Litigation finance (or legal financing) is defined as the mechanism or process through which litigants (and even law firms) can finance their litigation or other legal costs through a third party funding company (Wikipedia).
Basically, having a third party covers your legal costs in exchange of part of the potential proceeds of the case. Simpler: someone betting on your case in court.
This practice is very extended in the US and in plenty of developed countries, mostly because of the big settlements or awards that can arise from a case. Additionally, legal costs in the US are higher than in other countries, making justice not always available to everyone.
I see two big issues that go one against the other here: on one hand, litigation finance can allow certain parties fund their claim against a bigger party and permit justice to be served in a proper manner. On the other hand, there are ethical issues that arise, specially considering the potential intervention of the financial party in the decision-making of the case or the amount of frivolous claim that two competitors can fund against each other.
Lake Whillans, a litigation finance company, carried out a survey among litigators to see their perspective. Even though the survey proves that in general the legal market is in favor of using litigation finance, there is one main issue that came to mind when I read the survey.
According to Lake Whillans, over 70% of the respondents had "Ethical reservations about litigation finance", being the "Financier´s right to influence/decide strategy or settlement" of the case the second most important issue when choosing litigation finance.
Under the Rules of Professional Responsibility, all attorneys admitted to any US bar association have the capacity to decide the strategy of the case, even being able to change it without the client´s consent. However, the decisions on settlement has to be made by the client.
How strong can the financier push the client to accept? The financing will include certain thresholds for accepting a settlement offer, but what if the client decides that he is no longer in agreement of those terms? Will the client lose it´s right to decide? How should a court rule against your client when the financier sues him for breach of contract?
Attorneys need to be very careful while engaged in some litigation that includes these kind of arrangements as they may incur in malpractice. Just be careful.