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Playing the
Courts?
By Jim Surber
I suppose with our astounding and rapidly progressing technology it was
bound to happen.
With all the amazing things that computers are capable of doing,
creative thinking is finding new, unforeseen problems to solve and
create, as well as investment opportunities.
If you have ever entertained the idea of trying to extract money from
people or corporations, using the courts, there is a startup company
that you should investigate.
Legalist is a Silicon Valley company whose website offers “data-backed
litigation financing” using algorithms. Their computer resources
“analyze millions of court cases to source, vet, and finance commercial
litigation.”
It is the latest vehicle provided to allow anyone to “invest” in the
success of a future lawsuit by funding it.
The basis and foundation of the company is the contention that, using
historical lawsuit data, the outcome of any lawsuit can be predicted
before it’s even filed. Accepting this, if you can predict which
lawsuits will succeed, you can ensure big financial returns for people
who invest in litigation.
But this is only the beginning. To increase the probability of a
lawsuit’s success, would-be litigants should file their cases in
districts with judges who are notoriously favorable to that type of
case. Of course, this data is also completely researched and compiled.
Their model appears very well substantiated. An example given is that
one fourth of all American patent cases are heard in one small district
in Texas, because it’s easy to win patent cases with the judge there.
Legalist believes that it can similarly provide a winning advantage for
all sorts of cases.
A company co-founder contends, "One of the biggest predictors of case
outcome is the presiding judge and one of the biggest predictors of
length is the number of cases that judge is concurrently working
on." She also noted that lawsuit investors currently return about
$1.40 for each dollar they invest, and believes that Legalist can
greatly improve upon that figure.
It would appear that the company is determined to disrupt the annoying
unpredictability of the American justice system.
If this occurs, it will be because of preying upon possibly unknown or
unapparent weaknesses in the courts system, and using historical
lawsuit data as an investing opportunity. The company helps research
only the potential filing of cases in state or federal courts demanding
in excess of $1 million.
If successful, this could possibly create one of two scenarios:
Democratize frivolous lawsuits that only rich people, patent trolls,
and other litigious types now use all the time to extract wealth
through the justice system.
Force Congress to reckon with a court system that is highly
broken and inefficient.
But perhaps a third possibility will happen. More companies and
individuals will lose threatening court cases in a rigged legal system
that is funded by uninterested parties. If this occurs, then Legalist
and its investors will get fabulously wealthy in automating the
third-party litigation financing (TPLF) industry.
TPLF is no longer new, and has become a mainstay in global commerce and
dispute resolution. But many observers still consider it to be the
“wild west” due to a lack of regulation in many countries. Since its
beginnings in Australia more than a decade ago, it has spread rapidly
around the globe. The practice is prevalent in Australia and the UK,
but has also moved into the United States, Canada, Europe and parts of
Asia. Because funding arrangements tend to operate in secret,
defendants may not even be aware that a funder is involved in
litigation against them.
In the past and present, examples abound where a venue, judge and third
party funding can ruin someone’s proverbial day by drowning them in
litigation. Making the decisions in such a lawsuit requires careful
consideration by a talented lawyer which is a luxury that few can
afford.
This new company proposes to automate these decisions with its
algorithm derived from exhaustive research and compilation by computers.
The company said it doesn’t want to enable personal vendettas, but even
if its endgame is focused simply on earning money, all the computer
machinations and legal strategies are the same.
This underlying technology is interesting and potentially useful.
Founded by two Harvard undergrads, the original plan was to scrape and
upload state court records to a central database, making it possible
for lawyers, journalists, and the public to search state court records,
which are notoriously difficult to access, and often stored on
hard-to-search websites.
More recently, the company has chosen a far different course of action
from the original mission. It is now taking applications from would-be
litigants and will automatically determine where, when, and with what
judge to file a lawsuit, turning the American justice system into
little more than a computer programming problem. Naturally, Silicon
Valley’s biggest venture capitalists love the idea.
The company’s website promises to run your potential lawsuit through
their algorithm and respond within 2-4 business days. If worthy, they
will cover all legal fees as well as your operations and personal
expenses until the suit is resolved.
Thinking about this is interesting. It has been proven for many years
that skilled "card counters," given an adequate bankroll to withstand
the realities of mathematical odds, can consistently beat the casinos
in blackjack. It is also true that, when spotted, they are quickly
removed by the management.
Will the same skill and technology now be applied to the courts with
"sure-fire" success, and will they receive the same treatment as card
counters? It would also seem reasonable that more litigation funding
would mean more litigation. A firm's business model might allow them to
spread risk over a large portfolio of cases, and to take on cases that
are weak or dubious but with a possibility of massive award. This
reality could also increase dubious litigation as well.
The toughest decision may be whether to allow the courts system to
become a veritable casino where talented patrons overload the tables,
consistently leave with huge winnings, and cannot be thrown out by the
house. Public opinion polls show that the courts are the most trusted
branch of government. Will this change?
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