The growing industry of litigation funding will be expanding further very soon. Reuters reported last week that well known former federal prosecutor Andrew Stolper of Santa Ana, California, will open a litigation financing firm. The new company will be based in Irvine, California and will specialize in funding plaintiffs in commercial litigation cases. Firms like Stolper’s loan money to plaintiffs in exchange for a percentage of any recovery. The loans typically do not have to be repaid if the plaintiff does not recover.
Litigation financing is a very controversial practice. In 2011 the New York City Bar Association issued a formal opinion stating that it is not unethical per se for a lawyer to represent a plaintiff with a non-recourse financing agreement. However, the same opinion pointed out that there may be a loss of confidentiality due to sharing privileged information with the litigation finance company. The opinion states “a lawyer representing a client who is party, or considering becoming party, to a non-recourse funding arrangement should be aware of the potential ethical issues and should be prepared to address them as they arise.”
In addition to the various ethical concerns, one of the practical ramifications of litigation financing is that it can often complicate the resolution of a case by settlement since the funding company will typically have a lien against the proceeds, minimizing the plaintiff’s net recovery via settlement. Many mediations fail because of such liens.
Stolper enters his new business with a history of having been strongly criticized by a federal judge in 2009 for engaging in a “shameful” effort to intimidate witnesses. Further, his partner in the new venture, Peter Norrell, is a former FBI agent who pled guilty in 2010 to illegally accessing FBI records and threatening criminal prosecution to assist a friend in a debt collection matter. He received two years of probation and three months of home confinement for that incident. Apparently, Norrell and Stolper have worked together in the past and they bring their experience to the questionable litigation financing industry.
