Should You Be Allowed to Invest in a Lawsuit?
nytimes.com
nytimes.com
Champerty is the (largely defunct) rule against funding someone else's lawsuit. I always thought that was a funny word. Champerty. But TIL that it comes from the fact that in "England, litigants could hire ‘champions’ to represent them in ‘trial by battle.’ By the late 13th century, these strongmen were being compared to prostitutes, and their prevalence hastened the movement of dispute resolution to the courtroom. During the Middle Ages, this concept of ‘champerty’ — assisting another person’s lawsuit in exchange for a share of the proceeds — emerged as part of the larger ecclesiastical taboo against usury."
Still illegal in canada[0]:
Although the type of conduct that might constitute champerty and maintenance has evolved over time, the essential thrust of the two concepts has remained the same for at least two centuries. Maintenance is directed against those who, for an improper motive, often described as wanton or officious intermeddling, become involved with disputes (litigation) of others in which the maintainer has no interest whatsoever and where the assistance he or she renders to one or the other parties is without justification or excuse. Champerty is an egregious form of maintenance in which there is the added element that the maintainer shares in the profits of the litigation. Importantly, without maintenance there can be no champerty.
0. http://www.canlii.org/en/on/onsc/doc/2012/2012onsc5053/2012o...
Do lawsuit claimants have a right to consume unbounded judicial time and public money (to pay for judical staff, the courts)? Legal cases stuck in court for years consume time and energy that could be directed at resolving other legal challenges. Time spent in court is ultimately a tax on the public, regardless of the outcome.
To a degree this happens already with large vs small company law suits, where the larger company maintains proceeding in some form til the other small business runs out of cash or gives up.
Anecdotally when my father was going through his divorce his lawyer told him not to take the settlement with his now ex-wife and his lawyer promised she could get him better terms and an expedited divorce and would only need to go to one court appearance.
Two additional retainers later and she told my father he had to settle for what was offered at the court house which was a worse settlement and that she event told him she didn't feel comfortable negotiating beyond what was offered because it was "a great deal". I have a hard time believing she had my father's best interests in mind and just kept the case going for a bit longer.
I would expect a system like this would exacerbate this type of behavior.
Corruption by definition is not bribing government officials. Show me that definition? Corruption by definition is actually fraudulent activity by those in power, where government is one entity that has power. Removing government to remove corruption is quite frankly insane and only makes sense if you change the definition of corruption to mean "government corruption".
And yes, limiting government competencies is the best way to limit corruption.As one of Polish politicians put it:
"You don't fight the leeches by catching them by their tails, you fight them by draining the swamp they live in."
Safety certification businesses competing with each other will become a function of publicity above all else, who can market and present themselves in the best way over which certificate authority actually is most stringent.
Individuals generally do not have the time or skill to evaluate which safety certification meets their own values (and if in fact their own values are even sensible and rational!).
This is why it's generally better (note: not perfect) to trust this function to a government who probably will do a better job and can be more trusted of it than a for profit institution that has conflict of interest baked into their entire model.
That's a theory, but the theory does not describe reality. Reality is that human beings defraud each other frequently, and in fact that is one of the main reasons we have governments, laws, and regulations. When you buy a house or obtain a loan or some software, or walk down the street, do you assume nobody would be doing anything corrupt or fraudulant, just trusting everyone? Of course not.
Anarchy leads to chaos and conflict. Caveat emptor.
EDIT: Major edit
And of course when I buy a house the government doesn't provide an inspector, instead I have to choose from any number of independent home inspectors (some better than others).
Now of course they're often confirming that construction has been done to code (plumbing, electrical, etc), but it's not a far jump to say that these codes could be established and maintained by independent groups like IEEE rather than the specific city and state authorities.
It's a bit of a jump. The "independent" groups are not independent but are run by the inudstry being regulated, and will act accordingly. Government is responsible to its citizens.
