the maintenance of the lawsuit. That would be maintenance, and it becomes champerty when the parties courting the lawsuit gain some sort of benefit from the lawsuit as a result. California never had any restriction on this. It was never an issue here. In some states where it was restricted, there is an almost nationwide trend of rolling back the restrictions against champerty and maintenance. We certainly take it into account when we're deciding whether to fund the case or not. 

Another really important part of the definition of champerty in many states is that the third party is stirring up frivolous or vexatious litigation, just causing trouble -- a case that wouldn't otherwise be brought or that isn't being filed for a meritorious reason. Bentham has never been involved in a case like that. Obviously, we vet our cases very diligently and we only fund the most meritorious. We turn down 95% of the cases that we look at. That is one of the ways, in addition to just choosing the jurisdictions that we will fund cases in.  We will never get involved in litigation if it's vexatious. When we do get involved, Bentham does not have any control over the way the case conducted.

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