- Irony alert: Get-money-out-of-politics measure passes 53-47 in Howard County, Md. after backers outspend foes 10-1 [Len Lazarick, Maryland Reporter]
- “Hershey’s Scoffs At Class Action Over Amount Of Kisses In Bags” [Dee Thompson, Legal NewsLine/Forbes]
- Philippines bar responds after president Duterte menaces lawyers of drug suspects [Tetch Torres-Tupas/Inquirer, InterAksyon and letter]
- What should Trump do re: conflicts? Richard Painter and David Rifkin discuss [Federalist Society podcast; earlier]
- Massachusetts Attorney General Maura Healey, lately seen in this space using subpoena power to go after political adversaries who hadn’t taken a dime from ExxonMobil, also known for curious assault on gunmakers [David Meyer Lindenberg, Fault Lines]
- “N.Y. Top Court Rules Litigation Finance Transaction Violates Champerty Doctrine” [Kevin LaCroix, Alison Frankel on Justinian Capital SPC v. WestLB AG] “An epic legal battle with big implications for litigation funding” [The Economist on Liberian insurance claims against Cigna]
Casting aside traditional prohibitions on champerty and maintenance, the United Kingdom has of late thrown open its doors to “litigation finance” enterprises that fund legal actions as an investment in exchange for a share of the proceeds. But now a very important constraint may be developing as a corollary: backers of legal action may find themselves on the hook for the fee shifts that are payable to successful opponents under the country’s loser-pays (“costs follow the event”) rules. “Litigation funders will be liable for indemnity costs where these are awarded against their funded client, even if the funder itself has been guilty of ‘no discreditable conduct’, the Court of Appeal ruled today in Excalibur Ventures v Texas Keystone and others  EWCA Civ 1144.” [Law Gazette]
- Settlement insurance, a new litigation-finance mechanism, can have the unintended result of casting light on just how little benefit some class actions provide to consumers [Ted Frank, CEI] Yet another new litigation finance mechanism: trial-expense insurance purchased by lawyers [Bloomberg/Insurance Journal]
- South Carolina law firm sues 185 different defendants in the average asbestos case it files, and it’s still far from tops in that department [Palmetto Business Daily]
- “Those terms and conditions (that nobody reads) could cost New Jersey retailers” [Tim Darragh, NJ.com on class actions under pre-Internet-era state consumer protection law]
- Some federal courts, while paying lip service to the important Rule 26 discovery reforms that took effect Dec. 1, continue in their old ways, “effectively applying the old standard” [James Beck]
- “Can Pokémon Go and Product Liability Coexist?” [Julie Steinberg, BNA/Product Safety & Liability Reporter, earlier]
- “How does privatization affect liability?” [Sasha Volokh]
- Big win for Ted Frank’s objector project in Walgreens case: “Posner opinion blasts class actions that are ‘no better than a racket'” [ABA Journal, Kevin LaCroix/D and O Diary, Cook County Record]
- “It’s a bonus if they went [to the hospital] in an ambulance”: litigation funding moves into mainstream [Sara Randazzo, WSJ]
- Class actions and lawyer collusion: why the Supreme Court should review Schulman v. LexisNexis [Ilya Shapiro and Jayme Weber, Cato]
- “Should Judges Allow Juries To Hear A Windfall May Be Bad For A Plaintiff?” [Kyle White, Abnormal Use]
- California Supreme Court OKs basing class action fees on settlement size rather than hours worked [Alison Frankel, Reuters; earlier on Laffitte v. Robert Half International]
- “Contra Plaintiffs’ Bar, Registering to Do Business Does Not Create General Jurisdiction” [Mark Moller, Washington Legal Foundation]
The discovery that systematic lawsuit campaigns can be aimed at the press, and not just against every other institution, might be reason to rethink litigation-as-weapon [Gordon Crovitz, Wall Street Journal]:
Walter Olson, author of “The Litigation Explosion” (1991), explained in his Overlawyered.com blog that Mr. Thiel’s approach was predictable after maintenance “metamorphosed around the 1960s into what we now know as the public interest litigation model: foundation or wealthy individual A pays B to sue C. Since litigation during this period was being re-conceived as something socially productive and beneficial, what could be more philanthropic and public-spirited than to pay for there to be more of it?”