In practice, it's the defense that will string out a case hoping that the plaintiff runs out of money before the case reaches judgment on the merits. Plaintiffs want to win quick, or at least lose quick before they invest too much in the case.
No, I was refuting the idea that only defendants stretched litigation out. The entity with more money stretches litigation out, doesn't matter which side they're on.
Lawsuit financing is a speculative investment. We've seen repeatedly that the more money there is to invest speculatively, the more people and companies start pushing the envelope to attract investment.
In the last 20 years we've seen big bubbles in Internet services and consumer mortgages. What would be the effect of a bubble in lawsuits? Aside from the financial harm, it might crowd out or delay more worthy court cases.
But that is precisely what happened leading up to the 2008 financial crisis. And it happened because of outside financing. When banks were risking their own money, they maintained careful underwriting standards. When banks were risking someone else's money--and reaping fees instead--they relaxed their underwriting standards to increase volume.
A law firm undertaking a contingency case better be damn sure they are likely to win, because they are risking their own capital. A law firm with outside financing will get paid whether or not they lose.
If the client wants to manage the relationship with investors, set expectations for success, returns, etc...that's one thing. But the lawyer is an advocate for the client, and that relationship is compromised the moment s/he begins feeling pressure from the investors.
Consider a community where many people are invested in one side of a lawsuit. That could put a lot of pressure on the judge and jury to produce the popularly desired outcome.
While abuse of the legal system is certainly a problem, the way to solve it is not limit financing. That only increases economic inequality. It's like saying we can solve the SF housing crisis by banning mortgages.
In a case like that, it seems like a tool to perpetuate economic inequality.
The whole SCO vs IBM case was pretty unscrupulous, sleazy, and opportunistic, I agree. I'm not arguing that I have the solution to stop abuses like this. I'm saying that limiting financing is not it.
Not by limiting financing, but by recognizing and shutting down barratry and stunts.
The abuse of the legal system is, from my perspective, extremely tied to the fiscal means of the involved parties. I say this having been called to potentially be on a jury involving a claim of breach of confidentiality over a Rothko painting, asking for more than $30 million (eventually the jury verdict was a pyrrhic victory of $500,000 - likely the cost of the suit in the first place).
I guess what I'm saying is that for small-time folks, even judgments in small-claims court are tenuous in enforcement, because...well...there's not enough money involved for authorities and other entities to follow through. To me that's a distortion of the purpose of the legal system, and one where money certainly plays a role. Rather, economic inequality may result in justice inequality (a study of this would be very helpful).
I'm not certain why, either, seeing as how Citizens United was about core political speech, Federal government censorship of a video about a candidate for federal office, which if the First Amendment, specifically:
Congress shall make no law ... abridging the freedom of speech, or of the press
Means anything, it means such speech cannot be abridged.
In that context, in the traditional US context, there's no "fraud", AKA criminal libel. Although I don't agree with the extremes of New York Times Co. v. Sullivan, which removed useful feedback in the system in the civil law arena, current case law makes protection of core political speech all but "absolute".
"There was a rumor going around the circle of journalists, and while I was the one who started the rumor, its existence meant I could report it as a fact."
That said if they did do something like this I suspect the most reasonable way would be to treat it like political donations, similar to some countries where only citizens can donate, donations are transparent and capped as lower levels.
Considering the amount of problems that currently exist and that forced nobody to do much, I don't think the "if <bad thing>, then <debate> and <better society>" idea is a particularly good bet.
http://acceleratethecontradictions.blogspot.com/2010/04/acce...
The theory is that some system is inherently bad or broken but people in general don't quite realize it, so if it gets worse it will be more obviously bad and then they'll then actually deal with it. Although sometimes this kind of behavior does happen (for example, someone choosing to go to a doctor only after an illness takes a serious turn for the worse), it seems like a risky theory of social change.
Maybe the powers or institutions you oppose are more entrenched or more adaptable than you expect, or maybe the public is less sympathetic to your analysis of the situation than you expect, or less motivated or more defeatist.
