How a Conservative Legal Scholar Came to Embrace Litigation Finance

January 29, 2020

Looking out window

Brian Fitzpatrick is a conservative legal scholar and author, as well as a former Big Law partner, Republican Senate Special Counsel, and clerk for Justice Antonin Scalia. In other words, he’s not the typical fan of claimant-friendly tools like class actions or litigation finance.

Yet Fitzpatrick, a professor at Vanderbilt Law School, has spent years studying the factors that drive complex litigation. And in his new book, The Conservative Case for Class Actions, he argues that class actions offer a market-based solution to solve inequities in the court system.

He explained to Bentham IMF Investment Manager and Legal Counsel, Sarah Tsou, in a recent episode of our Beyond Hourly podcast that he initially “had the same intuitions about class action lawsuits that a lot of conservatives have. That is, I was against them and thought they were an abuse and dragging down our economy. But as I studied them as an academic for the last 12 years, I've come to a different view.”

Conservative judges and policymakers, he goes on to say, have been influenced by opposition to class actions by the U.S. Chamber of Commerce and the interests of some big corporations. “It doesn't reflect the reality about our class action system, and I think there's actually a lot to like as a conservative with our class action system,” Fitzpatrick says. Specifically, he explains, it’s “private enforcement of the law.”  He urges policymakers to ask themselves: “Why do Conservatives want more government instead of a private sector solution to a problem? I just want people to stop and think about that before they put the next nail in the class action coffin.”

A Conservative Case for Litigation Finance

Litigation finance has also been opposed by some of the same parties that oppose class actions. Likewise, Fitzpatrick says he believes funding allows private enterprise to help the courts solve a significant procedural problem.

Some litigants, he notes, lack the resources necessary to prosecute meritorious claims or are forced to settle their cases early because they cannot afford to continue against well-heeled opponents. “That means we get results in litigation that are out of whack with the merits of the lawsuit,” Fitzpatrick says. He added: “We don't want our laws to be systematically under-enforced because one side doesn't have access to a product that the market is trying to deliver.”

Aligning Interests Between Lawyers and Clients

In addition to leveling the playing field and aligning litigation results with the actual merits of the case, Fitzpatrick also sees benefits in the way litigation finance helps to align interests between lawyers and their clients. “There’s always been a question of how best to pay lawyers,” he says. “If you pay them by the hour, lawyers may have the incentive to drag cases out longer than the client might want. If you pay lawyers on a contingency fee, then the contingency fee lawyer wants to settle early and quickly because you can maximize your hourly rate that way.”

The ideal arrangement from a law and economics perspective, he says, is to pay lawyers a percentage of the recovery plus an hourly rate. This pits the lawyers’ competing incentives against each other and produces the best result for the client. This arrangement is “something that litigation finance makes a reality,” Fitzpatrick says, and is a “very exciting innovation that litigation finance is bringing to litigation.”

Misconceptions About Litigation Finance Addressed

Fitzpatrick is no newcomer to this field. He has been teaching litigation finance to his students at Vanderbilt Law School for a decade, and it’s “only grown in importance since then.” Despite the widespread adoption of litigation finance today, however, some misconceptions remain.

One common misconception, Fitzpatrick says, is that litigation funding is new. But the practice of someone getting a percentage of recoveries in exchange for upfront financing has been around since the advent of contingency fees for lawyers. “We have been letting someone invest in a lawsuit and take a share of the recovery for 200 years,” he observes. “There’s nothing really that new about this practice.”

Fitzpatrick also voiced opposition to those who believe that funding lawyers may run afoul of ethical rules prohibiting lawyers from splitting their fees with non-lawyers. These rules, he says, “have been around for a very long time” and were originally intended to “prevent the lawyer from being influenced by the non-lawyer in a way that would make the lawyer charge more fees than the lawyer otherwise would.” That, in his view, is a “very naïve view of how lawyers operate” today.

Predictions for the Future

Fitzpatrick believes the case for maintaining rules against fee-splitting is “fairly weak” and that such rules will eventually be rescinded in the same way many states have abolished or limited rules against champerty and maintenance. “They may have been based on some romantic notions 200 years ago, but they do not make sense from an economic perspective today.” 

This, of course, is consistent with Fitzpatrick’s conservative view that sophisticated, commercial parties know best how to handle their own dealings and should be able to transact freely in the marketplace.  “A lot of these ethical rules and these other rules are really designed for unsophisticated consumer markets,” he says. “When we have sophisticated parties involved, they should be free to arrange their affairs the way that they want to without the government telling them what is best for them.” This, he foresees, is what the future will hold. 

In the meantime, Fitzpatrick will continue to incorporate litigation finance into all of his classes, because “it’s part of what every law student needs to know.” He is training future lawyers, judges, scholars, and policymakers, and wants to equip them with knowledge of this important tool. “It’s not only a big deal now, but it’s going to be a huge deal in the future.”

To hear more from Fitzpatrick about the advantages of funding arrangements and other market-based litigation solutions, listen to the Beyond Hourly podcast at our Litigation Finance Education Center. The Center is also where you can learn about CLE seminars we offer to companies interested in working with funders and where you will find our recent client podcasts, blog posts and videos.

To learn more about the ways litigation finance can help you pursue meritorious claims, contact us for a consultation.