The John M. Olin Center

Paper Abstract

Untitled Document

71. Michael K. Velchik & Jeffery Y. Zhang, Islands of Litigation Finance, 04/2017.

Abstract: Litigation finance has sparked heated debate at the bar, on the Hill, in the press, and among scholars over whether the country should embrace this new practice. We disagree with the premise of this debate: Litigation finance is not new at all. A study of legal history and the modern legal system reveals that third-party litigation finance is not only widespread, nor merely tolerable, but in fact central to our society and economy. The law already condones litigation finance in myriad contexts: public interest organizations, contingency fee arrangements, insurance subrogation, factoring, and bankruptcy claims trading. Yet because these practices are camouflaged under different names, they remain hidden in plain sight. We also note that a comparison between these examples and the proposed expansion of litigation finance demonstrates that third-party litigation financing is socially desirable under the appropriate set of regulations.