On January 19, the United States Government Accountability Office (GAO)1 released a report on “third-party litigation financing” in response to a Congressional request. Given the GAO’s mission—"to provide Congress with fact-based, nonpartisan information that can help improve federal government performance and ensure accountability for the benefit of the American people”—Burford Capital was pleased to have contributed perspective and expertise to its industry analysis along with other market participants.
Happily, the GAO report reflects positively on the commercial legal finance industry and emphasizes several of the advantages it offers to the US legal sector and economy. The GAO set out to review issues including “1) characteristics of and trends in the commercial and consumer markets; 2) data gaps in the markets, and policy options to address them, 3) potential advantages and disadvantages of [legal finance] for users and investors, and 4) regulation and disclosure”.
Among the many positive findings in the GAO report on legal finance, the following points are particularly noteworthy:
- The GAO report draws a clear distinction between commercial legal finance and consumer litigation funding, two entirely different industries with different market participants and end users that are all too frequently conflated by critics to serve their own purposes.
- The GAO notes that “Funders select the most meritorious cases to fund because they only receive returns when claims are successful”—refuting any notion that legal finance leads to frivolous litigation.
- The GAO report also makes clear that legal finance providers do not control litigation: “All of the commercial litigation funders we interviewed said they did not make any decisions about litigation strategy for the cases they fund through [litigation finance] arrangements.”
- The benefits of legal finance for commercial litigants are emphasized, including their ability to access the courts regardless of their cash position, their ability to transfer risk to a third party, and their ability to accelerate some of their expected entitlement in claims that may take many years to resolve.
- Additionally, the GAO report emphasizes the further benefit that litigants may gain “from the due diligence … funders conduct in assessing the merits of [their] case.”
- The GAO made no recommendation for additional federal regulation. “The [legal finance] industry is not specifically regulated under federal law. However, the activities of litigation funders may be subject to regulation under laws of more general applicability, such as federal securities laws.”
- Finally, the GAO report does not identify a need for further disclosure of legal finance: “There is no nationwide requirement to disclose litigation funding agreements to courts or opposing parties in U.S. federal litigation…. Despite the absence of a nationwide disclosure requirement, federal courts can still obtain information about [litigation finance] arrangements.”
As an objective and non-partisan analysis of the legal finance industry, the GAO report carries weight, and thus it is meaningful that its findings emphasize so many of the positive benefits provided by legal finance to law and to business. Although critics of legal finance will doubtless work to spin the report otherwise, the GAO’s findings are a clear positive for the legal finance sector.
1 According to its website: “GAO provides Congress, the heads of executive agencies and the public with timely, fact-based, non-partisan information that can be used to improve government and save taxpayers billions of dollars. [Their] work is done at the request of congressional committees or subcommittees or is statutorily required by public laws or committee reports, per [their] Congressional Protocols.”