In defining the award, the proceeds of which pay the investors, we had two objectives. One, was to define it broadly enough for the funders to get the value they bargained for. The other, was to reduce litigation funding’s propensity to commodify claims. The model’s definition delivers fair value to funders by capturing the full monetary value of all remedies intended to be monetary as well as all the various processes through which that value may be obtained. It reduces commodification by excluding non-monetary relief.
Commodifying legal claims is a common critique of funding. One way this happens is by undervaluing non-cash remedies, such as injunctive relief. In addition, developing a market for litigation as an asset will tend to standardize claims (or at least assessments of their value), and the drive to standardize is the very dynamic of commodification. We are sensitive to such concerns, because litigation is not like typical financial assets in two key aspects. First, litigation is a remedy for harm. Second, litigation assets uniquely involve the state’s participation in developing their value. Both factors weigh against commodifying claims and in favor of insuring claimants receive the most optimal remedies, including non-cash ones.
The model partially sidesteps the commodification issue, and partly addresses it head on. We sidestep it through our assumptions: commercial claims bought by sophisticated plaintiffs are precisely those most effectively remedied monetarily. The commodification issue is much more acute when dealing with mass torts, divorces, or other personal claims.
To the extent the issue remains in the kinds of cases contemplated by the model, we attempt to minimize commodification by defining “award” to exclude non-cash remedies. While excluding such remedies from the definition of award does nothing to incentivize litigants to pursue them, at least it does not punish plaintiffs for pursuing them. In at least one well-known case, the Chevron/Ecuador mass tort litigation, plaintiffs agreed to pay the funder based on an award amount that included the cash value of non-cash remedies (such as environmental clean-up). Given that the non-cash remedies were a substantial aim of the litigation, such a provision is punitive in that it is conceivable that “winning” plaintiffs could end up with very little cash, or even debt, because of the inclusion of non-cash remedies in the definition of award.
Here is the basic definition of award:
Award: the total monetary amount owed Plaintiff on account of or as a direct or indirect result of the Claim, whether by negotiation, arbitration, mediation, lawsuit, settlement or otherwise. For the avoidance of doubt, “Award” includes both cash and the monetary value of [non-cash assets] at the time the Award is paid, and excludes the value of injunctive, declaratory or other non-monetary relief.
This definition must be customized depending on the claim. “Non-cash assets” is intended to enable the funder to capture the value of securities or other instruments tendered to satisfy the amount owed the plaintiff, but is not intended to be a backdoor to get the cash value of say, specific performance, medical monitoring, environmental remediation, or other relief important to, and sought by, the plaintiff for reasons other than monetary gain. When wordsmithing the definition in a final contract the parties should focus on maintaining the key balance: enabling the funder to capture its share of the full monetary value by including all processes through which the amount could become due and preventing the plaintiff from inappropriately characterizing relief as non-monetary, as well as preventing the funder from forcing the plaintiff to liquidate relief not intended to be a cash substitute.