STEPHEN MOORE: Third Party Litigation Funding Scams Hurt All Of Us

Trial lawyers have been the bane of U.S. employers and families for many decades, sucking blood out of the economy like a herd of mosquitos.

The ambulance chasers profit off of others’ misery, oftentimes in class action suits making tens of millions of dollars for themselves and thousands of dollars for the injured parties. What a deal.

Excessive litigation is estimated to shrink the U.S. productive economy by up to $500 billion a year. Tort costs have exploded in recent years at an annual return of 7.1%, more than twice the inflation rate.

Yes, victims deserve to be compensated for corporate bad behavior, as a matter of justice and deterrence. but just because you have an injured party doesn’t mean you have a company villain. If everyone who breaks a leg skiing could sue the manufacturer of the skis, there would be no skiing.

Back in the 1990s the Republicans put a muzzle on the most rapacious lawyers with the most outrageous harassment lawsuits. Lawsuit reform was part of the Republicans’ “Contract with America” from 1994. It didn’t help that 80% or more of the trial lawyers’ political contributions went into the coffers of the Democratic Party.

But now trial lawyers have courted the GOP and conservative leaders with a spate of lawsuits against big tech and big media. These are two groups that conservatives have traditionally felt are hostile to free markets and conservative values.

A big problem is the new scam called “Third-Party Litigation Funding,” which allows law firms to find investors to fund lawsuits in exchange for getting a share of the judgment if there is a guilty verdict.

So unknown investors secretly bankroll lawsuits for profit. What’s really nefarious is that the investors, not the injured party, often walk away with the bulk of the jackpot awards.

These lawsuit investment funds are growing rapidly and captured more than $2 billion in new financing agreements for 2024. The total assets of these funds have grown to $16.1 billion.

This method of encouraging and funding lawsuits is of questionable legality. But it most certainly should be transparent so that defendants and the public know the real economic interests behind those suing employers.

The problem with these arrangements is that the bulk of money awarded by a judge or a jury goes to an investment fund in Manhattan or some invisible financiers in the Bahamas. Juries think they are aiding the victim, when the jackpot can just as readily funnel to a judge fund.

The good news is that Republican California Rep. Darrell Isa has sponsored the Litigation Transparency Act, which would require disclosure of these agreements in federal civil cases.

Some conservative groups are worried that this means they would have to disclose their donors. Issa tells us that this is absolutely not the case. Donors don’t receive compensation, so they wouldn’t be disclosed in such cases.

Frivolous lawsuits make us all poorer – not just the company that gets targeted. This reduces investment, wages, and risk-taking.

Republican Florida Gov. Ron DeSantis just recently announced billions of dollars in insurance premium savings in part due to curtailing frivolous lawsuits advanced by trial lawyer sharks.  In other words, a good way to increase affordability is to reduce legal costs and the trial lawyer tax.

The rest of the country should emulate Florida and end the scams behind third-party litigation.

Stephen Moore is a co-founder of Unleash Prosperity and co-author of “The Trump Economic Miracle.”

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

(Featured Image Media Credit: Wikimedia Commons/Public/Joe Gratz, CC0 1.0)