With maintenance decriminalized, Mr. Olson warns, “It will be used not just against the originally contemplated targets, such as large business or government defendants, but against a wide range of others—journalistic defendants included.”
The Peter Thiel/Hulk Hogan story has brought the topic of litigation finance into the news, and a recent Alison Frankel column notes an alleged secret $10 million investment in the BP gulf spill case that might possibly have served as overstimulus: “Most of 40,000 seafood workers …turned out to be phantom clients…one, famously, was actually a dog.” [Reuters]
Davey Alba and Jennifer Chaussee at Wired quote me on Peter Thiel’s financing of the Hulk Hogan lawsuit as part of a campaign to take down Gawker Media (earlier here, here). The episode, which follows Frank VanderSloot’s announcement that he wishes to devote $1 million to endowing a fund for lawsuits against the “liberal press,” is likely not to be the last such, and I speculate on a nightmare scenario in which multiple clearinghouses claiming the public interest banner (and presumably based on tax-deductible donations) get up and running with the objective of taking down various sectors of the press disliked by one group or another.
Related: I’m a bit surprised that the successful legal takedown of the tawdry 1950s-era Confidential magazine, told in Henry Scott’s book Shocking True Story, hasn’t figured in more Gawker coverage. Megan McArdle at Bloomberg View weighs in on various aspects of the Thiel/Hogan story, and as usual is worth reading. Max Kennerly has a detailed analysis of legal issues in the coming Hogan v. Gawker appeal [earlier on verdict] And a flashback: how the late Lehman Brothers got in a ton of trouble by dabbling in champerty.
There has been much coverage of the revelation that Peter Thiel has funded Hulk Hogan’s lawsuit against Gawker behind the scenes, especially following the Silicon Valley figure’s acknowledgment that he views taking down the notoriously scurrilous publisher as a public service (“one of my greater philanthropic things that I’ve done”) and has sought out and funded other litigants besides Hogan in order to make that happen. As I said in my explainer the other day, the decay of age-old rules against outsider funding of litigation (“champerty and maintenance”) is a broader trend that has left many sectors of society more exposed to the dangers of litigation, with the press just the latest.
I’m quoted by Alison Frankel in her Reuters column on this (“Our ancestors were not complete fools,” I say) and by Timothy Lee at Vox (“‘Some people following the Thiel story appear to be surprised that these weapons can be used by rich and powerful people in order to get their way,’ Olson tells me.”; also see Ezra Klein’s piece). And Lee recounts a recent episode that passed with little notice at the time:
Last year, the liberal magazine Mother Jones defeated a defamation lawsuit filed by Republican donor Frank VanderSloot. Winning the lawsuit cost Mother Jones, a relatively small nonprofit organization, and its insurance company $2.5 million in legal fees.
If VanderSloot’s goal was to punish Mother Jones for writing an accurate but unflattering story about him, a loss was almost as good as a victory. His lawsuit sought $74,999 (staying just under the $75,000 threshold that would have allowed Mother Jones to move the case to federal court and away from an Idaho jury that might have favored the hometown plaintiff). So “winning” the lawsuit cost Mother Jones 30 times as much as the amount it would have had to pay if it had lost.
What was really ominous was what happened after VanderSloot’s loss. He “announced that he was setting up a $1 million fund to pay the legal expenses of people wanting to sue Mother Jones or other members of the ‘liberal press.'”
Of journalists raising the alarm about the Thiel episode, Josh Marshall notes that unlike the usual pattern of litigation by wealthy persons against the press, in which the plaintiff must undertake some risk of reciprocal damage through discovery and bad headlines, the Thiel model allows the one in the background with the grudge to inflict hurt at little risk except financial to himself. “If Thiel’s strategy works against Gawker, it could be used by any billionaire against any media organization,” argues Felix Salmon.