It implicitly and falsely assumes that everybody will agree on what the solution is. In the presence of differences brought on not merely by "false consciousness" but by legitimate differences in opinions and desires, it fails the basic Kantian imperative to not do something that breaks society if everybody does it, because it means that everybody who disagrees with some policy, which is always somebody, should try to break things, rather than fix things. In the local vernacular, this "scales poorly".
(I am really tempted to say that Marxists are prone to this, but it would be an over-specific adjective. Truth is, almost everybody "knows" that deep down, everybody else is secretly really like them, and it's just a lack of knowledge or external influence that leads to apparently disagreements. However, the evidence overwhelmingly contradicts this belief. Even in the presence of hostile external actions or lack of knowledge, well, how do you know that you are not the one lacking knowledge or subject to external influence? And many people's value systems legitimately differ.)
That's actually the liberal (in the US sense)/Left conceit, than man is very malleable, that simply by supplying the correct knowledge and/or external influence (AKA environment in the non-strictly biological sense) can be changed. In practice, at the extreme, those who refuse to be changed end up in a forced labor camp if they're lucky.
The position of the right was well expressed by one of my favorite history professors, who said to my and my fellow STEM students' great applause that "Original sin is an empirical observation."
As you say, "the evidence overwhelmingly contradicts this belief."
Consider this very realistic scenario: Two parties jointly own a piece of real estate. One of the parties wants to sell the property but the other party does not, because the market is not prime for it. They also cannot afford to buy the others share themselves. So they have a legal disagreement. This will most likely end in settlement as none of them wants to actually go to court. Now a property developer comes in and pledges to fund the guy who wants to sell. That skews their settlement agreement in favour of him and the other guy is forced to sell (to the property developer obviously) at below market value.
Why is he forced to sell at below market value? I'm not experienced at joint ownership of real estate, but I would assume that if you own real estate jointly with other partners, and the result of the lawsuit is that you're required to sell, then you can put the property on the market and fetch the current market price from the best available offer.
Edit: I agree it's somewhat ethically murky if the real estate developer, who also wants to buy the property, is funding the partner-who-wants-to-sell's lawsuit. However, I would expect that if that lawsuit is successful, the parties would be required to sell the property, but not necessarily to the real estate developer - rather, they would be required to put it on the market and fetch a fair market price like a normal real estate sale. I don't see why the other partner would be forced to accept less than the highest offer on the property, which might or might not be the developer.
A sale will always fetch the current market value (pretty much by definition), but market value fluctuates. Sometimes just the difference between selling in January vs. May can make a difference in the final price.
http://sandiego.startupweekend.org/2011/03/08/9-new-startups...
Of course it wasn't a product that was more than a prototype, but I am fully onboard with crowd funding playing a much larger role in the world than it currently does - whether it's down to a) investing, b) getting some sort of other reward/product or c) more directed alternative to typical charity.
What's discussed in the article was one of the ideas my product guy and I bandied about, but it didn't seem plausible at the time... although, when the JOBS act was passed I did feel that maybe it was possible if you could somehow incorporate your lawsuit?
Right now I'm the lead engineer for a crowd-funded charity site and sometime in the not-too-distant future I'd like to return to this.
It's an interesting idea. However, the financial crisis of '08 happened in part because wall street innovation allowed for the selling of shares of mortgage portfolios, so I would be cautious where this goes.
The arguments for and against it in the article seem to mirror the arguments regarding a lawyer's contingent fee interest. Some would say contingency fees have done harm to the legal system. In fact, some states limit contingency fee awards in medical malpractice to limit those types of lawsuits. So, if your goal is to limit lawsuits, this kind of arrangement probably would be bad.
Citizens United v. FEC -- majority opinion essentially said that money is free speech ("Because spending money is essential to disseminating speech..."). And spending that money to fund litigation seems like a very strong kind of speech, whether or not its motivated by greed (profit).
