Crowdfunding Civil Justice
Crowdfunding Civil Justice
Ronen Perry 0
0 Thi s Article is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been accepted for inclusion in Boston College Law Review by an authorized editor of Digital Commons @ Boston College Law School. For more information , please contact
Follow this and additional works at: http://lawdigitalcommons.bc.edu/bclr Part of the Civil Law Commons, Law and Economics Commons, and the Litigation Commons Recommended Citation Ronen Perry, Crowdfunding Civil Justice, 59 B.C.L. Rev. 1357 (2018), http://lawdigitalcommons.bc.edu/bclr/vol59/iss4/5
I. THE EVOLUTION OF LITIGATION CROWDFUNDING ................................................................ 1361
A. The Underlying Need ....................................................................................................... 1361
1. Third-Party Litigation Funding.................................................................................... 1365
2. Crowdfunding.............................................................................................................. 1367
3. Litigation Crowdfunding ............................................................................................. 1368
C. Legal Obstacles ............................................................................................................... 1371
II. INVESTMENT-BASED MODELS .............................................................................................. 1373
A. The Plaintiff ..................................................................................................................... 1373
1. Potential Benefits......................................................................................................... 1373
2. Possible Drawbacks..................................................................................................... 1376
1. Process Costs............................................................................................................... 1382
2. Outcome Costs ............................................................................................................ 1383
A. Overview .......................................................................................................................... 1384
B. The Plaintiff ..................................................................................................................... 1385
CONCLUSION ............................................................................................................................. 1394
litigation crowdfunding. It first distinguishes between investment -based and
noninvestment-based crowdfunding models. Investment -based litigationcrowdfunding
is generally a welcome phenomenon, because it enables parties to pursue meritor
ious claims and defenses without generating a significantriskof frivolous litigation.
Thus, it should be minimally regulated by securing disclosure of relevant
infromation to potential investors. Non -investment-based crowdfundingofprocesscosts
should be subject to professional vetting, which will inhibit frivolous claims and
defenses that waste scarce administrative resources and do not further the underl
ying goals of civil law. No-ninvestment-based crowdfunding of outcomecosts
should be prohibited when it undermines the primary objectivesof substantivelaw.
In June 2017, Maajid Nawaz, the chairperson of a London-based think
tank, launched an independent campaign for crowdfunding a defamation action
against an American nonprofit legal advocacy organization that had published
his name on a list of “ant-iMuslim extremists.”1 In the same month, Andy
Wightman, a Member of the Scottish Parliament, raised over £60,000 through
a British crowdfunding website to fight a defamation action brought by a wil
dlife protection organization over his blog posts about the plaintiff’s practices. 2
Wightman has pledged to reimburse contributors pro rata if the defense
succeeds and he recovers his legal expenses.At approximately the same time, Igal
Sarna, a journalist held liable for defamation in a Facebook post scorning
Is© 2018, Ronen Perry. All rights reserved.
* Professor of Law and Director, Aptowitzer Center for the Study of Risk, Liability, and
Insurance, University of Haifa. I am grateful to participants in faculty workshops at the IDC Law School
and at the UPF Faculty of Law for valuable comments on earlier drafts, andindebtedto Daphna Perry,
who painstakingly read the first draft and assumed more than her fair share of the burden at home i n
order to enable timely submission of this paper.
1 Donate to Help Maajid Take on theSPLC , QUILLIAM, https://www.quilliaminternational.com/
shop/donate/donate-to-help-maajid-take-on-the-splc/ [https://perma.cc/S9JQ-9TRK];Thomas C
hatterton Williams, Maajid Nawaz’s Radical Ambition, N.Y. TIMES MAG. (Mar. 2
2 Andy Wightman, Legal Costs of Defending Defamation Action, CROWDFUNDER, http://www.
crowdfunder.co.uk/awdefamation [https://perma.cc/7CCM-BJP5]; seealso DefamationCaseAgainst
MSP Andy Wightman Begins , BBC (Apr.26,2017),
raeli Prime Minister Benjamin Netanyahu and his wife, 3 raised over $45,000
through an Israeli crowdfunding website to cover his liability. 4 Sarna obliged
to donate any excess funding and any sums reimbursed on appeal to the Ass
ociation for Civil Rights. 5 These three cases—each arising in a different
jurisdiction and concerning a different cost—reflect an evolving global trend that
may revolutionize the civil process.
Commercial third-party litigation funding (hereinafter “TPF”) has been
around for decades. 6 Crowdfunding, which is based on the aggregation of
numerous but modest individual contributions through specialized online
platforms,7 is a relatively new finance method. Yet the dramatic growth of the
crowdfunding industry in recent years, reaching$34.5 billion in the United
States alone in 2016, 8 was unlikely to leave the civil litigation market
unaffected. In the last few years, crowdfunding has begun its incursion into this arena.
This Article is the first to provide a systematic law and economics anal
ysis of civil litigation crowdfunding9. It argues, first, that the distinction
between investment-based and non-investment-based crowdfunding models is
crucial.10 In non-investment-based models, contributors expect only a
nonmonetary benefit (reward -based crowdfunding) or none at all (donation -based
crowdfunding).11 In investment-based models, contributors expect financial
return—a share in the fundraiser’s future gain (equity-crowdfunding)12 or
repayment of the contribution with interest (debt-crowdfunding).13 The Article
contends that investment -based litigation crowdfunding is generally a welcome
phenomenon, because it enables parties to pursue meritorious claims and d
efenses without generating a significant risk of frivolous litigation. Thus, it
should be minimally regulated by securing disclosure of relevant information
to potential investors.14
Non-investment-based litigation crowdfunding should be more
constrained.The analysis requires a second fundamental distinction between pr
cess costs and outcome costs. Process costs are any outlays incurred by either
party in relation to the dispute resolution process and prior to its conclusion.
These may include court charges, attorneys’ fees, witnesses’ and experts’
expenditures and remuneration, etc.15 In cases of incapacitating injury, process
costs may include the claimant’s living expenses throughout the process.
Outcome costs are the amounts payable under the settlement or the judgment. This
Article contends that non-investment-based crowdfunding of process costs
should be subject to professional vetting. Thisvetting will inhibit frivolous
claims and defenses that waste scarce administrative resources and do not fu
rther the underlying goals of civil law. Non- investment-based crowdfunding of
outcome costs should be prohibited when it undermines the primary objectives
of substantive law.
The Article unfolds in three parts. Part I discusses the evolution of litig
ation crowdfunding. It first explains the need that litigation funding models
were developed to meet. Next, it shows how th is need was met through
traditional financing methods, collectively known as third -party litigationfunding;
how technology enabled alternative finance methods to emerge and gather
pace; and how these two global trends have combined to forma new subindu
stry: civil litigation crowdfunding. Part I also presents possible legal obstacles
to this development. Part II analyzes investment -basedcrowdfunding of claims
and defenses, showing that they offer considerable benefits and onlyraise eas
ily manageable problems. Part III turns to non -investment-based models, asser
ting that crowdfunding process costs must be subject to professional vetting,
and that crowdfunding outcome costs should be prohibited, at least under some
I. THE EVOLUTION OF LITIGATION CROWDFUNDING
A. The Underlying Need
Civil litigation is costly. Litigants incur court charges, attornesy’ fees,
witnesses’and experts’expenditures and remuneration, opportunity costs, and
intangible harms.16 These costs impact the tendency to sue, and might inhibit
access to justice when: (1) they exceed the claimant’s expected benefit from
litigation; (2) the victim does not have sufficient resources; or (3) the victim is
unwilling to bear the costs due to risk-aversion and the uncertainties of the
15 See Christopher Hodges et al., The Oxford Study on Costs and Funding of Civil Litigation, in
THE COSTS AND FUNDING OF CIVIL LITIGATION: A COMPARATIVE PERSPECTIVE 1, 12 (Christopher
Hodges et al. eds., 2010) (itemizing litigation costs).
16 See id.
Assume p denotes the plaintiff’s probability of success, d the extent of
damages in case of success, cp the plaintiff’s litigation costs, and cd the
defendant’s litigation costs. In jurisdictions where each partymust bear his or her
own legal costs, most notably the United States,17 the potential plaintiff will
not bring an action if p×d<cp.18 In jurisdictions where the loser reimburses the
winner for reasonable costs, most notably the United Kingdom, 19 the potential
plaintiff will not bring an action if p×d<(cp+cd)(1−p). In jurisdictions that a
llow reimbursement but compute the costs by referen ce to tariffs or a
percentage of the claim (such as Germany20) or allow only modest reimbursement
(such as France21) the incentive would be somewhat different. Law and
economics literature shows that a shift from the American rule to the English rule
(or vice versa) may have conflicting effects on the likelihood of bringing an
action, so it is impossible to predict the overall impact of such a change on the
probability of litigation.22
In all systems, both the probability of success, presumably correlated with
merit, and the claim-value, which is uncorrelated with merit, affect the likel
ihood of a legal action. 23 On the one hand, litigation costs deter frivolous and
meritless claims. If a plaintiff’s litigation costs were zero, there would be no
incentive to avo id undeserving claims. 24 The higher the costs, the greater their
screening effect; a person whose potential claim is sufficiently weak will be
unwilling to bear the costs of pursuing it. On the other hand, some victims,
particularly individuals (as opposed to corporations), may be unable or unwil
ling to bear the costs of litigating meritorious claims. Even ifp×d is greater
than cp, the victim might not have sufficient resources to bear c p, at least during
the process, or may hesitate to bear these costs due to risk-aversion. Thus, lit
igation costs might inhibit access to justice. Naturally, the English cost -shifting
rule fares better than the American rule in incentivizing meritorious claims
(where (cp+cd)(1−p)<cp) and discouraging no-nmeritorious claims (where
(cp+cd)(1−p)>cp).25 But the risk of failure and, more importantly, the need to
bear significant costs during the process, might discourage meritorious claims
under all regimes. 26
Different methods for alleviating the economic burden s of civil litigation
have been devised and contemplated. Following World War II, European
governments developed mechanisms for enhancing access to civil justice,
dovetailing markets for legal services with public funding. 27 The climbing costs of
legal aid s ystems have led to severe cuts in public funding, making private f
inancing of civil litigation a more attractive option to policy and lawmakers. 28
One market-based method is assignment (or sale) of the victim’s cause of
action, transferring to a third -party all handling costs along with any expected
benefit for a contractual consideration. 29 In many Western jurisdictions, such
as Germany, this is permitted and quite common. In others, such as England,
assignment is prohibited, at least with respect to some t ypes of tort claims. 30 In
the United States, personal injury claims are generally unassignabl3e1, and
many states also prohibit assignment of rights of action for legal malpractice 32
and fraud. 33 Asecond market -based method is an ordinary loan for the duration
of the legal process. In this arrangement, the lender does not directly cover the
costs of litigation, and does not acquire or share in any benefit arising
therefrom. Rather i t bears the risk of the borrower’s default, a risk that may increase
if he or s he fails in court. Such loans are very risky and therefore rare. 34 Athird
market-based method is legal expenses insurance . Insurance reduces the likel
ihood that the insured will surrender his or her rights or accept an unsatisfactory
settlement.35 This arrangement is an undeniably promising solution for access
to justice problems, but it is not always available and affordable, particularly
once the event triggering the legal dispute has occurred.36
One of the primary tools for overcoming the economic obstacle tojustice
is attorneys’ contingency fee arrangements, whereby lawyers’remuneration is
contingent on success and calculated as a percentage of plaintiffs’ recovery. 37
Contingency fees mitigate plaintiffs’litigation costs and increase the likelihood
of pursuing meritorious claims. 38 Nevertheless, this solution is insufficient for
at least six reasons.
First, in some jurisdictions , contingency fees are deemed unethical or even
illegal because the lawyer’s stake in the outcome might blur his or her
professional judgment.39 Other jurisdictions prohibit contingency fees but permit a
“success fee” supplementing an hourly rate. 40 This reduces, but does not elim
inate, the access problem. Second, even where contingency fees are permitted,
the lawyer may charge a flat rate per case or per task performed, an hourly rate,
or some combination of the two. This may occur in specific cases or in certain
categories of cases, such as those with high-risk or low-value claims. Refusing
contingency fee arrangements may consittute reasonable screening of
nonmeritorious (high-risk) claims, but also thwart meritorious low-value claims.
