ABSTRACT
Litigation finance is the subject of a contentious scholarly and political debate. Litigation funders provide capital to litigants or law firms in exchange for a share of case proceeds. The current debate about funding centers on how litigation finance impacts our civil justice system. Proponents of funding argue it helps litigants get their day in court, while opponents argue funders pervert the judicial process. Policymakers are torn between these two competing viewpoints, without a clear path forward.
This Article reframes the debate about litigation finance. Scholars and policymakers have focused too narrowly on the ‘litigation’ part of litigation finance, ie, on how funding impacts our legal system. We shift the focus to the ‘finance’ implications of litigation finance. We explore for the first time how litigation finance affects competition not only in the courtroom but also in the marketplace – how companies use funding to access not only the courthouse but also to access the capital markets and gain an advantage in the marketplace. To do this, we offer a novel interdisciplinary approach drawing on the classic business concept of ‘non-market strategies’. This scholarship, which has been all but ignored by legal scholars, studies how companies leverage ‘non-market’ institutions like courts to increase their competitive advantage in the market. While we introduce this scholarship with reference to litigation finance, it holds the promise to reframe the debate around legal issues far beyond the realm of litigation funding.
Our central claim is that any regulation of litigation finance is a regulation not only of the courts but of the capital markets, with significant but unexplored implications for contemporary debates about funding. We show that regulation of funding is especially likely to harm small and medium-sized enterprises, which for a variety of reasons are more likely to structure capital raises as third-party litigation finance agreements rather than as more traditional third-party debt or equity raises. Our novel vantage point on litigation finance also offers some new insights into the ongoing debate about funding’s impact on our civil justice system. Our non-market strategy framework demonstrates that litigation finance generally promotes marketplace efficiency and should be encouraged. We conclude by inviting scholars and policymakers to further study these new questions about litigation finance’s impact outside the courthouse gates and in the market square.
Bedi, Suneal and Marra, William, Litigation Finance in the Market Square: A Non-Market Strategy Approach (September 9, 2024). Forthcoming, Southern California Law Review.
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