Litigation Nation

Jack Sanker: Welcome to Litigation Nation. I'm your host, Jack Sanker, along with my co-host Luke. Thank you. This is the podcast where we recap some of the most interesting and impactful legal stories of the past two weeks. As a reminder, you could find us on Apple Podcast, Spotify, wherever you get your podcast. We publish every two weeks.

Jack Sanker: Luke, what do we have up this week?

Luke Behnke: Really interesting story. Litigation funding surged in 2022.

Jack Sanker: And it as a follow up to an episode a couple weeks ago where we, where I hated on artificial intelligence as applied to the legal industry for about 30 minutes. A story of an abuse victim who is utilizing artificial intelligence to help represent herself against her alleged abuser in about a dozen different lawsuits.

Jack Sanker: All that and more, here's what you need to know.

Luke Behnke: Companies that finance us. Commercial lawsuits in exchange for a cut of any recoveries reportedly upped their investments last year committing some $3.2 billion to the practice. This according to a recent report from a litigation finance advisory firm called West Fleet Advisors. Now, many of our dear listeners may not realize that litigation funders are.

Luke Behnke: These funders provide financing for individual lawsuits or even case portfolios in exchange for a share of any settlement or court judgment, sort of like a venture capitalist, except instead of financing risky startups in the hope that some pay off these funders are actually financing lawsuits. So the c e o of West Fleet Advisors said there are likely several factors driving this growth, including a rush to bring cases that were delayed as a result of the pandemic.

Luke Behnke: He also cited inflation from higher law firm billing rates and litigation expenses, though if litigation funding is on, you know, primarily on the plaintiff's side I'm not sure how, you know, the, the billable rate would come into. But I digress. As the industry has grown in the United States over the past decade, backers say that litigation funding can level the playing field and promote access to justice.

Luke Behnke: On the other hand, the US Chamber of Commerce and other critics want tighter regulation, arguing that the practice promotes unnecessary litigation and undermines transparency. In the legal system. In fact, two years ago, in March of 2021, several members of Congress introduced the Litigation Funding Transparency Act, which requires or would require plaintiff's lawyers to disclose third party litigation funding agreements, at least in federal class action lawsuits and multi-district litigation.

Luke Behnke: Several states, including Wisconsin, where Im have passed laws requiring disclosure of third party funding agreements. And the Federal Rules Advisory Committee for the US Courts has considered amending the federal rules to acquire disclosure of third party litigation funding in all civil cases, those who wanna reign in third party litigation funding in the United States want essentially three things, number.

Luke Behnke: Third party litigation funding agreements to be disclosed to all parties in litigation. The thought there is it would minimize conflicts of interest and ensure that plaintiffs retain control of their case instead of handing it over to somebody with a financial interest. Two fee sharing agreements between lawyers and non-lawyers should be banned.

Luke Behnke: Several bar associations have already done to preserve independent professional judgment. And third this sort of funding shouldn't be permitted in the class action context because the sort of funding creates a potential obstacle to class counsel and named plaintiffs satisfying their fiduciary duties to the rest of the class.

Luke Behnke: Now Jack, I think this is really interesting. I know that you had done a few stories on litigation funding back in 2022 and this, you know, the fact that this is sort of surg. Reportedly is part of a much larger discussion and it's something that I'm gonna follow and keep an eye on as we, as we do these podcasts together.

Luke Behnke: But what I think is interesting is that I. It, it's possible that we're only scratching the surface here, right? I mean, this, this story says litigation funding surged by, what, 3.2 billion? I I don't think anybody really has any idea what that actual number is, because it, it isn't. regulated, right? I mean, we could be, we could be much higher than that.

Luke Behnke: We, we don't know sort of what kinda litigation funding is out there and I'm trying to balance my own bias as a, you know, spoiler alert everybody, I'm a defense attorney with the fact that, you know, How do I feel about folks maybe potentially being barred from the system because they can't afford to litigate?

Luke Behnke: On the one hand I'm like, well, that's, you know, I became a lawyer because I believe in due process and that that shouldn't be the case. If you've got, you know, a meritorious, you know, colorable claim or argument or case, you should be able to have your day in court on the. We're fooling ourselves if, if we think that, you know resources aren't a big factor in litigation.

