The Verdict Is In: Litigation Funding Is Ethical & Essential

Recently, a justice at the Delaware Superior Court ruled that litigation funding is acceptable in the courts, and that it grants plaintiffs and plaintiffs’ attorneys a fair playing field against wealthy opponents.

Even the skeptical Wall Street Journal put out a resounding endorsement of the practice with the headline “Litigation Funder Doesn’t Violate Ethical Boundaries, Court Finds”.

The court was reviewing a case in which the defendant, DuPont, moved to dismiss a case because the plaintiff, Charge Injection Technologies Inc (CIT), was working with Burford Capital, a litigation funding company. DuPont alleged that by working with Burford, CIT was engaging in “champerty and maintenance”, and thus the case should be dismissed.

Champerty and maintenance, legal concepts rooted in Medieval British society, were created to prevent wealthy landowners from funding lawsuits against their enemies or otherwise profiting off of litigation.

The Delaware court decided that legal funding was not at all related to champerty and maintenance, and, in the case of CIT v Dupont, “it’s the type of case that litigation funders say they’re perfectly situated to take on: suits brought by small players defending their products against deep-pocketed defendants.”

“Burford said in a statement the court ‘reaffirmed what was already clear—that litigation finance as practiced by Burford has nothing to do with the ‘ancient’ and ‘feudal’ practices of maintenance and champerty.’”

As Delaware is an influential state in the legal world — “many companies are formed in Delaware, Delaware law is often selected to govern commercial agreements, and Delaware courts are viewed as sophisticated and efficient forums” — this decision could give the legal funding industry the momentum it needs to gain greater acceptance in other states.

CIT v Dupont ruling is an example of commercial litigation funding, where the plaintiff is usually a smaller business (CIT) receiving financing from a third party funder (in this case, Burford Capital) so they can compete against a defendant with much greater financial resources (Dupont).

However, this decision will likely also help the consumer legal funding industry in terms of gaining more mainstream acceptance. Consumer legal funding, as the name implies, involves financing individual plaintiffs and their attorneys who work on a contingency fee basis. Some of the more popular case types aided by consumer funding are personal injury, medical malpractice, and product liability.

For a more detailed explanation of the difference between commercial and consumer funding, read this blog post.

Written by Shayna Keyles, edited by David Smethie.