Bob Goodlatte, a former Congressman, stated that third-party litigation funding (TPLF) can create a conflict of interest within the legal system because funders seek to maximize their profits from lawsuits. Goodlatte shared his statement during a June 12 Judiciary Subcommittee hearing on the impact of TPLF in the U.S. intellectual property system.
"Third-party funders in cases both related to and outside of intellectual property lawsuits have an incentive to maximize their returns," said Goodlatte. "At times, this may come into conflict with the interests of plaintiffs and prevent plaintiffs and defendants from reaching fair settlements. Third-party funders often claim not to be involved in legal strategy, but we have seen reporting in publications like The Wall Street Journal investigating conflicts between funders and plaintiffs, and painting a picture of an industry where the investors influence case strategy to serve their own objectives, not the plaintiffs'."
According to a report from the U.S. Chamber of Commerce Institute for Legal Reform (ILR), TPLF is the practice of hedge funds and other financiers investing in lawsuits, and in exchange, the funders receive a share of any settlement or award that comes from the case. TPLF arrangements are typically non-recourse, meaning that the funder does not receive any profits if the plaintiff’s suit is unsuccessful. The TPLF industry is worth approximately $15.2 billion in the U.S.
The ILR states that TPLF incentivizes "non-meritorious" lawsuits because engaging in litigation is so expensive that businesses facing lawsuits will frequently choose to settle, even if the claims against them are not legitimate. Additionally, businesses facing these higher litigation costs are often forced to raise the costs of their goods and services for consumers.
According to the National Association of Insurance Commissioners, TPLF is having an "outsized effect" on social inflation, resulting in higher premium costs for all insurance policyholders.
Bankrate reports that California drivers are paying an average of $2,573 each year for full coverage car insurance compared to the national average of $2,278.
Goodlatte represented Virginia’s 6th Congressional district from 1993 to 2019, according to Ballotpedia. He served as chairman of the Judiciary Committee from 2011 to 2018.