99 Iowa L. Rev. 711 (2014)

Download PDF

Abstract

Litigation financing is nonrecourse funding of litigation by a non-party for a profit. It is a burgeoning and controversial phenomenon that has penetrated the United States in recent years. Since “most of the important phenomena of modern litigation are best understood as results of changes in the financing and capitalization of the bar,” it is not surprising that litigation financing has been dubbed by RAND as one of the “biggest and most influential trends in civil justice” and by the Chamber of Commerce as “a clear and present danger to the impartial and efficient administration of civil justice in the United States.”

Despite the growing importance of the practice, there is an absence of information about or discussion of litigation finance contracting, even though all the benefits and risks embodied in litigation funding stem from the relationships those contracts shape and formalize. In this Article, we: (1) set out the efficiency and justice cases for a model contract; (2) build on previous work to make the case for using venture capitalism as an analog and starting point for modeling litigation finance contracts; (3) describe the ethical and economic challenges faced by the parties entering into litigation finance contracts and explain the contractual solutions we suggest in order to minimize and in some cases eliminate such pitfalls; (4) provide a model contract; and (5) conclude by mapping out a research agenda for the new field of litigation finance contracting.