Third, litigation costs have other components, such as court charges,
witnesses’ and experts’ expenditures and remuneration, and intangible hma.r
These costs may deter victims from suing even if attorney s’ fees are contingent
on success.41 Fourth, contingency fee lawyers will charge a premium for the
financing and “insurance” they provide, so their expected hourly rate will be
greater than that of hourly fee lawyers. 42 In other words, substituting a conti
ngency fee for an hourly rate may enable an impecunious victim to bring a suit,
35 See Shannon, supra note 6, at 871 (discussing legal expenses insurance).
36 After-the-event legal expenses insurance is less common and is usually offered only to clai
mants with high probability of success in jurisdictions where the loser reimburses the winner for his or
her litigation costs.
37 See Sebok, supra note 6, at 99–100 (explaining the notion of a contingency fee).
38 Visscher & Schepens, supra note 22, at 17.
39 van Boom, supra note 6, at 7; Visscher & Schepens, supra note 22, at 16–17.
40 This is the case in France and in Germany. Michael G. Faure et al., No Cure, No Pay and Co
ntingency Fees, in NEW TRENDS IN FINANCING CIVIL LITIGATIONIN EUROPE, supra note 22,at 33,43–
41 See Visscher & Schepens, supra note 22, at17 ( “In his decision of whether or not to bring suit,
the plaintiff compares his expected benefits with the other costs involved in litigation.”).
42 Lester Brickman, ABA Regulation of Co ntingency Fees: Money Talks, Ethics Walks ,65
FORDHAM L. REV. 247, 270 (1996) (quoting Pennsylvania v. Del. Valley Citizens’ Council, 483 U.S. 711,
735–36 (1987) (Blackmun, J., dissenting)).
but it is more likely that the expected costs of litigation (the lawyer’s fee plus
other costs) will exceed the expected benefit, discouraging a claim.
Fifth, under a contingency fee arrangement , the client’s and the lawyer’s
interests are not aligned. The lawyer may have an incentive to settle at a
certain point and for a certain amount that are not optimal for the client. 43 Finally,
contingency fee arrangements can be offered only to those who stand to gain
from litigation. Defendants have no prospect of gain and do not have a conti
ngency fee option. They may be unable to obtain reasonable re presentation and
feel compelled to accept unfair settlements. These deficiencies have motivated
the development of private litigation-funding models.
B. Market Developments
1. Third-Party Litigation Funding
The most recent commercial method for overcoming the litigation-costs
barrier to justice, namely third -party litigation funding ( “TPF”), emerged in the
late 1980s and early 1990s. 44 It originally involved corporate lawsuits, but
subsequently expanded to individual claims including personal injuries, copyr ight
and patent violations, and employment discrimination.45 TPF is an advance
collateralized by the possibility of recovery later in the lawsuit. The advance
can be used to cover personal expenses during the process, litigation costs , or
both.46 The claimant’s obligation to pay the funder is contingent, in the sense
that repayment is only due if the claim succeeds4.7 It is nonrecourse in the
sense that the funder obtains a security interestonly in the proceeds of the
claim,48 and repayment cannot exceed the ropceeds.49 Consequently, this
method may facilitate access to justice only when the victim does not have
sufficient resources or when he or she is unwilling to bear litigation costs due
to risk-aversion and the uncertainties of the process. In contrast, when litig
ation costs exceed the claimant’s expected benefit from litigation, commercial
funders, whose expected return is limited by the claimant’s expected benefit,
have no reason to provide funding.
43 Visscher & Schepens, supra note 22, at 21.
44 See Beydler, supra note 6, at 1162–63 (providing historical background of TPF); Dietsch,
supra note 6, at 693 (same).
45 Dietsch, supra note 6, at 693.
46 See Nauful, supra note 6, at 16 (explaining that TPF may be used to underwrite the costs of
litigation or to offset living expenses during the pendency of the suit); Elliott, supra note 7, at 533
(same); Lyon, supra note 6, at 577–78 (same).
47 Elliott, supra note 7, at 533–34.
48 Beydler, supra note 6, at 1165.
49 Elliott, supra note 7, at 533.
There are two major forms of TPF. The first is a continge ncy-based
nonrecourse loan with a relatively high interest rate, usually between two and five
percent a month, reflecting the risk of the lawsuit’s failure.50 This method is
common for small claims, where the amount of diligence required to assess the
specific risk exceeds the benefit of using a more complex structure. 51 A 2010
RAND study indicated that the majority of claims funded this way in the Uni
ted States arose from automobile accidents, and that the average loan made by
litigation financing companies ranged between $1,750 and $4,500. 52 A
company may consider several factors when deciding whether to make a loan. These
factors include the amount of damages claimed, the claim’s strength (probabi
lity of success), the defendant’s ability to pay, the attorney’s fee arrangement
(contingency fee preferred), other expenses payable from the proceeds (liens
and bills), existing legal proceedings that might affect liability, and state of
residence (apparently due to the laws governing TPF).53
The second form of TPF i s investment in civil actions, whereby the finan
cing company covers the plaintiff’s costs in whole or in part , on the conditionthat
the investor would receive a share of the proceeds if the claim succeeds. The
success fee usually ranges between twenty percent and forty percent of the da
mages, depending on various factors, although it can be even higher. 54 In
Germany, this model, known asProzessfinanzierungsvertrag (process funding
contract), is a very common investment among underwriters and capital investors.55
The second model usually entails a thorough investigationof the claim’s validity
and the defendant’s solvency.56 It is primarily available for commercial
claimants with high-value claims and a high probability of success.57
Crowdfunding is a rapidly growing method for raising capital to fund va
rious ventures by aggregating small contributions from many individuals
through specialized online platforms. 58 Though fundraising is a time-honored
practice,59 technology has simplified it, a nd dramatically increased its
frequency and reach, with respect to both potential contributors and funded ventures.
Web-based fundraisers for specific projects date back to the late 1990s, 60 but
the earliest designated crowdfunding platform, ArtistShare, was launched in
2003 to help musicians raise funds for producing and marketing music
albums.61 The first project funded through ArtistShare was Maria Schneider’s
album Concert in the Garden, an album that ultimately received a Grammy
Award.62 Some platforms still fund projects only in a specific industry or
niche, such as music and arts (ArtistShare, Sellaband) or scientific research
(Experiment). Nonetheless, the most successful and prominent crowdfunding
platforms, such as Indiegogo and Kickstarter, have no thematic restrictions.
Initially, crowdfunding followed either a donatio-nbased or a
rewardbased model.63 In the former, contributors do not expect any return. In the la
tter, fundraisers offer nominal rewards that roughly correlate with the pledged
amounts, such as formal recognition or gratitude, free access to the funded pr
oject, or an opportunity to take part in special events with the fundraiser. More
recently, two additional models have developed. In debt -crowdfunding,
fundraisers obtain loans from the public, and contributors expect repayment with
interest.64 In equity-crowdfunding, business ventures obtain equity capital
from the public, and contributors expect a share of the profits.65
The Federal Jumpstart Our Business Startup s (“JOBS”)Act of 2012 fa
cilitated equity-crowdfunding by exempting small companies, offering up to
fifty-million dollars of securities, from the general obligation of securities issuers
58 See supra notes 7–8 and accompanying text.
59 See, e.g., W.R. Vance, The Early History of Insurance Law , 8 COLUM. L. REV. 1, 3–5 (1908)
(discussing ancient forms of fundraising for the benefit of colleagues in need).
60 In 1997, the rock band Marillion raised over £35,000 from fans through the internet to finance
its first American tour. See Weinstein, supra note 11, at 437.
61 Gómez, supra note 7, at 309–10.
62 Id. at 310.
63 See Gómez, supra note 7, at 309–10, 322 (discussing donation-based and reward-based
platforms); Nauful, supra note 6, at 17 (same); Weinstein, supra note 11, passim (same); Elliott, supra
note 7, at 529, 531–32 (same).
64 See Gómez, supra note 7, at 313–14 (discussing debt crowdfunding); Elliott, supra note 7, at
529, 532–33 (same).
65 See Gómez, supra note 7, at 313 (discussing equity crowdfunding); Sumners, supra note 12,at
42–43 (same); Elliott, supra note 7, at 529, 532 (same).
to register with the SEC66. Similar exemptions were endorsed in several
states.67 Some websites, such as CircleUp, Crowdfunder, and SeedInvest, are
dedicated exclusively to equity -crowdfunding, whereas others, such as
Indiegogo, allow equity -crowdfunding among other forms of crowdsourcing. 68
Although crowdfunding may appear to have a global audience, ninety-four
percent of the industry is concentrated in North America ( fifty-nine percent) and
Europe ( thirty-five percent), which is also where most crowdfunding platforms
Usually, the fundraiser receives the pledged funds only if a preset capital
goal is reached, thus reducing the contributors’ risk that undercapitalized pr
ojects will be undertake n70. Some platforms enable fundraisers to obtain
pledged funds even without meeting fundraising goals.71 Realizing the risks
associated with online transactions and the need to build a trustworthy
environment for their users, crowdfunding platforms started to develop selection
processes for the projects that they agreed to sponsor and made efforts to
ensure transparency throughout the funding cam paigns.72 To cover their opera
ting costs and make a profit, these platforms take a certain percentage of the
3. Litigation Crowdfunding
Litigation crowdfunding is a combination of TPF and crowdfunding: the
parties in civil disputes seek to finance some of their costs by aggregating
many small contributions through online platforms. Because the two bases are
relatively new phenomena, their progeny is nascent. Litigation crowdfunding
can be carried out through three types of platforms: general crowdfunding pla
forms, specialized litigation crowdfunding platforms, and traditional business
or personal websites. The first litigation crowdfunding campaigns were
launched through general crowdfunding platforms, such as Indiegogo.74 Two
of the three cases outlined in the Introduction provide examples for such use of
general platforms: the Scottish politician Andy Wightman raised money to f
inance his defense against a defamation action through thBe ritish website
Crowdfunder;75 and the Israeli journalist Igal Sarna raised funds to cover his
liability in defamation through the donati-obnased spin-off of the Israeli
crowdfunding website Headstart.76
In 2014, building on the growing popularity of crowdfunding platforms
and TPF, the first specialized litigation crowdfunding platform, LexShares, was
established in the United States.77 LexShares enables crowdfunding of
commercial lawsuits, including business torts, professional negligence, and inte
llectual property violations, but it does not currently allow crowdfunding of
personal injury claims. 78 Contributors expect a substantive return in the case of
success—a share of the proceeds, as in commercial TPF. 79 As an
investmentbased mechanism, it is subject to S EC regulation. 80 LexShares keeps a certain
percentage of the funds raised and takes part of the investors’profit if the claim
succeeds. Funded Justice, established a few weeks followingLexShares, is
different in three interrelated respects: 81 (1) it is a n on-investment-based
platform,82 (2) it aims at helping those who cannot afford legal services, 83 and (3)
contributors do not need to be SEC accredited investo84rsA.nother
noninvestment-based platformis the British website CrowdJustice.85 Both Funded
Justice and Crowd Justice keep a certain percentage of the funds raised ( seven
percent and five percent, respectively). 86 Neither has funded tort litigants yet.
One of the first litigation crowdfunding websites, Invest4Justice, which
enabled investment-based and donation-based crowdfunding, 87 is no longer active
for unknown reasons.
In addition to general and specialized crowdfunding platforms,
crowdfunding campaigns can be launched on more traditional website—ssuch as
business or personal web pages. For example, Maajid Nawaz, the founder and
chairman of the London-based think tank Quilliam, who was accused by the
Southern Poverty Law Center of being an a-nMtiuslim extremist, sought
crowdfunding for a defamation action through Quilliam’s website.88
Given the various models of crowdfunding, its potential impact on
litigation funding is much broader than the more developed commercial TPF. To
begin with, crowdfunding may be available toclaimants whoseeknon -monetary
remedies, such as an injunction or a declaratory judgment, or whose expected
damages do not appeal to profit-based funders. Second, TPF is generally
offered to claimants, who can pledge a share in the expected recovery as colla
teral. It is not normally available for defendants who cannot similarly collat
eralize a loan.89 Potential defendants can obtain legal expenses insurance ex ante,
but normally cannot obtain special funding ex post , after the occurrence of harm
for which they are sued. 90 In contrast, crowdfunding—particularly
donationbased and reward-based—can also be utilized by defendants, as the Wightman
and Sarna cases clearly demonstrate. Third, although traditionalTPF typically
covers process costs, crowdfunding can extend to outcome costs, most notably
civil liability, as in the Sarna case.
