W. Bradley Wendel & Joshua P. Davis

Volume 74, Issue 5, 1459-1482

Commentators have worried that third-party funding, particularly in complex litigation, may give rise to ethical concerns. In this Essay, we explore an alternative possibility: third-party funding may solve ethical problems rather than cause them.

We explain why third-party funding can comply with the letter and spirit of the relevant ethical rules and why whether it causes or cures ethical problems depends on the setting. We note that if third-party funding agreements are properly structured—protecting, for example, lawyers’ independent judgment—they should not pose ethical problems. On the contrary, in some contexts third-party litigation funding may ameliorate tensions between clients and counsel.

We identify two settings in which third-party litigation funding may do more good than harm: first, encouraging an optimal level of private enforcement of the antitrust laws, and second, diversifying the plaintiffs’ lawyers who pursue class actions and other complex litigation.

A theme runs throughout our analysis: We should be careful to avoid a mistake that might be characterized as a variation on the naturalistic fallacy—that the practices to which we are accustomed are necessarily good. Instead, we suggest returning to first principles to determine whether third-party litigation funding is good, bad, or indifferent—a conclusion that may well vary by context.