Hulkamania ran wild the night Hulk Hogan defeated Andre the Giant in the main event of “WrestleMania III” before a live audience of over 92,000 and millions more watching on pay-per-view. The Hulkster was recently paired again with a giant and won big. Only this time the giant—a Silicon Valley billionaire—was in his corner as a litigation financier and the triumph was a $160million courtroom verdict.
Hulk Hogan, the nom de guerre of one Terry Bollea, filed suit against Gawker for its publication of a sex tape involving the Hulkster and the wife of his former best friend. Peter Thiel, a billionaire co-Founder of PayPal and Facebook Board member, had his own simmering beef with Gawker emanating from a 2007 story that “outed” him. Mr. Thiel did not much like Gawker’s harsh spotlight, so he teamed with Hogan and funded the Hulkster’s suit against Gawker in the hopes of putting the company out of business. Litigation, like professional wrestling, can be an outlet for feuds.
And you thought reality shows are out there….
But the frothy brew of farce, porn, social media, and revenge that is the case Mr. Bollea brought against Gawker raises other issues–like third- party financing of litigation (a/k/a litigation finance; f/k/a champerty and maintenance). Last week, I wrote a piece on litigation finance, pointing out that it is not only a source of capital but also an economic strategy for law firms, corporations, and even large educational institutions. Litigation finance has emerged as a multi-billion dollar legal cottage industry. Litigation finance companies are yet another type of legal service provider reconfiguring the oft-times blurry line between “engaging in the practice of law” and delivering (all manner of) legal services. Like Uber and other disruptors of regulated industries, litigation finance—as well as other types of providers—seems to have become “too popular to fail.”
Litigation Finance in a Curious Context
Litigation finance was initially intended to “level the playing field” between deep and empty pocket litigants. But its migration from personal injury to big-ticket commercial litigation—that includes entire portfolios—has accorded it acceptance among large consumers and providers of corporate legal services. And that means that the prohibitions against alternative business structures (recently jettisoned a third time by the ABA) and other attempts at legal reregulation have been effectively kicked to the curb. Translation: if big money embraces corporate finance, state Bars—who determine what is and is not the “unauthorized practice of law”—and the ABA turn the other cheek.
Litigation finance companies have a different raison d’etre for funding litigation (and providing seed capital for litigation boutiques) than Mr. Thiel did when he partnered with Mr. Bollea. Litigation finance companies engage in due diligence of prospective investments and put money on individual matters and/or portfolios they deem to have financial merit. On the other hand, Peter Thiel was not involved in litigation finance or in any way connected to Hogan’s lawsuit against Gawker apart from his very publicly shared desire to put it out of business for personal reasons. Mr. Thiel ponied up $10million for the Hogan suit to rid the world of Gawker. He characterized his foray into litigation finance to The New York Times as “one of the greater philanthropic things that I’ve done.” And while the ROI on Mr. Thiel’s investment was certainly robust even by masters of the universe standards, it’s clear that animus- not financial return- was behind the litigation funder’s involvement here.
And whether one embraces or scoffs at Mr. Thiel’s view that his funding of Mr. Bolleas’s suit served an important social objective, what does this say for our legal process generally and third-party funding of litigation, specifically?
Perhaps it’s time for some meaningful guardrails to be put up to separate legitimate litigation finance companies from the Peter Thieles for whom the funding of litigation is blood sport. Failure to do so might promote anyone with a social, political, or economic agenda—not to mention a personal one—to interfere in the litigation process in a way that degrades and debases it.
Litigation finance companies have joined the ranks of other service providers plying a marketplace in dire need of new strategic and tactical options. They are serious businesses that recognize legal delivery requires capital—and the flexibility and innovation it creates. This is in contrast to sanctioning ad hoc third-party litigation financiers to participate in the process–a recipe for abuse of process and further erosion of public confidence in the legal process.
Perhaps next time Mr. Thiel could spend $10million to fund a not-for-profit legal service provider that pairs unemployed lawyers with individuals and small businesses in dire need of affordable representation. That seed capital—and more like it—could help to address the access to justice crisis. That’s the kind of “philanthropic thing” that would help everyone.
This post was originally published on Inthehouse.org