C. Legal Obstacles
The main legal obstacles to litigation funding in common law
jurisdictions seem to be the doctrines of champerty, maintenance, and usury. Champe
rty is an agreement whereby a person with no previous interest in a lawsuit
supports or maintains it in exchange for a share of the proceeds if the suit su
cceeds.91 Although recent discussion of champerty in case law and legal liter
ature has focused on TPF, the doctrine may also be relevant to investment -based
crowdfunding of claims. In 2003 the Supreme Court of Ohio famously held in
Rancman v. Interim Settlement Funding Corp.92 that: “a contract making the
repayment of funds advanced to a party to a pending case contingent upon the
outcome of that case is void as champerty and maintenance9,3”because it
“gives a nonparty an impermissible interest in a suit, impedes the settlement of
the underlying case, and promotes speculation in lawsuits.”94 Rancman was
overturned by the Ohio legislature, 95 but considerable variance remains among
the states. Some have abolished the prohibition on champerty altogether,96 a
trend applauded by many scholars. 97 Among those that have retained the
doctrine,98 a few have explicitly applied it to TPF,99 some have specifically
refused or excluded such application, and many have not yet addressed the que
stion.100 Arguably, if the contributors’ return upon the claim’s success is kept
separate from the amount of the victim’s recovery, champerty restrictions ma y
be avoided. 101 So in some jurisdictions, debt -based crowdfunding may be more
feasible than “equity-based” crowdfunding.
Maintenance is the “assistance in prosecuting or defending a lawsuit gi
ven to a litigant by someone who has no bona fide interest in the case [or]
meddling in someone else’s litigation.”102 The chief differences between
maintenance and champerty are that “the maintainer is not rewarded for his support of
the litigant”103 and that maintenance applies to the assistance of either party,
not only the plaintiff. Although champerty is a special case of maintenance, 104
judicial and scholarly analyses of TPF have generally focused only on the fo
rmer because TPF is a profit -motivated funding of claimants. 105 Yet the general
prohibition on maintenance may be highly pertinent to civil litigation crow
dfunding, particularly reward-based and donation-based, where contributors
expect only nominal benefits or none at all. Furthermore, the doctrine of
maintenance may apply to crowdfunding of defendants’ costs.
In the well-known 1963 case of NAACP v. Button, the Supreme Court
held that Virginia could not restrict a third party from providing legal or non
legal support and encouragement to a litigant by invoking the traditional pr
ohibitions on barratry, maintenance, and champerty1.06 This ruling, however,
was limited to a very special context: a legislative attempt to curb the activities
of the NAACP, which employed “constitutionally privileged means of expre
ssion to secure constitutionally guaranteed civil rights1.0”7 The doctrine of
maintenance is still in force in many states. For example, according to Illinois
law, a person who “officiously intermeddles in an action that in no way
belongs to or concerns that person, by maintaining or assisting either party, with
money or otherwise, to prosecute or defend the action” commits an offense. 108
Similarly, it is unlawful in Mississippi to promise, give, offer, receive, accept,
solicit, request, or donate any money, services, or property in order to induce
or assist another “to commence or to prosecute further . . . any proceeding in
any court.”109 Such state-specific restrictions ought to be considered in
sasessing the legal feasibility of litigation crowdfunding.
Usury is lending money at an unreasonably high interest rate.110
Nowadays, a maximum rate is usually set through legislation. 111 The traditional pr
ohibition on usury cannot normally hinder litigation crowdfunding. Firstly, the
doctrine does not apply to donation-based and reward-based models, where
contributors do not expect a profit at all. Moreover, even in the case of
invest103 Sebok, supra note 6, at 73.
104 Shannon, supra note 6, at 874; Elliott, supra note 7, at 540–41.
105 See supra notes 44–57 and accompanying text.
106 371 U.S. 415, 439 (1963).
107 Id. at 442.
108 720 ILL. COMP. STAT. 5/32-12 (2017).
109 MISS. CODE ANN. § 97-9-11 (2017).
110 See Shannon, supra note 6, at 895 (defining usury); Sheri P. Adler, Note, Alternative
Litigation Finance and the Usury Challenge: A Multi-Factor Approach, 34 CARDOZO L. REV. 329, 331,
333 (2012) (same); Beydler, supra note 6, at 1172 (same); Elliott, supra note 7, at 537 (same).
111 For example, the maximum interest rate in New York is sixteen percenpter annum. N.Y.
BANKING LAW § 14-a (McKinney 2018); Adler, supra note 110, at 333–34.
ment-based crowdfunding, which generates a financial return, the doctrine of
usury might be formally inapplicable. Usury laws generally apply only in the
case of an absolute obligation to repay, not if repa yment is subject to a conti
ngency.112 Because investment-based litigation crowdfunding, much like TPF
arrangements, does not require repayment if the claim fails, usury laws might
be irrelevant.113 In some jurisdictions, when recovery is almost certain, the
funding may be deemed a loan, subject to usury restrictions. 114 But, even there,
a usurious return would not necessarily lead to invalidation of the funding a
rrangement. The court may simply opt for an adjusted interest rate.115 From a
substantive perspective, h igh returns in litigation funding arrangements may be
justified in terms of the greater risks involved, so courts and legislatures will
be less likely to intervene. 116
II. INVESTMENT-BASED MODELS
A. The Plaintiff
1. Potential Benefits
The first fundamental d istinction in assessing litigation crowdfunding a
rrangements is between investment -based and non-investment-based funding.
Investment-based crowdfunding is akin to commercial TPF, 117 so the scholarly
debate on the latter may be pertinent to the former.The a nalysis will, therefore,
build on existing literature on TPF, and adjust for the differences between the
The benefits of crowdfunding seem evident. First and foremost, as
explained above, litigation costs may impede access to justice1.18 The need to
bear significant costs during a process with an uncertain outcome might
discourage meritorious claims—either because the victim cannot afford to pursue
a claim or because, being risk-averse, the uncertain benefit is not worth the
certain costs. “Only those who feel particularly aggrieved or determined, or
have deep pockets and a sufficient stake, ” will tend to embark on a costly and
uncertain process. 119 Investment-based crowdfunding, like TPF, can help ove
rcome these obstacles and facilitate access to justice1.20 Neither TPF nor
investment-based crowdfunding will be available when litigation costs exceed
the claimant’s expected benefit from litigation, because the claimant’s benefit
is typically the upper limit of the funders’ return.
Although increased access to justice is an undeniable consequence of
crowdfunding, one needs to determine why , and to what extent, it is required.
The assumptions that substantive law is justifiable, and that it is un-der
enforced, underlie this line of argument. Put differently, litigation costs hinder
litigation, and the volume of litigation is too low to achieve the defensible
goals of substantive law —efficient deterrence of potential wrongdoers, victim
compensation, corrective justice, etc. 121 All other things being eq ual, reducing
or removing litigation costs increases the likelihood of litigation and the level
of enforcement. 122 Crowdfunding may thus be warranted if it facilitates merit
orious claims that would not otherwise be pursued, thereby helping achieve the
law’s underlying goals.
Second, profit-motivated funding may accelerate settlement, saving val
uable dispute resolution resources. To begin with, it increases defendants’
tendency to settle meritorious claims. To the extent that the screening of claims is
related to merit, funding signals the claim’s quality. Such a signal induces
defendants to settle to avoid a costly process with a relatively certain outcome.
This decreases the litigation rate and conserves both legal and other related
costs.123 Seemingly, the funded plaintiff does not have an incentive to settle
quickly. But, in many funding arrangements , the funder’s return hinges on the
duration of the process , and in others the funder has some control over the pr
ocess and its conclusion. 124 In both cases, the plaintiff will also be under some
pressure to settle. At any rate, the defendant, who has a sufficiently strong i
ncentive to settle, can induce the plaintiff to settle by making a satisfactory offer
as soon as possible.
119 Veljanovski, supra note 6, at 407.
120 See Avraham & Wickelgren, supra note 6, at 234 (2014) (discussing the increased access to
justice); Gómez, supra note 7, at 319 (same); Nauful, supra note 6, at 64 (same); Shannon, supra note
6, at 869 (same); Veljanovski,supra note 6, at 407 (same); Beydler, supra note 6, at 1160, 1168
(same); Elliott, supra note 7, at 534 (same); Lyon, supra note 6, at 576 (same).
121 See Brooke D. Coleman, The Efficiency Norm, 56 B.C. L. REV. 1777, 1799 (2015);
Veljanovski, supra note 6, at 437–38 (focusing on deterrence).
122 Veljanovski, supra note 6, at 438.
123 Id. at 439.
124 Id. at 440.
Third, external litigation funding may generate more accurate settlements,
thereby furthering the underlying goals of civil law. For example, if the law’s
primary goal is efficient deterrence, and the extent of damages necessary to
achieve this goal is X, actual damages should be as close as psosible to X.
Funding may diminish the power imbalance between the parties. 125 Plaintiffs
who can obtain external coverage of litigation costs will not settle for an unsa
tisfactory amount,126 and defendants cannot rely on plaintiffs’inability to wit
hstand a costly and wearisome process to extract an unfair settlement. Contin
uing the example, a more accurate settlement will result in better internalization
of the costs of misconduct by potential injurers.127
Fourth, profit-motivated funding enables a transfer of litigation costs and
risks to better cost and risk bearers.128 Commercial litigation funders typically
have more access to financial resources than the average plaintiff, superior
cost-spreading capacity, and better hedging tools. They are less risk-averse
than individual plaintiffs, andbetter risk bearers than corporate plaintiffs.
Thus, a transfer of litigation costs and risks to commercial funders generates
economic value. 129 A transfer may generate an even clearer benefit in the case
of crowdfunding: given the diminishing marginal value of individual wealth, 130
spreading litigation costs among numerous investors is better, interms of ove
rall welfare, than placing the financial burden on a single litigant’s shoulders. 131
Fifth, some authors have argued that disclosing information about TPF to
the court can improve the court’s ability to evaluate the case and reach the co
rrect decisions on liability and damages. 132 The funder’s independent evaluation
of the claim, the decision to fund it, and the expected return, provide relevant
evidence about the claim’s relative strength.133 Taking these factors into
ac125 See Avraham & Wickelgren, supra note 6, at 234 (explaining that TPF equalizes the bargai
ning power between the parties); Gómez, supra note 7, at 319 (same); Lyon, supra note 6, at 599
126 See Swan, supra note 6, at 758 (“Most plaintiffs settle because they are unable to wait the
nearly two years elapsing before the average case comes to trial.”); Beydler, supra note 6, at 1160,
1161, 1168 ( “[Third party] funding . . . improves plaintiffs’ bargaining position vis-a-vis defendants
with greater resources, allowing plaintiffs to resist lowball settlement offers or go to trial to vindicate
their rights . . . [prohibition on third party funding] would likely result in earlier, less accurate settl
ements.”) (footnotes omitted).
127 Molot, supra note 6, at 101–02.
128 Veljanovski, supra note 6, at 439.
129 Avraham & Wickelgren, supra note 6, at 251.
130 See Ronen Perry, Relational Economic Loss: An Integrated Economic Justification for the
Exclusionary Rule, 56 RUTGERS L. REV. 711, 758–59 (2004) (explaining the diminishing marginal
utility of wealth).
131 Id. at 759–60 (“[T]ransferring a certain economic burden from a risk -averse person to nume
rous persons (‘spreading the loss’) increases aggregate wealth . . . .”).
132 Avraham & Wickelgren, supra note 6, at 248.
count may help courts fine -tune their decisions. More accurate determinations
of fact serve the underlying goals of substantive law. Aby -product of s uch
disclosure may be lower interest rates because the funder knows a lower rate
sends a stronger signal to the court and increases the likelihood of recovery. 134
2. Possible Drawbacks
An outmoded criticism of any form of external funding of litigation is th at
it enables victims to pursue claims that would not otherwise be pursued and is ,
therefore, expected to result in more litigation. 135 Empirical data seem to su
pport this prediction: a study in Australia showed that there was an increase in
filings in jurisdictions that allowed TPF, and a decrease in jurisdictionsthat
prohibited it. 136 This criticism of funding derives from the historical perception
that litigation was an evil to be avoided. 137 The common law adopted various
mechanisms to show its disapproval of those who motivated litigation, inclu
ding strict bans on barratry, maintenance, and champerty.138 The perception that
litigation is an evil has gradually waned. Litigation and the threat thereof are
considered important tools in righting wrongs and regulat inghuman behavior. 139
The fear of additional litigation has transformed into the institutional
concern that external funding would overburden the legal system. 140 Still, there is
reason to believe that any increase in litigation rate will be limited . Claimants
often seek funding for lawsuits they would bring anyway; funders’ due
diligence filters out many of the claims that would not be brought without external
funding, and defendants have an incentive to settle quickly and avoid
litigation.141 Consequently, although a certain upsurge in litigation is foreseeable, it
should not and, in fact, does not clog the system.142
This leads us to the first real concern: external funding might encourage
frivolous or non-meritorious claims.143 Such claims are undesirable because
they waste scarce administrative resources without furthering the underlying
goals of substantive law.144 For example, if liability aims to deter wrongful
134 Id. at 252.
135 Rubin, supra note 6, at 675; Veljanovski, supra note 6, at 439.
136 Abrams & Chen, supra note 6, at 1094–97.
137 Sebok, supra note 6, at 123; Shannon, supra note 6, at 874.
138 See supra notes 91–116 and accompanying text.
139 Rubin, supra note 6, at 675.
140 See, e.g., Saladini v. Righellis, 687 N.E.2d 1224, 1225 –27(Mass.1997); Anglo-Dutch
Petroleum Int’l, Inc. v. Haskell, 193 S.W.3d 87, 104 (Tex. App. 2006).