Luke Behnke: I mean, they drive a lot of decisions and in fact you know, it's not, they're not all bad, right? I mean, resources oftentimes, and I, Jack, I don't think you'd disagree, you know, drive sort of settlement discussions, right? I mean, I tell my clients all the time, Hey, look, this is gonna cost a lot of money.

Luke Behnke: You know, maybe we should talk about, you know, finding resolution or, or whatever. I mean, that's not an uncommon discussion to have with your clients. So for now, stuff like this is just really, really interesting that you can essentially you know, maybe crowdfund these lawsuits or sort of be, become a venture capitalist in these lawsuits and you're kind of betting on, you know, these great outcomes.

Luke Behnke: I don't know what that does for the, for the legal. profession, right? I, I, I don't know which way that cuts. I don't know if that makes it more likely that a plaintiff's gonna lose control of their case. You know, you, you're gonna introduce a bunch of other actors into the system that we already have, and maybe that gums up litigation even more.

Luke Behnke: I don't know. There's a lot to unpack and think through. But for now, you know, we know that it's here, it has been here, it's growing, it's getting larger and at least at the, you know, at the federal level and the state. You know, folks are taking notice and they're, they're starting to kind of regulate this this really lucrative industry.

Luke Behnke: What do you think, Jack?

Jack Sanker: Yeah, I mean, there's a, there's so much to talk about. I'll start with the discussion about, you know, is a plaintiff gonna lose control of their case by surrendering their interest to another party?

Luke Behnke: Yeah. I think that's interesting. That's that's something that I'd wanna talk more.

Luke Behnke: Yeah,

Jack Sanker: I mean it depends on the fee arrangement, frankly. If it's a straight up let's, you know, let's boil it down into kind of a simplest scenario, at least where I've seen, which is like a personal injury case. Plaintiff's attorney's working on a contingency, which means they get paid out of the verdict through settlement, a certain percentage, usually two-thirds, sometimes 40%, you know, depending on the jurisdiction, whatever.

Jack Sanker: The plaintiff in this case, in this hypothetical case, oftentimes will it's personal injury case. Maybe they can't. Or they can't pay their car, they can't pay their rent, et cetera. And so they go and they, they, they, what are their options? Well, they're not allowed according to ethical rules in, in every state that I know.

Jack Sanker: And, and the ABA model rules, they can't take out a loan from their lawyer. Right. . You know, generally if you're, if you can't work, you have no income and you're involved in a personal injury lawsuit, you probably don't have great credit at the time. So you're not gonna go get a, you know, a loan from the bank.

Jack Sanker: So what are your options? You could borrow money from friends and family to, to cover it. And by the way, if you're involved in a lawsuit to verdict in certain jurisdictions, that could be two to three years where you get nothing. And so that's where, that's where the demand for these services comes.

Jack Sanker: is inherently the inefficiencies in resolving the underlying dispute. So, you know, they'll sign up with these litigation finance companies and get themselves what's, what's called a case loan in common parlance, which then gets reimbursed out of the verdict through settlements or whatever. I don't, I'm not so worried about, in that case, about folks like, you know, quote unquote losing control of the outside financial interest because the lenders.

Jack Sanker: I know from the industry that default rate's super high and like, you know, if you, if you don't get a verdict through a settlement, what are you gonna do? Go after this person who is, you know, ostensibly disabled and has no income for the loan. I mean, you know, that person is probably judgment proof. So the lender is probably just, you know, outta.

Jack Sanker: Which is why the rates are so high, by the way, but that's a separate discussion. So I mean, I, I don't know. I could see it being like, you know, it introduces the third party interest into the case. I understand that, but in most common scenarios, I doubt it. Now, more complex funding scenarios maybe. And you know, the example I gave is pretty rudimentary.

Jack Sanker: you know, in terms of personal injury type settlement funding. But like, there's all kinds of products now. There's defense products there's defense litigation financing. There's, there's all sorts of ways in which people are seeking to financialize the massive amount of money that's exchanged in our, in our court system.

