Should the Law Preserve Party Control? Litigation Investment, Insurance Law, and Double Standards

Litigation investment, sometimes known as litigation finance, is increasingly accepted around the world. Once prohibited as champerty, litigation investment is now embraced in England, Canada, and Australia, as well as in many civil law nations. In the United States, the development of a robust market for investment in litigation has been met by various objections. One objection is that litigation investment interferes with the autonomy of lawyers. A second objection is that it promotes frivolous litigation. This Article takes up a popular argument against litigation investment: the legal system should not encourage parties to sell their control over litigation that would vindicate their rights. This criticism is based on an unspoken assumption that private law theory requires party control to stay with the original rightholder and contracts that allow the sale of party control to a stranger should be struck down, either for being contrary to public policy or for some other legal basis. Although I briefly consider justifications rooted in moral philosophy, which support the view that party control should not be sold, I focus mostly on arguments based on the common law. I propose that arguments against the sale of party control based on the structure or nature of the common law are anachronistic. As society evolved, courts and legal commentators abandoned such arguments, which once constrained the sale of party control before the middle of the nineteenth century. Liberal attitudes about the sale of party control were first seen in the gradual elimination of rules limiting the assignment of choses in action. Liberalization was next seen in insurance. I will demonstrate that as the role of insurance in society grew, courts reinterpreted common law practices to permit the alienation of control of litigation for profit in various contexts, including subrogation and liability insurance. This Article concludes that by looking at the evolution of insurance law, we can learn how rigid attitudes about the relationship between victims and wrongdoers can be bent to fit social needs. The Article takes note of the growing consensus in the United States, as well as in other common law nations, regarding the social benefits of litigation investment. Finally, I argue that given the appetite for litigation investment among the public, courts and policymakers should be skeptical of arguments that use party control as a justification to block this new form of financing for lawsuits