Meanwhile, some other writers echo the point I made about how, once funding other people’s lawsuits for ideological reasons came to be applauded as public interest law, it was unlikely that the weapon would not be used against the full range of targets including the press. Tyler Cowen tries putting the shoe on the environmentalist foot, while Eugene Kontorovich at the Volokh Conspiracy observes that “Thiel’s conduct fits into the ‘public interest’ or ‘ideological’ litigation paradigm” and claims that “By current standards, Thiel’s funding should raise no eyebrows — unless one also wants to revisit public interest litigation, class actions and contingent fees.”
You know what? Maybe it’s time we did revisit those things, including the ideological litigation paradigm. And Andrew Grossman has a tweetstorm and exchange with Kontorovich that comes closer to capturing my own mix of feelings on the subject.
[Wrestler Hulk Hogan’s lawsuit against Gawker Media over its publication of a sex tape resulted in a Florida jury’s award of $140 million against the widely loathed journalistic entity. There had been rumors that someone staked Hogan the money to sue. Now, Ryan Mac and Matt Drange in Forbes write that anonymous sources have told them the hidden funder was Silicon Valley libertarian Peter Thiel. The article does not make clear whether, if the reports are true, Thiel stands to gain a share of the suit’s proceeds, or was acting from dislike of Gawker.]
At common law, funding another’s lawsuit was “champerty” if done for a share of the proceeds and “maintenance” if done for the hell of it. Both were unlawful at common law (as was “barratry,” the stirring up of litigation whether or not resources were advanced for its prosecution) but as I discussed in The Litigation Explosion (1991), the old common law rules have fallen into general disuse. What rules still remain vary from state to state, often taking the form of rules specifically governing what lawyers and their associates can do (which will often leave non-lawyers free to carry on the same acts.)
Champerty and maintenance rules both came under attack from legal academics and influential commentators during the general rise of pro-litigation sentiment in the decades after 1950, and were dismissed as outdated and ethically wrongheaded. The path was different in each case, however. In the case of champerty, the rise to acceptance of the lawyer’s contingency fee, as a wholesome prescription for the general case rather than a necessary evil in special kinds of cases, tended to erode disapproval of champerty: if there was nothing at all wrong with lawyers taking a share in claims, why not invite others to do so too? As an internet search on the phrase “litigation finance” will quickly show — or a glance at a tag on the subject at Overlawyered — third-party financing of lawsuits has become a booming and largely unregulated business in the United States and a few other nations, even as champerty remains unlawful in many other countries. The U.S. Chamber of Commerce, believing that litigation finance is likely to fuel the volume of lawsuits, has fought for restrictions on the practice.
Maintenance, on the other hand, metamorphosed around the 1960s into what we now know as the public interest litigation model: foundation or wealthy individual A pays B to sue C. Since litigation during this period was being re-conceived as something socially productive and beneficial, what could be more philanthropic and public-spirited than to pay for there to be more of it? So what had been stigmatized or even illegal not long before soon emerged as the most admired kind of legal practice.
Once the old ethical qualms about champerty and maintenance fall, it seems unlikely that they will be revived only as to some causes or persons. Funding someone else’s lawsuit for ideological reasons, long perceived as a dangerous stirring up of social conflict that might otherwise have remained at rest, is now applauded as a means of holding powerful institutions accountable, ensuring wronged parties their day in court, and so forth. Inevitably, once all parties grow comfortable with this tool, it will be used not just against the originally contemplated targets, such as large business or government defendants, but against a wide range of others — journalistic defendants included.
“Elite personal-injury lawyers tell stories about having been pursued by litigation financiers offering tens or even hundreds of millions of dollars to buy a piece of their mass torts dockets.” But for unwary investors it can be a shark-eat-shark world. Nor is it free of hazards for plaintiff’s counsel, even when sophisticated: “AkinMears, the Texas plaintiffs’ firm that allegedly spent $45 million to acquire a huge docket of mesh cases last summer, subsequently told me and my reporting partner Jessica Dye that it was unaware some of those cases had originated at offshore call centers. The firm also told us that an unexpected significant percentage of clients opted not to proceed or not to use AkinMears as counsel when their cases were transferred.” [Alison Frankel, Reuters]