Jack Sanker: I wish I knew that nu, what that number was, but if you are like a, a VC or a. Private equity, I mean, you're looking at that as like an untapped cap capital market of however many, tens of billions of dollars for which there are pr, very few financial products and services that are, are being, you know, the potential to, to, to go further into this is like massive, right?

Jack Sanker: You know, I understand this. I understand why the Chamber of Commerce is against class action funding because they're the ones that are being named in the class action suits. And you know, the argument from the litigation financeers will be that it allows us to level the playing field because an uninsured, you know, poor indigent person who has no.

Jack Sanker: Can't sustain a long, protracted legal fight against a company that has insurance and in-house counsel and all kinds of liquid assets and everything else. So to give credit to the other side of that argument, that's what they would say is like, we help legal level the playing field in that regard.

Jack Sanker: Whether you believe that or not, you know, up to you. Yeah, it's, I'm not surprised that money is, is flowing into this, this market in particular. I mean, we just got out of the stupid N F T. And, and like, and like slash crypto bubble. And like, we're now see like these in, you know, the VC class and investor class is, is looking for growth opportunities.

Jack Sanker: And this is like a lot more tangible and concrete than, you know, board eight NFTs. And so, so I think that you'll see a lot more of it. And what, you know, how the ABA treats it and the, your local bar association is gonna be important because it's, the money's gonna find its way there.

Luke Behnke: It. . I think the distinction between, you know, leveling the playing field and gumming up the litigation, I think that line is, is razor thin.

Luke Behnke: I, the w where I see this potentially becoming a problem, and I've un encountered this in some of my cases, is when you've got a case that actually makes it to mediation. Remember, we're not talking about going all the way through to a verdict, but the case gets to mediation and everybody in that room except.

Luke Behnke: The litigation funder agrees that the case should settle for a certain amount, right? So I'm curious to see what plaintiff's lawyers think about, you know, these litigation funding systems because I know. , you know, before this it was just sort of, look, we're doing this on contingency. The plaintiff's firms would be telling this to their clients.

Luke Behnke: We're taking on a big risk by sort of, you know, fighting your case. Cuz if we lose, we get zero. You get zero. Nobody gets anything, right? And, and we lose a bunch of money fighting this case. But if we win, we're gonna take a pretty big cut, 30 to 40% of your award. And so they were sort of just the defacto kind of litigation, you know, funders, now you've got someone else at the table.

Luke Behnke: And I've gotta imagine that makes the plaintiff's attorney's job more difficult. On the other hand, I don't know, maybe they're a referral source for one another and like anything else, you, it's, it's sort of like you, you know, you can work together and, and collaborate and, and get a good number.

Jack Sanker: I'll say from experience on the plaintiff's side, that one of the pressures that I think is probably underappreciated is on the defense, is like the plaintiff's lawyers.

Jack Sanker: Obligations to keep these people happy and, and to, to really help them navigate what can be. And, and for this, I'm talking about like a meritorious case, like an like a legit case. I know that we're all jaded on the defense side and think everyone's a faker and a phony, but like, let's, let's assume for this, I'm talking about a real, a real case.

Jack Sanker: And you know, like I mentioned before, someone who can't, who can't meet their day-to-day financial obligations, by no fault of their own, I mean, they got nothing. They got no options. They can't go to a. , unless they have savings, which no one does what are they gonna do? And you know, and, and then they come to you as a lawyer and are like saying, Hey, you know, you're a big fancy law firm.

Jack Sanker: You guys all have suits on in your pictures. Can you lend me some cash? And, and the answer is no, I can't. It's illegal. So what happens then? That's, you know, that's why I think the plaintiff's lawyers are, will, are due. Utilize these companies cuz it keeps their, you know, it keeps their clients from losing their apartment or from getting their car repoed.

Jack Sanker: You know, it's, it's a legitimate concern for a lot of these people. And there's just, you know, ideally what you would do is you would have a, a, a swiftly functioning court system that would quickly, you know, get to the point and, and judge the, get a verdict and ever, but like, that's not gonna happen anytime.

Jack Sanker: So here we are.

