Ralph Strikes Back at Chamber of Commerce in OpEd

April 10, 2019

Validity Finance CEO, Ralph Sutton

In an ideal world, America’s civil justice system would provide for resolution of legal claims in a fair, efficient manner in a neutral forum accessible to everyone. Unfortunately, we do not live in that world.

Litigating commercial disputes takes too long, costs too much, and excludes parties that lack the resources to litigate. That’s bad for American companies, and bad for the rule of law.

Consider that on average a civil case takes two years from the time of filing until it reaches trial. Even a straightforward commercial case can cost from tens of thousands to millions of dollars to litigate, and the price keeps rising. In recent years litigation costs have risen approximately 4% to 8% annually.

The length, complexity, and cost of litigation gives parties with deep pockets an almost insuperable procedural advantage that has little to do with the merits of the case.

A Fortune 500 company with established lines of business and billions of dollars in revenues can easily weather a multi-year, multimillion-dollar legal battle. But what would be a nuisance to a large multinational could pose an existential threat to a small or mid-size company.

The problem is so acute that according to a recent industry survey, 70% of companies have declined to pursue legitimate, meritorious claims simply because they lack the resources to fully litigate the case. Likewise, respondents to a 2009 survey by the American Bar Association indicated that 82% of law firms had turned away meritorious cases that were not considered “cost-effective.”

Commercial litigation finance arose as a free-market solution to this crisis of access. Litigation funding is based on the simple proposition that the outcome of legal disputes should be based on the merits rather than on which party has the most money.

In the typical litigation finance transaction, a funder will provide $1 million or more of non-recourse capital to a company involved in litigation. The company in many cases uses the funds to pay for top-notch legal counsel, expensive experts, and other litigation costs.

If the company succeeds in the litigation, it pays the funder a multiple of the amount the company was provided or a percentage of the litigation proceeds. If the company loses, it owes the funder nothing.

Today, even large, well-financed companies use litigation finance to reap the accounting benefits offered by taking litigation spend “off-balance sheet,” and the risk sharing and alignment of interests with counsel that it enables.

One might assume that the U.S. Chamber of Commerce — which claims to represent the interests of businesses large and small — would support companies seeking the protection of both the law and the court system.

However, for the past several years the Chamber has led a crusade against the litigation finance industry. Its efforts include lobbying for onerous regulation of the industry and misleading suggestions that litigation finance encourages frivolous litigation, violates ethical rules, or somehow undermines the adversarial system of justice.

It does none of those things.

To read the entire OpEd, go to http://www.cfo.com/legal/2019/04/litigation-funder-strikes-back-at-chamber-of-commerce/

Ralph J. Sutton

Founder & CEO