Expressing alarm at the growth of “litigation speculation,” two top Republican senators have asked three of the largest litigation finance firms for information about their involvement in the civil justice system.
The companies finance the cost of civil litigation in return for a portion of any recovery. According to the New York Bar Association, more than $1 billion was invested in litigation financing in the U.S. in 2011.
But the growth of the business, and its apparent lack of transparency, have attracted the attention of Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) and Sen. John Cornyn (R-Texas).
“Litigation speculation is expanding at an alarming rate,” they said Thursday in a news release announcing they had requested information from three firms — Burford Capital, Bentham IMF and Juridica Investments. “And yet, because the existence and terms of these agreements lack transparency, the impact they are having on our civil justice system is not fully known.”
“It’s vitally important to our civil justice system that litigation decisions aren’t unduly influenced by third parties,” they said.
As Bloomberg reports, the U.S. Chamber of Commerce has described litigation finance as “a sophisticated scheme for gambling on litigation” that allegedly fuels abusive suits and creates conflicts of interest. Litigation finance firms counter that they facilitate legitimate claims that otherwise would sit dormant on the books of corporations.
The senators’ letters to the three firms requested details on the cases that they finance, the terms of their investments, and their returns. “[W]hile commercial litigation lenders maintain that plaintiffs retain control over litigation and settlement decisions, the terms and fundamental structure of [lending] agreements that are publicly available call into question these assertions,” Grassley and Cornyn said.
Burford’s investments include a class-action lawsuit against Chevron in Ecuador, but according to Bloomberg, it mainly finances suits initiated by major companies and handled by big corporate law firms such as Simpson Thacher & Bartlett, King & Spalding, and Latham & Watkins.