141 Veljanovski, supra note 6, at 439, 446.
142 Id. at 439–41.
143 See Gómez, supra note 7, at 319–20 (discussing the fear of encouraging meritless claims);
Shannon, supra note 6, at 874 (same); Elliott, supra note 7, at 535 (same).
144 Gómez, supra note 7, at 330.
conduct, an unfounded claim will consume administrative resources without
any expected benefit and, if successful, lead to over-deterrence. The general
response to this concern is that substantive and procedural rules, as well as
lawyers’ ethical commitments, are designed to prevent frivolous claim1s4.5
More specific retor ts focus on two features of the funding model: the funder’s
stakes in the particular case and its credibility as a repeat player.
Regarding the funder’s stakes, profit-motivated funders will only fund
cases likely to yield a return on their investment. It is unlikely that meritless
claims, with low probability of success and therefore low expected damages, 146
will be funded on a nonrecourse contingency basis.147 Funders may agree to
fund riskier claims for a higher return, but funding frivolous suits is implaus
ible if the funders’profit derives solely from the claimant’s proceeds. 148 Indeed,
interviews with European third -party litigation fundershave revealedthat they
devote considerable time to screening cases considered for funding, reject
most, and fund only those with high odds of success and monetary value.149
Non-meritorious cases have low probability of success and negative expected
returns if they go to court. Given the profit -maximizing screening process, the
probability of funding unworthy claims is low.150
In addition, commercial third -party funders are often repeat players.Thus,
the signal sent to the other party and to the court by their involvement in a pa
rticular case is correlated with their overall credibility as funders. 151 If the fu
nder’s screening is credible, its selection of the specific case will provide a
stronger incentive for the defendant to settle,and settle at a more accurate
amount. This will increase the funder’s expected profit and reduce its costs.
Similarly, if the funder is credible and the court is aware of the external fun
ding, expected liability —and the funder’s share thereof —will rise. To establish
credibility, the funder will conduct a thorough due diligence, and this too will
reduce the likelihood of meritless claims.
Litigation crowdfunding is different from traditional litigation funding: it
usually involves multiple investors with minor stakes. Because the stakes are
small, individual investors are less concerned about the possibility of the
claim’s failure and are therefore less selective.152 Put differently, whereas
tradi145 Lyon, supra note 6, at 595; see, e.g., GA. CODE ANN. § 9-11-6
) (enabling courts to
award damages against parties presenting frivolous claims or defenses).
146 Expected damages are the product of the probability of success and the extent of provable
147 Lyon, supra note 6, at 591.
148 Shannon, supra note 6, at 875; Lyon, supra note 6, at 593–94.
149 Veljanovski, supra note 6, at 445.
151 Lyon, supra note 6, at 595.
152 Elliott, supra note 7, at 547.
tional litigation-funding firms with high stakes conduct due diligence and
select cases with the highest expected return, litigation crowdfunding contrib
utors “may invest in a larger volume of cases that have a smaller likelihood of
success.”153 Moreover, as the stakes are small, uninformed individuals may be
encouraged to make hasty and risky investments. Because the cohort of parti
cipants is large, diverse, and case-specific, severe collective action problems
prevent the development and application of selection criteria by funders. Fina
lly, many contributors are not repeat players in the particular segment ofthe
crowdfunding industry or in crowdfunding generally. They have neither the
interest nor the ability to establish credibility that will strengthen the signal
that their involvement sends to the other party and to the court.
These properties may lower the bar for those who seek funding but will
not eliminate the rational profit -driven screening of claims. Although the pa
rticipants in litigation crowdfunding bear much smaller risks than commercial
funding firms, they are still profit -seeking players who prefer investment o
pportunities with the highest possible expected value. The legal system can and
should facilitate rational and informed investment by requiring claimants to
disclose relevant information, as in other cases of “public offering.”154 This
will prevent uninformed or underinformed investments, upgrade the selection
process, and maintain correlation between the willingness to invest and the
claim’s merit. In addition, although the crowdfunding participants’motivation
and ability to vet claims are inferior to those of commercial litigation funding
firms, the crowdfunding pla tform may assume the screening functions that are
carried out by the funder in ordinary TPF. The platforms may have an
incentive to list only sufficiently strong claims, because failing to do so will result in
unsuccessful investments, deter investors, and reduce revenue. They may also
have the capacity, as aggregators of considerable capital, to conduct due dil
igence. Indeed, realizing the risks associated with electronic commerce and the
need to offer users a reliable venue, crowdfunding platforms have started to
develop and employ project -selection processes and endeavor to ensure tran
sparency throughout the funding campaigns. 155 Presumably, these developments
will also be reflected in the context of litigation funding.
Critics may argue that willingness to invest does not always indicate the
claim’s strength, because investors make mistakes, and their investment in a
specific project may be so small (and their portfolio so diverse) that the parti
154 Consider, for example, the disclosure requirements under the SEC “Regulation
Crowdfunding,” adopted in accordance with the JOBS Act. 17 C.F.R. § 227.201 (2017); Samuel G. Wieczorek,
Regulation Crowdfunding: A Viable Option for the Franchising Industry?, 36 F RANCHISE L.J. 275,
155 Gómez, supra note 7, at 311–12.
ular investment does not generate any reliable signal. Although specific
investors may make mistakes in specific cases, there is sufficiently strong correl
ation between the willingness to invest in a specific claim and its relative merit,
assuming relevant information is available. 156 The fact that a successful crow
dfunding campaign requires numerous individual decisions to invest reduces the
likelihood of systematic mistakes (again, assuming relevant information is
available). Admittedly, the average size of the investment impairs the signal’s
quality, but the large number of investors reinforces it, and investors’expect
ation for profit may also be translated into additional platform -based screening.
If these predictions are nonetheless proven wrong, and empirical studies reveal
market failures, investment-based crowdfunding can be subject to the same
vetting process proposed below for non-investment-based crowdfunding.
The second concern with external funding is that it might unnecessarily
prolong litigation by disincentivizing the plaintiff to settle15.7 The plaintiff
might reject what would otherwise be a fair settlement offer and hold out for a
larger sum of money, increasing administrative costs. This argument is unco
nvincing. It is not at all clear that the victim’s position regarding settlement is
skewed by funding. The victim might rush into an unsatisfactory settlement
without external funding. So, funding may ameliorate rather than create an
incentive problem. In fact, the funder’s or the platform’s risk -analysis can help
the victim make more informed decisions about settlement.158 Moreover, as
explained above, external funding might provide proper incentives to settle:
sometimes the funder’s fee increases gradually over time (so the victim is
harmed by unnecessary prolongation); 159 at times the funder has some contro l
over the process, and will exert pressure to accept a cost -effective settlement;
and funding incentivizes the injurer to make fairer offers that the victim can
more easily accept.
A third concern is that profit -seeking funders would require and exercise
control over the process in order to secure their interests. 160 They may wish to
select the attorney, direct his or her strategy, and decide whether, when, and
under what conditions to settle. 161 This is arguably problematic because atto
rneys should act independently for their clients’benefit, and the funder’s inte
rests are not necessarily aligned with the claimant’s. But, it is unclear whether
156 This understanding is shared by most scholars discussing third-party litigation funding. See
supra notes 144–148 and accompanying text.
157 Avraham & Wickelgren, supra note 6, at 235; Lyon, supra note 6, at 576.
158 Lyon, supra note 6, at 597–98.
159 Id. at 597.
160 See Avraham & Wickelgren, supra note 6, at 235 (discussing theproblemofexternalcontrol);
Gómez, supra note 7, at 319 –20 (same); Shannon, supra note 6, at 873 (same) ; Elliott, supra note 7,at
534–35 (same); Lyon, supra note 6, at 601–02 (same).
161 Lyon, supra note 6, at 601–02.
control by a profit-maximizing actor is detrimental,162 and even if it is,
funder’s control can be limited or banned without giving up the benefits of exte
rnal funding altogether. 163 Thus, in some jurisdictions, the funder’s level of
control over the process is taken into account in assessing whether a TPF
agreement violates public policy. 164 In others, funders’control is spe cifically
prohibited.165 Additionally, funders’ practices may be subject to self-imposed
constraints. The American Legal Finance Association code of conduct stipulates
that funders shall not take any step to “acquire ownership in the consumer’s
litigation” or to “interfere or participate in the consumer’s litigation, and/or
attempt to influence the consumer’s litigation.”166 Still, funder control is
allowed and common in some countries, most notably Australia.167
Furthermore, the risk of funder’s control is much smaller in the case of
litigation crowdfunding. A commercial third-party funder has a substantial
stake and, hence, a sufficiently strong incentive to intervene, and because there
is usually a single funder, it has the power to do so. In the case of crowdf
unding, there are many investors with small stakes. Because the stakes are limited,
the funders are less interested in controlling the process, and because they are
many, collective action problems will hinder any attempt at devising a control
strategy.168 Of course, as litigation crowdfunding develops, crowdfunding pla
tforms may wish to attain some control over funded claims to protect investors
and increase their own competitiveness. In such a case, regulation may be
The fourth concern with profit-motivated funding, which is one of the
traditional rationales for the champerty doctrine1,69 is that claimants’ plight
might be exploited by funders to capture a significant share of any recovery.To
the extent that fair compensation to victims is one of the primary goals of civil
law, profit-seeking funders might generate a problem. American experience
with TPF demonstrates that the amount payable to the funder following a
cessful conclusion of the case might leave hardly anything for the claimant. 170
For example, the plaintiff was obliged to repay 280% of the advance in
Rancman,171 and 240% in Fausone.172
There are two possible responses. First, the high return may be justified
because the funder bears : (1) the risk of no award in the case of failure; (2) the
risk of insufficient award in the case of success, due to the nonrecourse nature
of the “loan ”; and (3) the cost of collecting data about claims and their pote
ntial value (either directly, in the case of TPF, or indirectly, in the case of
investment-based crowdfunding). Second, if high returns pose a real problem,
caps can be set. Some state legislatures have indeed proposed such caps,173 but
these “one size fits all” rates were criticized for being un related to the level of
risk incurred by funders.174 Scholars are divided on this matter. Some argue
that funders’ yield should be subject to ordinary usury rates, to a maximum
percentage of the claimant’s recovery , or both. 175 Others contend that deregul
ation would attract more players into the market and increase competition.176
The fifth concern is that external funders will not adequately inform cl
ients of the true cost of the advance under the agreement, resulting in inefficient
and unfair arrangements. 177 This problem can be ameliorated either voluntarily
by the industry or through regulation, as the experience with TPF
demonstrates.178 For instance, members of the American Legal Finance Association
have reached an agreement with the New YorkAttorney General, g uaranteeing
transparency to consumers. 179 At least three states enacted specific legislation
requiring systematic disclosure of the costs and fees, with a lawyer’s acknow
ledgment that the relevant information was properly disclosed1,80 and others
consider following suit.181
B. The Defendant
1. Process Costs
Special profit-motivated litigation financing is not usually available for
defendants because they cannot provide comparable litigation-related
collaterals. Thus, defendants can only obtain ordinary loans, wiht a fixed interest
rate and an obligation to repay that is unconditional on case outcome, or can
use legal expenses insurance where available.One canenvisage a special fun
ding model whereby the funder covers the defendant’s litigation costs, and r
epayment is contingent on the claimant’s failure to obtain a certain outcome,
such as damages equal to or exceeding the claimed amount. In the case of the
defendant’s “success,” the funder will be entitled to a share of the difference
between the amount claimed ( or another prearranged amount) and the amount
payable to the claimant. For example, assume that P sues D for $100,000. F
agrees to cover the costs of D’s legal defense in the amount of $3,000 under
the condition that D will pay ten percent of any “saving” relative to the amount
claimed. If the claim is denied, F is entitled to $10,000, and if P is awarded
$60,000, F is entitled to $4,000.
