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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, May 6, 2013

Borden: The Coming Resurgence of the Legal Profession and Legal Education Fueled by Third-Party Litigation Financing

Huffington Post:  Third-Party Litigation Financing and the Impending Resurgence of the Legal Profession, by Bradley Borden (Brooklyn):

The deterioration of the legal jobs market and the crisis in legal education have dominated recent headlines. Some conclude that the current weak market reflects the new normal in legal education and the profession, and they fill the ether with their tales of doom and gloom. I remember hearing the term "new normal" just prior to the Dotcom Bust in the early 2000s, so such references signal to me a radical change is coming. The growth of third-party litigation financing (TPLF) may be the catalyst that ushers in a reversal of the legal market and an unprecedented resurgence of the legal profession.

Despite its critics and shortcomings, TPLF has significant legal and professional support and is gaining significant traction. The concept is simple: finance companies fund the cost of litigation in exchange for a share of a plaintiff's potential recovery. The hundreds of millions (and perhaps billions) of dollars of TPLF undoubtedly will drive up the demand for litigation attorneys, but its ripple effects will also increase the demand for transactional and regulatory attorneys. In short, TPLF will transform the legal profession....

The demand for legal services will inevitably turn to favor attorneys. When that happens, the lack of attorneys in the pipeline will create a substantial shortage of qualified attorneys. For law firms to meet the new demand for legal services, they will have to aggressively recruit the top law graduates. To entice them to join their firms, law firms will have to raise starting salaries to unprecedented heights, creating a market reversal of epic proportions.In fact, the legal services market, which has been a buyer's market for the last several years, will quickly become a seller's market. Those who invest in the legal profession stand to gain handsomely from the reversal.

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Hong Kong still recognizes the crime of maintenance and champerty. Indeed, a lawyer there was recently convicted and sentenced to 15 months in jail for that crime, although the conviction was overturned for insufficient evidence. I wonder if any economists have studied the effects of maintenance and champerty laws on economic growth.

Posted by: Douglas Levene | May 6, 2013 6:50:17 AM

This is the most frightening piece of news in living memory. Nuclear weapons in the hands of the Taliban would pose less peril to our country.

Posted by: DEK | May 6, 2013 12:00:02 PM

I devotedly pray you are wrong. The last thing our society needs is more lawyers.

Posted by: j conley | May 6, 2013 12:39:13 PM

Champerty and Maintenance are still unlawful in Ohio. Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121, 2003-Ohio-2721.

I would oppose this kind of deal unless the funder were liable for the Defendant's legal fees if the funder's plaintiff looses.

Posted by: Walter Sobchak | May 6, 2013 1:01:09 PM

This is a real stretch. There is little date to support the notion that there is underinvestment in litigation, which third party financing would find profitable.

Posted by: unlingua | May 6, 2013 1:11:34 PM

I so desperately hope you a wrong and many many lawyers have to get construction jobs.

Posted by: Stinky | May 6, 2013 1:45:40 PM

If this comes to pass, you will see even more businesses flee the US.

Posted by: Concerned Citizen | May 6, 2013 2:02:56 PM

please delete earlier comment; I left out a word:

Sounds like just the thing we need to truly kick the economy into the abyss. All of those QE dollars can finally find their way into a useful, productive activity: we can prosper by suing each other!

Posted by: thad5692 | May 6, 2013 2:04:50 PM

TPLF? Well I guess you can give anything credibility by giving it an acronym, but, c'mon. If you swing a cat you'll hit a PI atty. If any case is worth taking, they take it and "LF" it themselves. And they're hurting now too. Also, the tail that you would have wag the whole dog of out-of-work attorneys and recent law school grads, is notoriously dominated by very large firms that have RN's on staff, offer their own dr assessments, etc. & have enormous capability to take on more work.

Posted by: Mike | May 6, 2013 2:07:21 PM

This is long overdue, but one critical element is missing, at least in civil cases.

There has to be a double-or-nothing provision.

This means, Paul, that if you sue me for $1 million, you have to deposit $1 million into escrow before any legal proceedings commence. If you win, I owe you $1 million. If I win, I take your $1 million. If we settle, then you get your escrow money back.

Only the presence of a double-or-nothing provision will eliminate the sheer volume of ridiculous and frivolous lawsuits, and it will allow minor disputes to be resolved with dispute-resolution specialists at a fraction of the cost (and utterly wasted energy) of the legal system.

TPLF without D-or-N will only cause proliferation of pointless civil actions. Certainly (as you point out) it may employ a lot of lawyers, but remember that each dollar given to a lawyer to defend (or preventatively offset) a frivolous legal action is one dollar that is not used to create a product, hire a productive employee, or donate to a legitiate charity.

Posted by: Steve Levy | May 6, 2013 2:10:36 PM

Just what we need -- yet another round of legal plague.

Posted by: wjr | May 6, 2013 2:36:12 PM

And monkeys will fly out of my butt.

Posted by: Ming the Merciless Siamese Cat | May 6, 2013 2:54:10 PM

More funding for litigation, hooray!

My reaction to the HuffPo link is decidedly mixed, like after reading well-written, plausible, dystopian science fiction.

I'll say this though: even if Brooklyn Law School closes, Professor Borden will find something creative and profitable to do.

Posted by: gs | May 6, 2013 3:31:51 PM

Sounds like this was written by a California Western or New York Law School recruiter.

Posted by: Brian G. | May 6, 2013 6:41:32 PM

All y'all need to try a little dose of Torte Reform like we did in Texas. CAP the PUNATIVE DAMAGES and the sniveling Torte rodents will scurry for the exits.

Posted by: hreynolds | May 6, 2013 8:57:00 PM

Tort reform initiatives will eventually be instituted that will shift the cost of lawsuits onto the losing party. Rightly so. Lets hope this consideration will be extended to third part financiers. If you choose to partake in the legal shakedown of some entity, and yet lose, you should bear the burden of the costs that your gambit imposed on the victim (the party you helped sue unsuccessfully).

Like the cigarette company litigation of the Clinton Administration, eventually the legal profession and its enablers (such as third party financiers) will eventually be held accountable for the costs imposed on society by their action, using the exact same arguments that were used to get billions from the cigarette industry.

Posted by: Scott Cunningham | May 6, 2013 9:44:21 PM