Anthony J. Sebok (Yeshiva University – Benjamin N. Cardozo School of Law) has posted Misguided Paternalism in Commercial Law and Litigation Finance (Villanova Law Review, forthcoming) on SSRN. Here is the abstract:
Third-Party Litigation Finance (TPLF) occurs when a third party funds a stranger’s attorney’s costs and/or other legal expenses. It serves a variety of markets, the two main ones being the consumer market, involving individuals with personal injury claims, and the commercial market, (mostly) involving commercial entities suing commercial defendants in business disputes such contract breach and antitrust. Like any novel business activity, TPLF has generated a variety of responses from private and public sector entities. There have been efforts to reform TPLF and one state, North Carolina, prohibited it in 2026.
In this Article I examine a leading argument against commercial TPLF, which is that it permits commercial plaintiffs to give away control over the conduct of the funded litigation, including control over settlement. Because this argument is made in the absence of any plausible account that commercial TPLF causes significant third-party harms or imposes unfair burdens on commercial defendants, I refer to this argument as one of “contract paternalism”, where, for their own good, plaintiffs are prevented from freely contracting with funders.
I argue that in the context of commercial TPLF, contracts are governed by the law of secured transactions in U.C.C. Article 9 and that from this perspective, the paternalism urged by commercial TPLF’s critics makes no sense. Further, I argue from the perspective of modern contract theory, the default provisions in Article 9 that would allow plaintiffs to contract away control to funders are efficient and would be preferred by rational commercial actors.
The Article concludes cautions that its argument cannot be transferred automatically to consumer TPLF. The Article’s larger point is the failure to take seriously the different types of law that have evolved over the past century to help different types of parties manage their business relations leads to confusing and potentially harmful academic and policy arguments about TPLF.
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