To my knowledge, such a model has not been used in practice, either by
traditional third-party funders or through crowdf unding platforms.Apossible
explanation is that if the expected saving is significant (because the claim is
weak), the defendant will not wish to share it with a third-party, and, if the e
xpected saving is small, a third-party will be less likely to invets in a share
thereof. Moreover, because the defendantcannot derive financial gainfromthe
process, he or she might be unable to repay the funder in cases defined as
“success,” discouraging potential investors and lenders.But , given the theore
tical possibility of profit-driven funding of the defendant’s litigation costs, a
critical evaluation is required.
The benefits reflect those of crowdfunding claims. First,external funding
may enable impecunious defendants to fight frivolous or meritless claims. In
light of the risks involved, profit -seeking funders will probably select the very
(B) itemization of one-time fees, broken out item by item. . . (C) percentage fee or rate of return,
stated on an annualized basis, including frequency of compounding; (D) total amount to be repaid by
the consumer . . . .”).
180 ME. REV. STAT. tit. 9-A, § 12-104 (2017); NEB. REV. STAT. § 25-3303 (2017); OHIO REV.
CODE ANN. § 1349.55 (West 2017).
181 Shannon, supra note 6, at 905.
worthy and filter out undeserving defendants. Because the crowdfunding
model involves many investors with small stakes, platforms will gradually develop
and implement screening criteria to attract investors. Second, funding a deser
ving defendant may signal the claim’s weakness, and induce the claimant to se
ttle or drop the case, saving administrative resources. Third, by diminishing any
power imbalance between the parties, ext ernal funding may generate more a
ccurate settlements, 182 where the claimis not absolutely meritless, preventing an
undesirable outcome. Fourth, profit-motivated funding constitutes a transfer of
litigation costs and risks to better cost and risk bearers.183 Fifth, disclosing i
nformation about a funding arrangement to the court can improve its ability to
evaluate the case and reach the correct decisions on liability and damages.
The possible criticism that external funding might encourage defendants
to assert unfounded defenses is unconvincing. Profit-motivated funders will
only fund cases likely to yield a return on their investment.184 In the case of
crowdfunding, the large number of investors and their relatively small stakes
might affect their ability and willingness to conduct due diligence, but crow
dfunding platforms have the incentives to assume these tasks in order to attract
investors. The related argument that funding might unnecessarily prolong lit
igation by disincentivizing the defendant to settle is also unpersuasive for re
asons similar to those outlined above1.85 The potential problems of funder’s
control over the defense, excessive returns, and nondisclosure of information
can be similarly resolved through regulation.
2. Outcome Costs
Assume now that the defendant wishes to crowdfund the outcome rather
than the process. If the parties settle or if the court finds the defendant liable,
he or she must pay damages to the claimant. Before the conclusion of the case,
when the obligation to pay damages is st ill an uncertain risk, investment -based
crowdfunding may be possible. At least one scholar proposed a system that
would allow defendants to share their risk of liability with an investment co
mpany by paying the investor the expected value of the lawsuit plus a pre
mium.186 This proposal may be even more feasible when the risk is widely spread
182 See Beydler, supra note 6, at 1160, 1161, 1168.
183 See Veljanovski, supra note 6, at 439.
184 See supra notes 117–134 and accompanying text.
185 See supra notes 135–181 and accompanying text.
186 Molot, supra note 6, at 82–84.
187 The defendant will pay (or commit to pay) the expected value of the claim plus a premium to
the crowdfunding platform. Contributors will pledge to cover full liability if imposed, in return for a
respective share of the defendant’s prepayment if the claim is denied.
Once the case has concluded, by a settlement or a judgment, and the obl
igation to pay becomes certain, the defendant can invoke liability insurance , but
investment-based crowdfunding is no longer viable. At this point, the
defendant has nothing to offer investors, not even a chance of reduced or no liability.
Thus, the defendant cannot seek crowdfunding. In this respect, funders’
economic motivation is critical. As Part III will shortly demonstrate, in the
absence of economic motivation , individuals may take part in crowdfunding the
defendant’s outcome costs.
III. NON-INVESTMENT-BASED MODELS
The analysis changes dramatically once we move from investment-based
to non-investment-based crowdfunding. Some of the general and specialty lit
igation crowdfunding platforms allow profit-based and donation-based or
reward-based projects, whereas some do not allow fundraisers to offer contrib
utors revenue sharing.188 If funders do not pursue financial gain, their decision
to fund will be based more on intuitions and emotions, and less on solid data
and cost-benefit analysis. Consequently, they may be willing to fund ventures
that profit-seeking funders will avoid, and disinclined to fund ventures that
profit-seeking funders will embrace. These differences in funding strategies
have considerable and normatively relevant implications.
What drives individuals to donate money to a litigant without any
porspect of financial gain is a preliminary question. An individual’s motivations
can be personal, moral, or political, and they can relate to the funded party or
to his or her opponent. 189 Thus, one may financially support a litigant when the
funder is the litigant’s family member or friend , or the opponent ’s foe; the
funder wishes to encourage the litigant’s conduct or views or to discourage the
opponent’s conduct or views; or the funder perceives the litigant as belonging
to the “right camp” or the opponent as belonging to the “wrong camp” in a
civil war of ideas. For example, an individual who finds the business practices
of a company repugnant may contribute funds to a lawsuit against it, even if
the claim does not arise from these practices.190 Similarly, an individual who
believes a particular claim is a strategic lawsuit against public participation
188 See, e.g., Our Rules, KICKSTARTER, https://www.kickstarter.com/rules [https://perma.cc/
EDA8-QM65] (“Projects can’t offer incentives like equity, revenue sharing,or investment opportun
189 See Gómez, supra note 7, at 308 (explaining that crowdfunding contributors are “not
necessarily driven by a financial gain, but instead by an altruistic motivation or by the funder’s empathy
towards a particular cause or project”) (footnote omitted).
190 Elliott, supra note 7, at 550.
may help finance the defense. A donor who does not expect direct gain may
nonetheless derive some indirect economic benefit from the lawsuit. For
example, it can help finance an action against its competitor.191
This Part examines how the different motivations affect the normative
analysis. It begins with non -investment-based crowdfunding of the plaintiff’s
costs. It then considers the defendant’s costs, distinguishing between process
and outcome costs.
B. The Plaintiff
Non-investment-based crowdfunding, like any other form of external
funding, may facilitate access to justice. It enables victims to pursue meritor
ious claims when they cannot fund litigation with their own resources or are
unwilling to bear definite costs for an uncertain future benefit due toskr-i
aversion. Presumably, non-investment-based crowdfunding will facilitate a
ccess even where investment-based crowdfunding is improbable because the
claimant’s litigation costs exceed his or her expected benefit or because a non
monetary remedy is sought. Furthermore, any type of crowdfunding helps
spread the financial burden. Relatively expensive claims can be completely
funded by aggregating many small monetary contributions, without any single
individual risking a substantial sum of money. 192 Given the diminishing
marginal value of individual wealth, spreading the cost , in itself, enhances overall
Even so, non-investment-based crowdfunding raises or exacerbates fu
ndamental problems. Most importantly, although facilitating meritorious claims,
it also fuels excessive and frivolous litigation. TPF and , to a more limited e
xtent, investment-based crowdfunding, involve reasonable screening, either by
the funder (TPF) or by the many funders and the platform (crowdfunding),
because financing frivolous claims has a negative expected value. 194
Not-forprofit funders do not conduct due diligence. At times, they do not really care
how strong the claim is: they simply like the litigant or the cause or dislike the
opponent or the defense strategy. The erratic screening may bring groundless
claims to court and filter out many meritorious claims.
The business model used by c rowdfunding platforms increases the riskof
frivolous litigation. Typically, these platforms take a certain percentage of the
funds raised.195 In the specific context of litigation crowdfunding, this means
192 Elliott, supra note 7, at 546.
193 See supra notes 127–130 and accompanying text.
194 Elliott, supra note 7, at 546.
195 Gómez, supra note 7, at 312.
that the platform will make a profit regardless of whether or not the claimant
succeeds. Thus, crowdfunding platforms have a patent incentive to allow more
campaigns. This incentive is somewhatmitigated by the platforms’ need to
maintain credibility to attract donors and, consequently, fundraisers. But the
counter-incentive is meager, because people who simply want to help their f
avored party do not care much about platforms’ past success rates, andeven
those who do may be satisfied with minimal screenintghat may be
overinclusive from a legal and economic merit perspective.
For the same reasons, non -investment-based crowdfunding does not si
gnal the quality of the claim. Therefore it does not provide the defendant an
additional incentive to settle, apart from the knowledge that the claimant can e
ndure a long process. Neither does this model generate any incentives for the
claimant to settle. In some investment -based funding models, the funder’s r
eturn hinges on the duration of the process, and this incentivizes the claimant
not to prolong the process unreasonably. But in non -investment-based
crowdfunding, the claimant is not expected to lose anything, so he or she has no i
ncentive to settle. Moreover, unless prohibited by law, profit -driven funders or
funding platforms may exercise some control over the process and its duration.
In contrast, benevolent contributors would not normally have any control.
Likewise, external funding generally helps claimants obtain more acc
urate settlements by eliminating power imbalances between the parties. 196 But
non-investment-based crowdfunding might provide a tailwind for weak claims.
Claimants might be encouraged to demand more than they deserve and protract
the process to extort defendants. This can result in unwarranted or excessive
settlements, undermining the goals of civil law.
The other issues associated with investment -based litigation
crowdfunding do not arise here. An individual who donated a small amount and does not
expect any benefit has no real interest in controlling the process. Even if he or
she did, it would be almost impossible to devise a strategy due to collective
action problems. Crowdfunding platforms usually allow donors to follow the
progress of their project, and this will probably satisfy benevolent litigation
funders. Additionally, the problems of usurious arrangements and
nondisclosure of information about the litigant’s “debt” 197 cannot arise if funders expect
In summary, the problems with non-investment-based crowdfunding are
all related to the absence of proper screening. To overcome these problems the
law must require reliable vetting of claims. Imposing a professional selection
196 Seesupra notes 122–124 andaccompanying text (explainingthecompetingincentivestosettle
for a well-funded plaintiff).
197 Supra notes 164–176 and accompanying text.
mechanism will reduce the risks of frivolous claims, p rolonged litigation, and
inaccurate settlements. For example, the claimant’s attorney may be required
to acknowledge that he or she has found the claim meritorious. As an
assurance of reliability, the lawyer may be required to take the case on a
contingency fee basis 198 or pay the defendant’s costs if the claim is found frivolous. This
vetting method can be easily implemented irrespective of the nature of the
platform but might be deemed inadequately reliable.
Alternatively, the crowdfunding platformcan be o bligated, under specific
legislation or in accordance with the general principles of tort law, to employ
reasonable selection criteria, including independent legal and economic eva
luation of each claim. The platform could face liability for the defendant’s costs
if a funded claim is found frivolous. This vetting method can be implemented
easily by specialized litigation crowdfunding platforms that can incorporate the
necessary legal and economic analysis into their business model. General
crowdfunding platforms, whose portfolios are very diverse and dynamic, might
be less inclined to undertake such a task, unless litigation crowdfunding
through such platforms becomes sufficiently common. Traditional business or
personal websites are probably the least likely to initiate non- investment-based
litigation crowdfunding if such vetting is required.
A less biased, though admittedly costlier approach, is to require prelim
inary judicial scrutiny of the claim. The idea that courts should vet a claim
before the power of the masses is harnessed to wage a legal battle against another
is not radical as might appear. In some jurisdictions, a similar
thresholderquirement is applied in the context of class actions. For example, under Israeli
legislation a class action can be certified only if there is a reasonable likelihood
that the claim will succeed.199 In the United States, the Supreme Court held
only several years ago that an inquiry into the merits of the case may be
necessary for certifying a class action.200
Critics may argue that there is no reason to subject non -investment-based
crowdfunding to legal constraints that do not apply to other forms of not
-forprofit litigation funding. For example, in a recent highly publicized case ve
nture capitalist Peter Thiel funded Hulk Hogan’s lawsuit against the online news
198 See supra notes 37–43 and accompanying text.
199 Class Actions Law, 5366–2006, SH 264, § 8(a)(1) (Isr.).
200 Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350–51 (2011). The Court departed from the
time-honored ruling in Eisen v. Carlisle & Jacquelin , 417 U.S. 156, 177 (1974) (noting that a federal
court does not have “authority to conduct a preliminary inquiry into the merits of a suit in order to
determine whether it may be maintained as a class action”). The Court ultimately characterized the
prior ruling as dictum because the judge was examining notice requirementsandnotperformingatrue
inquiry into the case’s merits. Id. at 351 n.6.
platform Gawker for invasion of privacy. 201 Yet, in most cases, the likelihood
that an individual will be willing and able to fully finance another person’s
lawsuit without any expected return seem s much lower than the probability of
a successful crowdfunding campaign. The new platforms enable plaintiffs to
easily reach numerous potentially -interested individuals who are asked to
contribute relatively small amounts.At any rate, the law can restrict or regulate all
kinds of litigation funding when deemed necessary. This is neither new nor
peculiar, as the preceding analysis of the doctrine of maintenance 202 and public
policy constraints on TPF203 demonstrates.
