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Copyright (c) 2011 The Regents of the University of California
Business Law Journal University of California, Davis, School of Law

ARTICLE: ALTERNATIVE LITIGATION FINANCING: PERILS AND OPPORTUNITIES

Fall, 2011

Business Law Journal, University of California, Davis

12 U.C. Davis Bus. L.J. 65

Author

STUART L. PARDAU *

Excerpt

INTRODUCTION

Alternative litigation finance ("ALF") is a growing industry that presents opportunities and perils to litigants. This concept applies to situations where a claimant accepts funding for litigation from an unrelated third party. At first glance, this setup appears to provide relief to claimants who otherwise are unable to afford legal representation, but a danger exists that the ALF provider will exercise unfair influence. This unique situation also presents ethical concerns for attorneys under the ABA's Model Rules of Professional Conduct ("Model Rules"). Thus, the opportunities and perils that accompany ALF make clear that this growing industry requires a closer examination.

Section I presents an overview of ALF that describes the types of ALF providers, demonstrates industry growth, and outlines the arguments from proponents and critics. Section II explains the limitations of ALF, such as usury, champerty, and the Model Rules, and also provides perspective and solutions. Section III explores the extent to which ALF fulfills the goals that proponents claim. Section IV analyzes the developments outside of the industry that may have an impact.

I. WHAT IS ALTERNATIVE LITIGATION FINANCING?

ALF, which has also been referred to as "third party litigation finance," 1 is the situation where an agreement exists between a litigant, usually a claimant, and an unrelated party to the lawsuit. The unrelated third party funds the lawsuit, or pays the litigant an "advance," in exchange for a portion of the proceeds later awarded. The arrangement typically is characterized as ...
 
 
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