Consumer Law

Lawsuits Become Investment Vehicles

By Sam Glover

http://flic.kr/p/3d4ZUm

Wall Street is now underwriting plaintiffs in everything from divorces to class actions, bringing justice—and controversy—within the reach of more Americans than ever before. This implicates a term often bandied about by plaintiffs’ lawyers: “a right without a remedy.”

“A right without a remedy” is a law without teeth. One such right is Minnesota’s law prohibiting landlords from entering without notice. The penalty is $200, but the filing fee in Minnesota district court is $320, and it will probably take a motion or two (at $100 each) to win that $200. It hardly makes sense to spend $420 or more for a chance at $200, even if those filing fees are recoverable.

Or consider the numerous banking regulations that Wall Street ignored as it was inflating the subprime mortgage bubble. The American public may have had a right to expect the Office of the Comptroller of Currency to curb the rampant fraud, but instead, the OCC aggressively prevented anyone else from doing anything about it.

There are also cases where the damages may be huge, but the cost to recover those damages is also huge. These lawsuits can include everything from the illnesses suffered by the WTC Ground Zero workers to individual medical malpractice—or even divorce—lawsuits. But now hedge funds and Wall Street investors are using their considerable resources to bankroll such lawsuits, in exchange for a healthy interest rate, of course.

As with every investment, there is an upside and a downside. On the upside, a deeper pocket means more “little guys” may be able to afford a lawsuit they could not afford on their own. On the downside, since a lot of the remedy goes to Wall Street, instead of the little guy, the benefits of those lawsuits may not end up where they ought to.

One possible downside, that Wall Street floods the courts with lawsuits, seems unlikely. Even if Wall Street added tens of thousands of lawsuits nationwide, it would make only a barely-noticeable difference in courts’ dockets. (Debt collectors and mortgage servicers, on the other hand, do considerable damage.)

That said, like settlement loans, a Wall Street loan is not for every plaintiff or every case. If you can seek a remedy without one, you will nearly always be better off.

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Full post as published by Caveat Emptor on December 17, 2010 (boomark / email).