Arguably, a claimant seeking not -for-profit contributions may frame his
or her appeal as an investment-based crowdfunding campaign merely to
circumvent the proposed screening process. Individual investors, however, will
not invest in meritless claims, 204 and crowdfunding platforms will still have an
incentive to employ screening processes to maintain credibility of the
investment model and attract investors. Arelated problem may be the willingness of
some individuals to contribute to an investment -based crowdfunding campaign
without expecting financial return for person al, moral or political reasons.Yet ,
it is less likely that such contributions will suffice to reach the campaign’s ca
pital goal (a typical precondition for the campaign’s “success”) , and as long as
the campaign is presented to the public as investment -based, the platform still
has an incentive to employ its own screening process.205
C. The Defendant
For the most part, the analysis of non -investment-based crowdfundingof
claims is applicable mutatis mutandis to crowdfunding of defenses. However,
because defense lawyers do not provide legal services on a contingency fee
basis and have an economic interest in accepting all cases, 206 they cannot serve
201 Ryan Mac & Matt Drange, This Silicon Valley Billionaire Has Been Secretly Funding Hulk
Hogan’s Lawsuits Against Gawker , FORBES (May24, 2016) , https://www.forbes.com/sites/ryanmac/
202 See supra notes 91–116 and accompanying text.
203 See Avraham & Wickelgren, supra note 6, at 235 (discussing theproblemof externalcontrol);
Gómez, supra note 7, at 319 –20 (same); Shannon, supra note 6, at 873 (same) ; Elliott, supra note 7,at
534–35 (same); Lyon, supra note 6, at 601–02 (same).
204 Unless the framing also involves some form of misrepresentation that is addressedbycriminal
205 As stated in supra notes 134–180 and accompanying text, if empirical studies reveal market
failures, investment-based crowdfunding can be subject to the same vetting process as
206 Winand Emons & Claude Fluet, Why Plaintiffs’ Attorneys Use
ContingentandDefenseAttorneys Fixed Fee Contracts, 47 INT’L REV. L. & ECON. 16, 16–1
as reliable vetting agents. Imposing liability for the claimant’s costs on a
defense lawyer who vetted a frivolous defense may ameliorate, but not solve, the
problem. A legal defense should, therefore, be vetted by an independent party
like the crowdfunding platform or the court. If platforms engaged in litigation
funding are required to evaluate defenses, it is reason able to require platform
vetting of claims and defenses alike, instead of implementinga different met
hod for each category. If judicial scrutiny is used for claims, it can also be used
More importantly, non-investment-based crowdfunding models enable
coverage of a new litigation-related cost that cannot normally be financed by
commercial third-party funders or investmen-tbased crowdfunding
participants. Once the case has concluded, by a settlement or a judgment, the defen
dant cannot utilize i nvestment-based funding models because he or she cannot
offer investors any prospect of financial gain, not even a chance of reduced or
no liability. But, if individuals empathize with the defendant or disapprove of
the claimant, the defendant may seek cro wdfunding of his financial obligation
through non-investment-based models. For example, Igal Sarna, the journalist
who was found liable for libeling Israeli Prime Minister BenjaminNetanyahu,
easily raised the full amount from Netanyahu’s detractors through a
Liability crowdfunding has two obvious benefits: it guarantees full
compensation to successful claimants and spreads the cost, thereby enhancing
overall welfare.208 Nonetheless, under certain circumstances it might
undermine at least one of the primary goals of civil liability. According to classical
economic theory, efficient deterrence entails internalization by the wrongdoer
209 Only if the
exof the social harm caused by his or her wrongful conduct.
pected liability is equivalent to (or greater than) the expected externalized cost,
will the potential injurer internalize that cost and take cost-effective
precautions.210 Compensatory damages can secure optimal deterrence only if wron
gdoers are always liable for harms caused by their wron gful conduct, and
compensatory damages are set in accordance with the social cost of the wrongful
conduct. If wrongdoers do not internalize the costs of their wrongful conduct,
potential wrongdoers are not incentivized to take cost -effective precautions.211
Liability crowdfunding enables wrongdoers to evade the burden and might
207 Supra notes 3–4 and accompanying text (discussing the background and results of Sarna’s
208 See supra notes 3–4 and accompanying text (demonstratingonecasewherethegeneralpublic
bore some costs of highly visible litigation).
209 Alan D. Miller & Ronen Perry, The Reasonable Person, 87 N.Y.U. L. REV. 323, 335 (2012).
210 Id. at 346.
211 Id. at 344.
undercut potential wrongdoers’incentives to avoid wrongful conduct in similar
When crowdfunding might have such an adverse effect, and how the law
should respond, are crucial questions. One may argue that because a potential
wrongdoer can never be certain (ex ante) that his or her liability will be
covered through crowdfunding (ex post), the theoretical possibilityof crowdfun
ding will not affect the conduct. This argumentfails, however, because it
assumes uncertain coverage of liability cannot affect deterrence. In fact, a suff
iciently high probability of such coverage may induce wrongdoing. For
example, if the potential victim’s expected harm is $100 and the cost of preca utions
that can eliminate the risk is $50, taking these precautions is desirable and
should be encouraged. A fifty-one percent chance of liability crowdfunding
will reduce the expected cost of failing to take the precautions
49%×$100=$49, and induce the potential wrongdoer not totake them(because
The real question, therefore, is when the perceived probability of crow
dfunding ex ante is sufficiently high to undermine efficient deterrence. Many
variables can influence the percei ved probability. For example, crowdfunding
is more likely in salient (“high -profile”) cases with political or public -interest
overtones. Thus, it will be easier to obtain funding in cases of defamation of
public figures, than in private tenant -landlord disputes. The fact that all three
cases mentioned in the introduction were salient (though two involved process
costs) is not a coincidence. 212 This fact illustrates where litigants feel confident
enough to launch crowdfunding campaigns, and this ex post reality is surely
correlated with, and reflected in, the ex ante perceptions of the probability of
crowdfunding. Similarly, the ex ante probability of liability crowdfunding may
be lower if the potential injurer has already sought crowdfunding in previous
cases of alleged wrongdoing. It might be more difficult to mobilize the public
to support a repeat -litigator (who may be suspected of abuse). Likewise, very
well-connected individuals, such as celebrities, may have a higher ex ante
probability of successful crowdfunding.
From an economic perspective, crowdfunding should be prohibited when
it leads to under -deterrence. The implementation of this imperative, however,
might not be simple. One possible technique is a case -by-case evaluation of the
ex ante perception of the probability of crowdfunding. Defendants may need to
obtain judicial permission for launching a liability crowdfunding campaign,
and courts will be able to deny permission on public policy grounds if the ex
ante probability is too high. This option entails relatively high administrative
costs. Alternatively, the law can prohibit crowdfunding in preset categories of
212 See supra notes 1–4 and accompanying text.
cases where the ex ante probability is sufficiently high. Unless reliance on th
eoretical predictions is deemed appropriate, this option re quires some empirical
work, and relevant data can only accumulate if liability crowdfunding is
unregulated for a certain period of time. This model can be applied incrementally,
prohibiting liability crowdfunding in a specific category of cases once it tra
nspires that the probability of crowdfunding in such cases is high.
The most extreme legal technique for addressing the unde-rdeterrence
problem is a general prohibition on crowdfunding. Apossible rationale may be
that prohibition is economically justified when the ex ante probability of
crowdfunding is high, and harmless when the ex ante probability is low. U
nless potential wrongdoers misperceive high probability as low, and in the a
bsence of dramatic changes in public preferences after the wrongd oing, low ex
ante probability usually means that the wrongdoer will not be able to obtain
crowdfunding anyway. Therefore, a general prohibition will have a very li
mited impact in cases of low ex ante probability. Lawmakers should decide
whether the simplicity of a general prohibition that does not entail
case-bycase adjudication outweighs its cost in terms of preventing non -objectionable
crowdfunding campaigns (where the perceived ex ante probability was low).
Theoretically, the prohibition may be relaxedif the defendant is
judgment-proof.213 If the potential wrongdoer is unable to fully bear the externa
lized costs of the wrongful conduct ex post, he or she will not internalize them
ax ante. From the potential wrongdoer’s perspective, the expected expense
may be lower than the expected social harm, so the incentive for taking cost
effective precautions is impaired. 214 To illustrate, assume there is a two percent
chance that D’s conduct will cause a $100,000 loss to P. D can reduce the
probability to one percent by taking certain precautions at a cost of $800. The
cost of care ($800) is lower than the ensuing reduction in expected harm
($1000), so failure to take precautions is negligent. Assume further that the
value of D’s assets is $30,000 and that D is risk-neutral. Even if liability for
negligent conduct was certain, it would not provide an adequate incentive. D’s
expected sanction in case of failing to take precautions
2%×$30,000=$600, whereas the cost of care is $800. Liability crowdfunding
may be allowed for the difference between the defendant’s liability and fina
ncial ability ($70,000 in the above example). This will secure full compensation
and cost-spreading without impairing the admittedly -insufficient deterrent e
f213 See supra notes 127–128 and accompanying text.
214 See Kyle D. Logue, Solving the Judgment -Proof Problem, 72 TEX. L. REV. 1375,1375(1994)
(noting that the existence of judgment-proof defendants undermines the deterrence objective of tort
law); Steven Shavell, The Judgment Proof Problem , 6 INT’L REV. L. & ECON. 45,45(1986)(conclu
ding that liability does not provide judgment-proof defendants with adequate incentives to minimize
fect of liability. In practice, however, a judgmen-tproof defendant does not
have an incentive to seek crowdfunding for the difference between liability and
ability, because he or she will not pay this amount anyway.
One possible criticism of the proposed prohibition is that liability
crowdfunding operates much like liability insurance, which is permitted and very
common.215 But the analogy is flawed. Liability insurance is based on
professional ex ante analysis of and response to risks. Insurers can refuse to
underwrite certain people o r activities, thereby preserving liability incentives. They
can also control the insureds’ conduct through deductibles and coverage caps,
exclude liability for certain types of conduct or for the materialization of ce
rtain risks, adjust premiums based on past experience or current compliance
with standards of conduct, and so forth. 216 Liability crowdfunding is an ex post
mechanism, that is not based on risk analysis, not responsive to risks, and i
ncapable of effecting desirable changes in conduct.
Another possible criticism is that even where liability crowdfunding leads
to under-deterrence, this drawback may be cancelled out by other social ben
efits, particularly the expressive value of a civil protest against controversial
judicial decisions or underlying laws, and of subsidizing activities that some of
the public deems desirable. There is, however, a difference between expressing
discontent with rules or judgments defining wrongdoing and actively trying to
frustrate their application. In a liberal democracy,judgements or rules that
seem undesirable can be altered through constitutionally acceptable means
(such as legislative amendment or an appeal); otherwise, they must be respec
ted. Thus, if a specific conduct is legally wrongful, a coherent legal system
cannot encourage it. Although liability crowdfunding does not always encou
rage wrongdoing, it cannot be allowed when it does.
A third criticism is that civil liability serves other goals than efficient
deterrence, such as corrective justice, compensation of harm, or loss spreading.
Liability crowdfunding does not frustrate any of these goals and, therefore,
should not be limited. This argument has merit, but its weight depends on a
much more fundamental debate about the goals of civil liability, which clearly
215 In the past, negligence liability insurance contracts were held unenforceable on public policy
grounds. See, e.g., Breeden v. Frankford Marine, Accident & PlateGlass Ins. Co.,119S.W.576,607–
08 (Mo. 1909) (Lamm, J., dissenting in part) “(The validity of insurance . .. taken to indemnify a
carrier or employer of men against the lapses, slips, inadvertences, misadventures, and negligences
incident to their business . . . . was assailed as against public policy . . . .”); Alice Erh-Soon Tay, The
Foundation of Tort Liability in a Socialist Legal System:FaultVersus SocialInsuranceinSovietLaw ,
19 U. TORONTO L.J. 1, 15 (1969) (showing that liability insurance was not allowed in the Soviet U
nion because of its possible effect on deterrence and “moral functions of civil liability”).
