The plaintiffs’ duty to cooperate with their legal team undergirds the investment decision. At the time of the investment, the prospect of recovery is completely speculative, since no legally exercisable right yet exists to compel the defendant to make payment. The entire claim rests on the plaintiff’s desire and determination to enforce his or her rights. If clients do not cooperate with their attorneys or decide to abandon their underlying claims, investments in those cases will likely be compromised.
In many personal injury cases, like automobile accidents for example, the legal team can access much of the objective evidence without the plaintiffs’ involvement. Attorneys can obtain documents like police reports, ambulance records and property damage estimates directly from the source of information. The plaintiffs’ cooperation in a personal injury case mostly relates to receiving medical treatment, which is usually a priority for plaintiffs after an accident anyway.
Investors are particularly sensitive about plaintiff cooperation when funding complex matters, especially business disputes, malpractice actions, product liability suits, intellectual property claims and other cases that are based on contract law, statutory law or tort. Plaintiffs play a major role in developing these types of cases. They may need to educate their legal team about their industry, as well as the facts and circumstances that led to the dispute. They are frequently responsible for furnishing counsel with relevant documentary evidence necessary to prove their cases and make themselves available to testify at depositions and in court. They are instrumental in recommending appropriate witnesses who should be called to testify and can also help their attorneys neutralize the testimony of defense witnesses. Plaintiffs will typically spend many hours with the legal team answering questions, refining strategy, and preparing testimony. Without their cooperation and active engagement cases cannot proceed.
Plaintiffs’ circumstances can change, however. They can move to different states or countries. They may resolve their differences with defendants outside the legal system without the attorney’s knowledge. When plaintiffs are companies, their management and business models can change, sometimes leading to changes in their risk appetites and litigation capabilities. Companies might embark on new business opportunities and lose interest in pending litigation. They could secure new financing or merge with other businesses, which reduces their need for a lawsuit victory. Who, then, should bear this risk?
Investors should accept that they have little to no control over plaintiffs’ whims. For this reason, when vetting investment prospects it is also critical to consider how the plaintiffs’ level of engagement may change over time. It may be necessary to evaluate their business prospects or any material events that may affect their capacity, motivation and commitment to engage in protracted litigation. For most funders, the obligation that litigants will use their best efforts to prosecute claims is irrevocable. Any contravention of their duty to cooperate will generally trigger a default under the funding agreement, exposing the client to direct liability. If circumstances change causing plaintiffs to lose interest in their cases or if they are uncooperative with the process for other reasons, funders will seek to recover from them any investments made up to that point. It is therefore essential to include appropriate language in the investment agreement clearly stipulating what will happen should the plaintiff fail to cooperate on a best efforts basis.
Suggested Model Language
Plaintiff’s Cooperation. Plaintiff agrees and undertakes to cooperate with the Independent Counsel, the Funder, and this Agreement, and to keep the Funder fully informed about the progress of the Claim. In furtherance of the foregoing, the Plaintiff hereby irrevocably instructs the Independent Counsel to keep the Funder fully and continually informed of all material developments (including the matters set forth below) and to provide the Funder with copies of all material documents. The Plaintiff and the Funder agree that the Independent Counsel may not disclose information that he or she reasonably believes could jeopardize any privilege (including, but not limited to, the attorney-client privilege) of the Plaintiff.
Furthermore, the Plaintiff shall, as requested by the Funder:
(a) cooperate with the Independent Counsel and the Funder in all material matters relating to the Claim(s) and devote sufficient time and attention as is reasonably necessary to conclude the Claim(s);
(b) continue to be a party to the Claim(s) until the final resolution thereof;
(c) provide to the Independent Counsel all material documentation necessary to further the Claim(s);
(d) submit to examination by the Independent Counsel for the preparation of written statements, subscribing under oath if required;
(e) consult with the Independent Counsel and its designees as reasonably required for purposes of pursuing the Claim(s) or enforcing or settling the Claim(s);
(f) appear at any hearings, wherever they may take place, which are reasonably required in connection the Claim(s) generally; and
(g) on a “best efforts” basis and subject to any relevant rules, cause all persons related to the Claim(s) to submit to examination by the Independent Counsel for the preparation of statements, subscribing under oath if required, to consult with the Independent Counsel as reasonably required for purposes of pursuing the Claim(s) or enforcing or settling the Claim(s) and to appear at any hearings, wherever they may take place, which are reasonably required in connection with the Claim(s) generally.
Any violation of this Article shall constitute an Event of Default.