Anyone who has seen the movie, A Civil Action, starring John Travolta and Robert Duvall, will realize that the cost of justice can sometimes hover just out of reach. The movie and the book chronicle a suit against industrial giant W.R. Grace for pollution of the ground water in and around Woburn, Massachusetts. As the suit moves forward, plaintiff's lawyer, Jan Schlichtmann, finds it increasingly difficult to finance the suit. How can he pay for depositions and expert witnesses? Ultimately, he is forced to settle the case.
Financing a lawsuit has always been difficult. As you might expect with the current recession, financing a suit has become increasingly problematic. But, American investors, despite coming off making some of the worst bets ever on the subprime mortgage market, seem willing to invest in what must be one of the riskiest bets yet - major suits against major tortfeasors.
A story in today's NY Times outlines the continuing trend. Putting Money on Lawsuits, Investors Share in the Payouts, by Benyamin Appelbaum, details how hedge funds are lending money to plaintiff's attorneys so that these big suits can move forward. The investor's motives are not, as you might expect, altruistic. Instead, they take a hard look at the facts, the law, and the possibility of a positive results.
There are a number of ethical, practical, investment, and social issues that are raised by this kind of activity. Coming soon - Is It a Sound Investment?