Luke Behnke: And with more well-funded litigants, I think you're gonna have, you're gonna have more cases, I think last longer. Yeah, totally. So that's, I guess that's sort of the point where it's like, you know, maybe gumming up the system is not, I guess depending on what, what glasses you've got on, you know, what lenses you're looking through.

Luke Behnke: It's gonna

Jack Sanker: be both. I mean, there's, there's frivolous lawsuits. We, we know, and there's meritorious lawsuits and there's situations where adding money to that pile is going to, you know, do one thing or. So, so, yeah. I mean, I'm sure that it will, it'll keep people in the fight longer on whatever case they have, I think is the point.

Jack Sanker: That's right.

Luke Behnke: And that could be good or bad depending on the, on the, you know, facts of the case. Absolutely. Yeah. We'll see. We'll keep an eye on it and I expect there to be a, a lot more to come on this but just sort of a, you know, interesting, interesting spot right now and sort of shifting landscape in our profess.

Luke Behnke: To see this kind of, this kind of growing business happening.

Jack Sanker: We, and mostly I talked about our opinions on artificial intelligence, maximalist, who have been pushing to quote, unquote replace lawyers or whatever with certain AI products. And if you listen to our episode from a couple weeks ago, you'll know that we think it's probably unlikely, at the very least and probably illegal.

Jack Sanker: In the sense that a non-licensed algorithm can't practice law in any court currently anyways. But I did wanna provide a positive, albeit kind of sad use case for AI in a legal setting. The Fast Company article published a week, the first week of March. The author tells a story of a woman named Ruth. It's a pseudonym by the way, whose husband became kind of more and more abusive over the course of the Covid pandemic.

Jack Sanker: Ruth's husband recently graduated from law school, which makes it even worse because a recent law grad is perhaps the most annoying person you can bump. And in retaliation for the restraining order that Ruth filed against her husband, he became filing, he began filing his own TROs appeals, other lawsuits, what seems like from the piece, pretty frivolous filings here with the goal seemingly to.

Jack Sanker: Further his abuse of Ruth and to keep in contact with her because she had as part of her original filings and no contact rule put in place. And for those of you that don't know, what that means is when there's a restraining order in place, you can get a no contact aspect of that restraining order, which will mean don't contact me, except through these legal proceedings.

Jack Sanker: So you can't call or text, et cetera. So what he seemed to be doing is filing these frivolous filings as a way. Maintain contact with her and maintain some aspect of control and further his abuse, which is, it's really awful. Now, the piece discusses this type of harassing and ation filing practice by potential abusers and says that it's kind of common.

Jack Sanker: It's a way, as I mentioned, for partner to keep in contact with someone who has otherwise done everything they can to get away from their. And Ruth in this case says that she consults with lawyers from time to time, but she really doesn't have the money or the time to use them on every single one of these, you know, frivolous filings from her husband.

Jack Sanker: She says in a piece that she's in court once or twice a month and is mostly representing herself. And this is the interesting part to help against these filings. Ruth says she's using chat, g P. To help her combat the mountain of paperwork that's being heaved at her by her recent law grad husband.

Jack Sanker: I started asking about it. Terms that I didn't understand that my husband would use in his filings, and it did a really good job. She says the alternative was Googling the terms and the court cases it he cited, which was incredibly time consuming and still presented information written in legalese Chat.

Jack Sanker: G P T came back with clear concise answers to Ruth's questions. One challenge Ruth faced was learning how to write the best prompts for the technology with trial and error. She figured out how to hone her prompts, for example. Chat. G P T tries not to give legal advice and would answer some of Ruth's questions, saying it could not give her legal advice and she'd have to consult with an attorney.

Jack Sanker: She says, wording the question slightly differently, however would yield a satisfactory answer. She also had to learn to move away from generic responses towards those applied more specifically to her case. Can you please write me a declaration about domestic violence is going to. Very generic, Ruth says, versus, can you write me 1000 words in first person in legal language about domestic violence?

Jack Sanker: In a case where the father is mentally unstable and has committed other financial and verbal abuse, then you're going to get a much better output. Other prompts Ruth has posed to chat, G p t include, provide a list of questions a lawyer could ask in a divorce cross-examination. And can you explain California family law 3 0 44 in basic English.