216 See, e.g., Gary T. Schwartz, Reality in the Economic Analysis of Tort Law: Does Tort Law
Really Deter?, 42 UCLA L. REV. 377, 385 (1994) (describing methods used by insurance companies
to control and modify the insured’s conduct).
transcends the boundaries of this Article. To the extent that civil liability aims
at efficient deterrence (whether or not exclusively), as many jurists and scho
lars insist, 217 liability crowdfunding must be cautiously scrutinized as explained
above. Note further that in the rare cases where an award of damages is inten
ded to achieve retributive justice (most notably under the rubric of “punitive
damages”),218 liability crowdfunding must be categorically prohibited irrespe
ctive of its ex ante probability. Retributive justice requires that the wrongdoer
suffer in proportion to the gravity of the wrong, 219 and relieving the wrongdoer
of the burden annuls his or her suffering and thwarts proportionality.220
The fourth possible criticism is that prohibiting crowdfunding will not
prevent unwarranted fundraising but only shift it from designated online pla
tforms to other unregulated mechanisms. The defendant’s family, friends,
colleagues, and congregation members can be called upon to help by phone or e
mail, at public events, or through social networks. This, too, is a legitimate
concern. However, crowdfunding platforms dramatically increase the
frequency and probability of success of liability funding campaigns, making the pro
blem more acute. Technology enables the fundraiser to easily and inexpensively
reach numerous individuals, including complete strangers, geographically and
socially remote from the parties and the incident. Abroader aud ience increases
the likelihood that a sufficiently large pool of donors will be accessed, and a
sizeable pool of contributors reduces the extent of the average contribution and
induces potential donors to actually make a donation. More importantly, if ot
h217 See, e.g., Gary T. Schwartz, Mixed Theories of Tort Law: Affirming Both Deterrence and
Corrective Justice, 75 TEX. L. REV. 1801, 1801 (1997) (“Currently there are two major camps of tort
scholars. One understands tort liability as an instrument aimed largely at the goal of deterrence, co
mmonly explained within the framework of economics. The other looks at tort law as a way of
achieving corrective justice between the parties.”).
218 See Ronen Perry, Economic Loss, Punitive Damages, and the Exxon Valdez Litigation, 45
GA. L. REV. 409, 442–49 (2011) (discussing the retributive justificationforpunitivedamages);Ronen
Perry, The Role of Retributive Justice in the Common Law of Torts: A Descriptive Theory, 73 TENN.
L. REV. 177, 225–31 (2006) (same).
219 See, e.g., TONY HONORÉ, RESPONSIBILITY AND FAULT 13, 83–84, 92, 123, 138 (1999) (e
xplaining that retribution requires proportionality between the severity of the sanction and the gravity
of the misconduct); Peter Cane, Retribution, Proportionality, and Moral Luck in Tort Law, in THE
LAW OF OBLIGATIONS 141, 143, 160–61 (Peter Cane & Jane Stapleton eds., 1998) (same); Tony
Honoré, The Morality of Tort Law—Questions and Answers, in PHILOSOPHICAL FOUNDATIONS OF
TORT LAW 73, 87 (David G. Owen ed., 1995) (same); Jean HamptonC,orrecting Harms Versus
Righting Wrongs: The Goal of Retribution, 39 UCLA L. REV. 1659, 1690 (1992) (same); Jeffrie G.
Murphy, Does Kant Have a Theory of Punishment? , 87 COLUM. L. REV. 509, 530–32 (1987) (same);
Ronen Perry, The Third Form of Justice, 23 CAN. J.L. & JUR. 233, 235–36 (2010) (book review)
(same); Note, Punitive Damages and Libel Law, 98 HARV. L. REV. 847, 851 (1985) (same).
220 Consider, by analogy, the idea that a convicted criminal sentenced to ten years in prison will
be pardoned on the basis of his follower’s willingness to “share” his sentence among them (each
spending several days in prison in his stead).
er liability funding methods raise similar und-edreterrence concerns, they
should also be regulated.
This Article is the first to systematically analyze civil litigation
crowdfunding from a law and economics perspective. Part I provided the neces sary
background for the theoretical inquiry. It explained that the risk of failure and
the need to bear significant costs during a dispute resolution process might di
scourage meritorious claims or defenses. Two contemporary models in the
world of finance —TPF on the one hand and crowdfunding on the other —very
recently combined to form an innovative and promising paradigm: civil litig
ation crowdfunding. The potential legal obstacles to this development seemo
The key to the theoretical analysis of lit igation crowdfunding is the
distinction between investment-based and non-investment-based models.
Acknowledging the similarities between investmen-tbased crowdfunding and
TPF, Part II drew on existing literature on the latter to evaluate the former. I
nvestment-based litigation crowdfunding offers considerable benefits, partic
ularly the enhancement of access to justice, and most of the problems it might
bring about are manageable. Indeed,the cohort of contributors is large,
diverse, and case-specific, and each has a minor stake in the outcome.
Consequently, their ability and willingness to inspect claims and defenses prior to
investment are limited. However, they are still profit -seekingplayers, who
prefer investment opportunities with the highest possible expected value. The l
egal system can and should facilitate rational and informed investment by
requiring fundraisers to disclose relevant information. In addition, crowdfunding
platforms have incentives to assume the screening functions that are carried
out by the funder in ordinary TPF. They have an incentive to list only
sufifciently strong claims, because failing to do so will result in unsuccessful
investments, deter investors, and reduce revenue. They also have the capacity, as
aggregators of considerable capital, to conduct due diligence.
Part III discussed non -investment-based litigation crowdfunding, starting
with process costs. TPF, and to a more limited extent , investment-based
crowdfunding, involve reasonable assessment of each funding application. In
noninvestment-based models, no party has a sufficiently strong incentive to esta
blish and implement reasonable screening processes. Contributors who pledge
relatively modest amounts and do not pursue financial gain are not particularly
concerned about the expected value of the claim (or the defense). Furthermore,
the crowdfunding platform has only a meager incentive to vet applications b
ecause it makes a profit whenever a funding goal is reached, irrespective of the
case outcome. It does not need to c redibly demonstrate its willingness and c
apacity to filter out weak claims or defenses in order to attract future
invetsments. To overcome this problem the law must require professional vetting of
claims and defenses. Turning to outcome costs, Part III con cluded that crow
dfunding should be prohibited, at least when its ex ante probability is sufficien
tly high, because unconditionally relieving the defendant of the burden of li
ability might undermine one of the primary goals of civil liability: efficient d
This Article has focused on direct litigation crowdfunding, whereby the
platform serves as the sole intermediary between a party to a legal dispute and
those offering financial support. Yet civil litigation crowdfunding is a nascent
phenomenon, likely to develop in new directions. Specifically, market forces
may push for indirect litigation crowdfunding. For example, litigation funding
companies and law firms may seek equity- or debt-crowdfunding, and
nonprofit legal advocacy organizations may seek donation-based crowdfunding.
These and other—possibly unforeseeable—developments will surely require
modification and extension of the basic theoretical framework. The Article
thus paves the way for further research on emerging topics at the intersection
of technology, law, and economics.
7 Manuel A. Gómez , Crowdfunded Justice: On the Potential Benefits and Challenges of Crow dfunding as a Litigation Financing Tool , 49 U.S.F. L. REV . 307 , 310 , 313 , 322 ( 2015 ) (definingcrow dfunding); Ethan Mollick , The Dynamics of Crowdfunding: An Exploratory Study,29 J. BUS. VENTURING 1 , 2 ( 2014 ) (same); Michael Elliott, Comment,Trial by Social-Media: The Rise of Litigation Crowdfunding , 84 U. CIN. L. REV . 529 , 529 ( 2016 ) (same).
8 TANIA ZIEGLER ET AL., THE AMERICAS ALTERNATIVE FINANCE INDUSTRY REPORT: HITTING STRIDE 26-27 ( 2017 ), https: //www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternativefinance/downloads/2017-06 -americas-alternative-finance-industry-report .pdf [https://perma.cc/ BW2C-KY76].
9 Only one law review article and one student comment have been published on this topic so far . Gómez, supra note 7; Elliott, supra note 7 . Neither identifies thenormativesignificanceofthedistinctions between investment and non-investment-based crowdfunding, between process and outcome costs, and between financing claims and defenses . See generally Gómez, supra note 7; Elliott, supra note 7.
10 See ZIEGLER ET AL, supra note 8, at 22 (offering this conceptual distinction).
11 See Gómez , supra note 7 , at 309-10, 322 (discussing non-investment-based crowdfunding models ); Nauful, supra note 6, at 17 (same); Ross S. Weinstein,Crowdfunding in the U.S. and Abroad : What to Expect When You' re Expecting, 46 CORNELL INT'L L.J . 427 passim ( 2013 ) (same); Elliott, supra note 7 , at 529, 531 - 32 (same).
12 See Peter C. Sumners , Crowdfunding America's Small Businesses After the Jobs Act of 2012, 32 REV . BANKING & FIN . L. 38 , 42 ( 2012 ) (discussing equity crowdfunding); see also Gómez, supra note 7 , at 313 (same); Elliott, supra note 7 , at 522-23, 529 (same).
13 See Gómez , supra note 6 , at 313, 324 - 25 (defining debt crowdfunding) ; Elliott, supra note 7 ,at 529, 532 - 33 (same).
14 See infra notes 117-187 and accompanying text.
17 Alyeska Pipeline Serv . Co. v. Wilderness Soc'y , 421 U.S. 240 , 247 ( 1975 ) (“In the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorney s' fee from the loser .”).
18 The victim may bring an action even if p×d<cp where the defendant's litigation costs exceed his or her cost of settling. Lucian A. Bebchuk, A New Theory Concerning the Credibility and Success of Threats to Sue, 25 J. LEGAL STUD . 1 passim ( 1996 ).
19 See Werner Pfennigstorf , The European Experience with Attorney Fee Shifting , 47 LAW & CONTEMP . PROBS. 37 , 44 - 47 ( 1984 ) (discussing the English rule to computing legal costs ); Thomas D. Rowe , Jr., Shift Happens: Pressure on Foreign Attorney-Fee Paradigms from Class Actions , 13 DUKE J. COMP. & INT'L L . 125 , 128 ( 2003 ) (same).
20 See Burkhard Hess & Rudolf Hübner, Germany, in THE COSTS AND FUNDING OF CIVIL LITIGATION , supra note 15, at 349 , 351, 365 (discussing the German law approach to legal costs).
21 See van Boom, supra note 6, at 8 (discussing the French law approach to legal costs).
22 See Louis T. Visscher & Tom Schepens , A Law and EconomicsApproachtoCostShifting,Fee Arrangements and Legal Expense Insurance, in NEW TRENDS IN FINANCING CIVIL LITIGATION IN EUROPE 7 , 12 - 13 ( Mark Tuil & Louis Visscher eds., 2005 ) (reviewing the literature ).
23 Id. at 14 (“[T] here is a critical probability of success and a critical value of the claim below which the plaintiff will not sue .”).
24 In a “loser pays” system, litigation costs include the opponent's expected costs . See Pfennigstorf, supra note 19 , at 44-47.
25 See id.
26 Id. at 77 (arguing that litigation costs may deter claimants evenundertheEnglishrule) ; Edward A . Snyder & James W. Hughes , The English Rule for Allocating Legal Costs: Evidence Confronts Theory , 6 J.L. ECON. & ORG . 345 passim ( 1990 ) (providing empirical evidence).
27 van Boom, supra note 6 , at 5.
29 See Sebok , supra note 6 , at 72 ( discussing assignment of claims); Shannon, supra note 6, at 871 (same ).
30 Simpson v. Norfolk & Norwich Univ . Hosp. NHS Trust  EWCA (Civ) 1149 ,[ 15 ] ( UK ). Acquiring a limited interest in a claim is legitimate and valid . Id.
31 See Sebok , supra note 6 , at 62, 74 - 75 ( 2011 ) ( “The most important current limitation, universally enforced except in Texas, and to a lesser extent Mississippi, prohibits the assignment of causes of action for personal injuries .”) (footnotes omitted).
32 See, e.g., MNC Credit Corp . v. Sickles, 497 S.E.2d 331 , 333 (Va. 1998 ) ( “The common law of this Commonwealth did not permit the assignment of legal malpracticeclaims . ”);Sebok, supra note 6, at 85 (discussing legal malpractice).
33 See Sebok , supra note 6 , at 88 ( discussing rights of action for fraud) .
34 See Richmond , supra note 6 , at 650 (“[M] ost traditional lenders are unwilling to lend money with only a potential litigation recovery as collateralbecause such loans are deemedtobetoorisky . ”).