The US allows champerty and maintenance already, so it's not an issue in the US.
Not to me.
Compare to Citizens United, which was about government censorship of core political speech, a video pertaining to a current candidate for office (or even a book, per the government's arguments). It's well established that "commercial speech", e.g. advertisements for products, can be subject to severe regulation (e.g. tobacco and alcohol) that's anathema to political speech.
And this sure sounds more like commercial than political speech; heck, think of all the laws, rules and regulations that pertain to what you can "say" in a lawsuit, in your written pleadings, oral arguments, etc. Even talking to the public about it can be constrained.
To me, that seems to create a political field where citizens of great wealth are "more equal" than citizens with less.
In a way, that supports your case, in the Colorado, Washington and Oregon wins he's achieved (through non-profits fronts he's established, after Mayors Against Illegal Guns became so notorious for the number of criminal mayors in it). But not generally, nationally the needle hasn't moved aside from Obama and Hillary! publicly calling for the confiscation of the nation's handguns and semi-auto long guns (!).
But our response is not to try to muzzle him, let alone support a law like McCain-Feingold which muzzled the NRA and therefore its 5 million members working in collective action prior to it being spiked by Citizens United.
I'll also note that money only gets you a hearing, I simply don't believe that big money can "dominate the political dialog and crowd out dissenting voices who have less money" without concurrent capture of gatekeepers (like the Federal government in the case of McCain-Feingold...). The examples are legion, the latest being ¡Jeb! Bush's total failure to gain any traction outside of big money sources.
(I recently came across an analysis that to win the Presidency, you've got to do well at both getting "big" and "small" money. Hmmm, like Obama did. By that metric, watch Cruz, and of course Trump is a wildcard, not needing either and currently not playing that game at all.)
https://www.inforuptcy.com/marketplace?f[0]=im_taxonomy_vid_...
However, it does seem that there are some obvious failure states for this new system. If venture litigation becomes the norm, then only litigants who are either extremely large themselves or can attract financing will even have a chance of victory. So, the financiers become the de facto arbiters of the judicial system.
To me, the real problem is that the civil justice system is so expensive as to be out of reach for many/most people, or at least putting a limit on how big a size difference the two parties can have. All told, this isn't that different than someone taking out a mortgage to fund a lawsuit, and that is fairly obviously allowed. The fact that someone might need to take a mortgage or seek outside funding in order to seek justice is the problem, not the mortgage or financing itself.
The other major benefit to a loser pays system is that it does raise the stakes - for frivolous lawsuits. Legal action is, in some ways, very cheap in the United States. Making the loser foot the bill is a good way to make corporations and their ilk take a second glance litigation as a tool.
A litigation funder, on the other hand, will commit hundreds of thousands or millions of dollars up front. They can hire experts to assess each case, and won't finance a case if they don't think they have a high probability of a significant recovery. And their cost model is such that it makes no sense for them to finance a case hoping for a nuisance settlement.
Take a divorce, for example. Do you prefer lawyers to have an incentive to say "calm down, I'll talk to the other lawyer, and we will find a fair deal" or "give me 20% and I'll make that bitch suffer"?
Note that a poor client who cannot pay upfront can still agree to pay after they win, just not a percentage of the awarded sum.
Lawyers who are taking contingency cases have no incentive to 'escalate conflicts.' Their only interest is to make their case and reach a settlement.
Ironically, it is in cases where lawyers are paid hourly that they have an interest to 'escalate conflicts' to draw cases out and keep drawing fees.
One possible upside is that David-vs-Goliath cases as described here would be the ones most attractive to investors. The more obvious the injustice, the less risky the investment.
It's one thing when someone invests as a form of aid, however, I see this being gamed for profit.
For big collective bargaining trials you can already invest in the outcome without the money going towards moving towards the outcome (short/long the company who is bieng sued)