Jack Sanker: So the piece goes on to specify that Ruth often uses chat, g p t results as kind of an inspiration or guidance for her own filings and chat. G P T hasn't been much of a help on some of the more deposition centric questions. She's also using other technology like watch it, which keeps tabs on her online case Docket and Airtable as kind of a digital organizer.

Jack Sanker: And interestingly now she's sharing a tutorial on what she calls divorce tech. With other mothers going through similar experiences to her own and says that she's helped two other mothers in similar circumstances by directing them to these online resources like Chat G P T according, again, Quote, I'm probably spending 20 to 25 hours a week dealing with litigation, trying to find pro, pro bono lawyers, organizing all the documents because there's a bazillion documents.

Jack Sanker: Reading all of his lengthy filings, writing my responses to his filings, going to court to file the documents, showing up for hearings, even super frivolous ones, she says, but she lights up when she talks about the technology she's been able to employ in her fight and how she plan to spread the word to other moms.

Jack Sanker: I'm just taking the tools that are around and applying them to my use case of legal stuff. . I think this is a pretty cool, and kinda an obvious case for chat G P T and other technologies in the legal industry. I know this is, you know, not being presented as a one-for-one lawyer replacement, but the technology service is stepping in to fill a space where legal service providers have really chosen not to go probably for financial reasons.

Jack Sanker: Pro se litigants who don't have a lot of money on the line are not a client group that many law firms target. Put another way. So this to me seems like a, a really good and helpful first use case for this AI technology. Luke, what do you think?

Luke Behnke: Yeah, it's like we discussed last week, I, I think, or the, or the last time we did this episode, I, I think that AI has a place, right?

Luke Behnke: And that's what I'm, I'm struggling to figure out what exactly this software is supposed to do. I think if it's supposed to be an earpiece, like, you know, that's in the, the helmets of the quarterbacks on the football. That doesn't make any sense to me and I that's not gonna work. But if it's gonna be a tool that folks can use that maybe aren't lawyers or even even that, are lawyers, a tool to use to find, you know, answers that they need to use in these proceedings and find them quickly, and, and the answers are trustworthy.

Luke Behnke: You know, then I think that then I think AI has a place. I, I, I think it's, it's terrific. And you know, something that we mentioned when we were sort of talking offline, Jack, was, look, maybe, maybe this is a tool that reaches a group of people that the available legal tools aren't designed to reach, right?

Luke Behnke: I mean, the, the, the Lexus Nexus, the Westlaw of the world. I mean the, that's really expensive stuff, right? Law firms pay lots and lots of money for those resource. If this is, you know, a cheaper way to, you know, deliver kind of legal research methods to the masses, I'm all for that.

Jack Sanker: Yeah. And, and I think that specifically referencing the episode we did about Do not pay which was the, the service where they were advertising, we're gonna put a earpiece in your ear and you're just gonna puppet, answer, answer the judge's questions with whatever the AI tells you.

Jack Sanker: I think that this is like a much better application and a much more realistic application of the technology to the industry and kind of is, you know, doing what the founder of that. Was trying to do, I mean, at a smaller scale but helping people in underserved populations, litigants pro se litigants, folks in, you know, low from a, from a lawyer's perspective, low state cases, but at the personal perspective, extremely high stakes like custody.

Jack Sanker: Or eviction or small claims or whatever. Giving them something to, to arm themselves and to, to fight with, I think is is pretty cool. And it seems like, especially with this woman packaging this all together and, and, and teaching it to other folks, who are in her unfortunate situation.

Jack Sanker: I mean, that's, that's pretty cool. And, and I would hope that something like that catches on. You know, maybe companies address the space. With their own products that are more specific and, and don't necessarily require you to cobble them all together. But otherwise, I mean, this is, this is a good and I think realistic and sustainable step towards common use for this technology.

Luke Behnke: That's the show for today. You can find us, as always, wherever you get your podcasts, and if you have any thoughts on any of these stories, let us know what you think. Until next time.