50 See Avraham & Wickelgren, supra note 6, at 237-38 ( discussing this form of TPF); Beydler, supra note 6 , at 1159-60, 1163 (same); Lyon, supra note 6 , at 574 (same); Binyamin Appelbaum, Lawsuit Loans Add New Risk for the Injured , N.Y. TIMES (Jan. 16, 2011 ), http://www.nytimes.com/ 2011 /01/17/business/17lawsuit.html?pagewanted=all.
51 See Molot , supra note 6 , at 95.
52 STEVEN GARBER, ALTERNATIVE LITIGATION FINANCING IN THE UNITED STATES: ISSUES, KNOWNS, AND UNKNOWNS 10- 12 ( 2010 ).
53 See Avraham & Wickelgren, supra note 6, at 239-40 (discussing the relevant factors); Shannon, supra note 6 , at 872, 890 (same); Veljanovski, supra note 6 , at 420 (same).
54 See, e.g., Avraham & Wickelgren, supra note 6 , at 239; Veljanovski, supra note 6, at 424 ( explaining that in European countries the fee usually ranges between 20% and 40% of the award or settlement, but can get as high as 50%, and that in Australia the range is 30-60%).
55 van Boom, supra note 6 , at 15-16.
57 See Avraham & Wickelgren, supra note 6, at 239 ( “ Commercial claims arefunded inthis risk ier way because commercial claims are often larger than personal injuryclaims andthereforeareworth the diligence required to reduce the funder's risk.”). In Germany, this formofTPFisalsoavailablefor smaller claims . Michael Coester & Dagobert Nitzsche , Alternative Ways to Finance a Lawsuit in Germany, 24 CIV. JUST. Q. 83 , 88 , 101 ( 2005 ).
66 See Jumpstart Our Business Startups Act , Pub. L. No. 112 - 106 , 126 Stat. 306 ( 2012 ) (codified in scattered sections of 15 U .S.C.) ; see also Elliott, supra note 7, at 532 (discussing the JOBS Act) .
67 See Gómez , supra note 7 , at 314 -15 ( discussing state legisl ation ofequitycrowdfunding);Alan McGlade, Michigan Governor Signs Intrastate Crowdfunding Exemption , FORBES (Dec. 31 , 2013 ), https://www.forbes.com/sites/alanmcglade/2013/12/31/michigan-governor -signs-intrastate-crowd funding-exemption/ [https://web.archive.org/web/20171006114300/https://www.forbes.com/sites/ alanmcglade/2013/12/31/michigan-governor -signs-intrastate-crowdfunding-exemption/] (same).
68 This model is still relatively rare . Elliott, supra note 7 , at 533.
69 Gómez, supra note 7, at 314.
71 Gómez, supra note 7, at 312. For example, if a campaign does not meet its fundraising goal, Indiegogo enables contributors to make the contribution anyway . EvaluatingIndiegogovs .Kickstar ter?, INDIEGOGO FOR ENTREPRENEURS , https://entrepreneur.indiegogo.com/how-it-works/indiegogovs-kickstarter/ [https://perma.cc/7H7B-DSUK].
72 Gómez, supra note 7, at 311-12.
74 See id . at 324 ( listing litigation crowdfunding campaigns).
75 See supra note 2 and accompanying text .
76 See supra note 4 and accompanying text .
77 Daniel Fisher, Feeling Lucky? Maybe It 's Time to Invest in Somebody Else 's Lawsuit , FORBES (Nov. 19 , 2014 ) , http://www.forbes.com/sites/danielfisher/2014/11/19/lexshares-invests-in-litigation/ [https://perma.cc/S8QL-RTFY] ; Debra C assens Weiss , New Website Uses Crowdfunding to Finance Lawsuits, ABA J.(Nov. 20 , 2014 ), http://www.abajournal.com/news/article/new_website_uses_ crowdfunding_to_finance_lawsuits/ [https://perma.cc/A388-Z8TT].
78 Frequently Asked Questions , LEXSHARES, https://www.lexshares.com/pages/faqs [https:// perma.cc/2TMY-AG4D].
79 Gómez, supra note 7, at 328-29.
80 Elliott, supra note 7, at 535. For a person to be an accredited investor, he or she must have an income exceeding $ 200 ,000, or $ 300 , 000 for a married couple, in the prior two years or have a net worth of more than $1 million, excluding the value of their primary residence . Id.
81 Meg Graham , Funded Justice Aims to Help People Raise Fundsfor Legal Fees, CHI . TRIB. (Jan.8 , 2015 ), http://www.chicagotribune.com/bluesky/originals/chi-funded -justice-michael-helfandbsi-20150105-story .html [https://perma.cc/B46X-4ABX].
83 Id.; see also Elliott, supra note 7 , at 530, 536 .
84 Elliott, supra note 7, at 536.
85 Joshua Rozenberg , Is CrowdfundedLitigationthe FutureofJustice?, THE GUARDIAN (May25 , 2015 ), https://www.theguardian.com/commentisfree/2015/may/25/crowdfundedl-itigation - futurejustice-crowdjustice [https://perma.cc/6H5A-2BD6].
86 Frequently Asked Questions , FUNDED JUSTICE, https://fundedjustice.com/help[https://perma. cc/7PDK-JU6A] ; How It Work ,s CROWDJUSTICE, https://www.crowdjustice.com/how-it-works/ [https://perma.cc/Z7D8-CUEF].
87 See Gómez , supra note 7 , at 328-29 (discussing Invest4Justice ).
88 See supra note 1 and accompanying text .
89 E.g., Litigation Finance 101 , LEXSHARES, https://www.lexshares.com/litigation_ finance_101 [https://perma.cc/8TTK-R23C] (explaining that the three principal participants in litigation funding are plaintiffs, investors , and attorneys).
90 Ordinary loans with fixed interest rates and an unconditional obligation to repay may be avai lable in the financial markets .
91 In re Primus, 436 U.S. 412 , 424 - 25 n. 15 ( 1978 ) (defining champerty); Schnabelv .TaftBroad . Co., 525 S.W.2d 819 , 823 (Mo. Ct. App. 1975 ) (same ); Avraham & Wickelgren, supra note 6 , at 242 (same); Sebok, supra note 6 , at 73 (same); Shannon, supra note 6 , at 874 (same) ; Lyon, supra note 6 , at 579 (same).
92 789 N.E. 2d 217 , 219 (Ohio 2003 ).
93 Id. at 221.
95 OHIO REV . CODE ANN. § 1349.55 (West 2017 ).
96 See, e.g., Saladini v . Righellis , 687 N.E.2d 1224 , 1226 - 27 (Mass. 1997 ) (abolishing champerty); Osprey, Inc . v. Cabana Ltd. P'ship, 532 S.E.2d 269 , 278 (S.C. 2000 ) (same).
97 E.g., Lyon, supra note 6 , at 576, 579 - 80 , 589 - 90 .
98 See id . at 583-84 ( showing that “thirty-two states and the DistrictofColumbiastillretaineither statutes or intact precedents prohibiting champerty”).
99 E.g., Johnson v. Wright , 682 N.W.2d 671 , 678 (Minn. Ct. App. 2004 ) ( “[B]ecause recovery is tied to the outcome of the litigation, the . . . agreement is champertous.”).
100 Avraham & Wickelgren, supra note 6, at 243-44; Beydler, supra note 6, at 1177.
101 Beydler, supra note 6, at 1159, 1164 .
102 Sebok, supra note 6, at 72 ( alteration in original) (quoting Maintenance, BLACK'S LAW DICTIONARY 1039 (9th ed. 2009 )); see also Shannon, supra note 6 , at 874; Elliott, supra note 7, at 540.
112 44B AM . JUR. 2D Interest and Usury § 2 , Westlaw ( database updated Nov . 2017 ); Elliott, supra note 7, at 537.
113 Dopp v. Yari , 927 F. Supp . 814 , 823 (D.N .J. 1996 ) (holding that if the obligation to repay is conditional, usury laws do not apply); Kraft v . Mason, 668 So. 2d 679 , 684 (Fla. Dist. Ct. App. 1996 ) (same); Anglo-Dutch Petroleum Int'l, Inc . v. Haskell, 193 S.W.3d 87 , 101 (Tex. App. 2006 ) (same); Avraham & Wickelgren, supra note 6, at244 (expl aining that if the obligation to repay is conditional, usury laws do not apply); Shannon, supra note 6 , at 892, 895, 896 (same) ; Beydler, supra note 6 , at 1159, 1163 (same); Elliott, supra note 7 , at 537-40 (same).
114 See, e.g., Echeverria v . Estate of Lindner , No. 018666/ 2002 ,2005WL1083704( N.Y. Sup . Ct. Mar. 2 , 2005 ) (discussing a workers' compensation claim that is almost a certain win); Elliott, supra note 7, at 540 (discussing the possibility of almost certain recovery).
115 Echeverria, 2005 WL 1083704, at * 12 ( awarding an annual interest of sixteen percent).
116 See Shannon , supra note 6 , at 893.
117 The two forms of TPF are comparable to the two forms of investment-based crowdfunding .
118 See supra notes 16-43 and accompanying text.
162 Id. at 602. Admittedly, it might counteract the empowering features of the civil process . See Ronen Perry, Empowerment and Tort Law , 76 TENN. L. REV. 959 , 975 - 83 ( 2008 ) (discussing the empowering effects of tort litigation).
163 See Richmond , supra note 6 , at 681-82 ( explaining that the funder 's control can be limited); Shannon, supra note 6, at 880 (same ).
164 See, e.g., Anglo-Dutch Petroleum , 193 S.W.3d at 104; Arkin v. Borchard Lines Ltd.  EWCA (Civ) 655  ( UK ).
165 See, e.g., ME. REV. STAT. tit . 9-A, § 12 - 104 ( 7 ) ( 2017 ) ; NEB. REV . STAT. § 25 - 3303 ( 1 )(c) ( 2017 ) ; OHIO REV . CODE ANN. § 1349.55(B)(3) (West 2017 ).
166 AM. LEGAL FIN . ASS'N, THE ALFA CODEOF CONDUCT , https://americanlegalfin.com/whatis-alfa/alfa-code-of-conduct/ [https://perma.cc/8GVB-KGHD].
167 Campbells Cash & Carry Pty Ltd . v Fostif Pty Ltd . ( 2006 ) 299CLR386, 434 (Austl .) (holding that a funder's control may be allowed ).
168 Gómez, supra note 7, at 307-08, 321 - 22 , 331 - 32 .
169 Shannon, supra note 6, at 874.
170 Nauful, supra note 6, at 64; Beydler, supra note 6, at 1167-68; Elliott, supra note 7, at 534.
171 Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217 , 218 - 19 ( Ohio 2003 ) ( noting that the funder “forwarded $6,000 to Rancman in exchange for the first $16,800 she would recover if the case was resolved within 12 months , $ 22 ,200 if resolved within 18 months, or $ 27 ,600 ifresolved within 24 months”).
172 Fausone v. U.S. Claims, Inc., 915 So. 2d 626 , 627 - 28 (Fla.Dist.Ct.App. 2005 ), aff'd,931So. 2d 899 (Fla . 2006 ).
173 Beydler, supra note 6, at 1181; Elliott, supra note 7, at 535; see also Osprey, Inc. v. Cabana Ltd. P'ship, 532 S.E.2d 269 , 278 (S.C. 2000 ) (explaining that in enforcing a funding agreement the court should consider “whether the financier would retain a disproportionate share of the recovery ”).
174 Beydler, supra note 6, at 1182.
175 See McLaughlin , supra note 6 , at 657 ( advocating that funders be subject to the statutory us ury rate as well as a maximum fee equal to twenty -five percent of the advance); Yifat Shaltiel & John Cofresi, Litigation Lending for Personal Needs Act: A Regulatory Framework to Legitimatize Third Party Litigation Finance , 58 CONSUMER FIN . L.Q. REP . 347 , 354 , 360 ( 2004 ) (proposingthatfunders receive the greater of a fixed interest rate subject to the state's usury statute calculated over the life of the loan or a twenty-five percent contingency fee).
176 Steinitz, supra note 6, at 1327.
177 Nauful, supra note 6, at 64; Lyon, supra note 6, at 603; Appelbaum, supra note 50.
178 Shannon, supra note 6, at 908 (advocating disclosure); Beydler, supra note 6 , at 1183.
179 ATTORNEY GEN . OF N.Y., BUREAU OF CONSUMER FRAUDS & PROT ., In re Plaintiff Support Servs., Inc . et al., Assurance of Discontinuance Pursuant to Executive Law § 63 ( 15 ), at 4 (Feb. 17, 2005 ),[ https://perma.cc/DG6P-DK66] (“All contracts shall . . . contain the following disclosures . . .