Alternative Litigation Financing in the United States

Issues, Knowns, and Unknowns

by Steven Garber

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Abstract

Alternative litigation financing (ALF) — also known as “third-party” litigation financing — refers to provision of capital by parties other than plaintiffs, defendants, their lawyers, or defendants' insurers to support litigation-related activity. This paper provides an overview of policy issues related to the legal ethics, social morality, and, especially, potential economic effects of ALF. It provides a snapshot of the only three segments of the ALF industry that appear to be fairly active as of early 2010, all of which provide support to plaintiffs or their lawyers. It offers lessons for policymakers, emphasizing distinctions that are often underappreciated in discussions of ALF. The paper concludes by suggesting that, for the next five to ten years, policymakers might best limit themselves to interventions that do not fundamentally interfere with the potential for increased competition to solve what appear to be important information problems that may limit the contributions of ALF to national economic performance.

This paper is a product of the RAND Institute for Civil Justice Law, Finance, and Capital Markets Program. Financial support was provided by Juridica Investments Limited, a supplier of one type of alternative litigation financing discussed and analyzed here. Additional financial support was provided by the Kauffman-RAND Institute for Entrepreneurship Public Policy.

This report is part of the RAND Corporation occasional paper series. RAND occasional papers may include an informed perspective on a timely policy issue, a discussion of new research methodologies, essays, a paper presented at a conference, or a summary of work in progress. All RAND occasional papers undergo rigorous peer review to help ensure that they meet high standards for research quality and objectivity.

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