The business of third-party funding of litigation is said to be rapidly growing. Typically, the entity putting up the money (a funder) signs a contract with a plaintiff to pay the costs of a lawsuit in return for a percentage of any recovery. While once thought to be impermissibly champerty, this practice is now widely recognized as permitted so long as the plaintiff retains control of the litigation. But in a recent twist on the business of funding, a Delaware court has denied a funder any fees. The decision raises a caution that funders should note.

In Judy v. Preferred Communication Systems, Del. Ch. C.A. 4662-VCL (Sept. 19), the court denied a fee application by Preferred Spectrum Investments (PSI) notwithstanding that PSI’s funding of litigation had arguably set in motion a series of events that led to a $60 million recovery by its litigation target, Preferred Communication Systems Inc. (the company). While the facts of the Judy case are very unusual, the principles it stands for have potentially far-reaching consequences.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]