Third-Party Litigation Financing and the Need for more litigation

May 15th, 2013

Third-party Litigation Financing would allow parties not involved in a case to fund litigation. This has the potential of flooding millions, if not billions of dollars into the legal services market. The ABA Journal looks at a proposal of one professor who sees great potential for this new model.

Borden refers to such financing by the acronym TPLF and explains that the funding foots the bill for litigation in exchange for a share of the recovery. “The hundreds of millions (and perhaps billions) of dollars of TPLF undoubtedly will drive up the demand for litigation attorneys,” Borden says. But the ripple effect of additional litigation will also will also spur businesses to hire more transactional and regulatory lawyers, he says, in an effort to head off litigation with properly structured transactions.

Borden notes a decline in BigLaw hiring, a drop in law school applications and a reduction in law grads, creating “a relative dearth of attorneys.” But he sees a turnaround on the horizon. An improving economy, TPLF and a smaller supply of lawyers “portend a perfect storm that will hit the legal market,” he says.

“The demand for legal services will inevitably turn to favor attorneys,” Borden writes. “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.”

Of course how will firms decide which cases to invest in–that’s where legal prediction algorithms come into play. Call me, maybe.