Third-Party Lawsuit Funding Wreaks Havoc With the Justice System

Lawfare against Republican lawyers is being funded by groups like The 65 Project. Third parties (often anonymously) fund class action lawsuits as an investment product. The traditional purpose and function of courts is under attack. When the court becomes not a venue for justice but a political weapon or a place to make a return on investment, the nation loses a valuable piece of what makes its system of government great. What happens to a free nation when the ability of its citizens to file, conduct, and defend against impartial lawsuits is undermined? It looks like the United States is going to find out.

This nation has understood the importance of fair and impartial access to courts of law from its founding. Article III of the US Constitution creates the Supreme Court; it also ensures that all criminal trials shall be by jury and shall be held within the state where a crime occurred, so that a defendant is tried by the people in the jurisdiction where the event took place. The Bill of Rights fills out these legal safeguards, protecting against unreasonable searches and seizures, preventing double jeopardy, laying out specific rights for both criminal and civil trials. The American legal system is emphatic that there ought to be a clear, impartial functioning of courts, so that both criminal cases and civil lawsuits are tried fairly. A republic cannot function when corrupt or inaccessible court systems prevent the people from accessing justice.

When one looks at the work being done by The 65 Project—a comprehensive plan to raise funds and use them to wage lawfare against conservative lawyers—it doesn’t look much like a use of the justice system that the Founding Fathers would appreciate. Hayden Ludwig wrote an excellent report on this worrying operation. Founded and led by exactly the kind of characters you’d expect (veteran Democratic operatives), The 65 Project was started specifically to go after lawyers who dared to mount any kind of legal challenge to the results of the 2020 election. 

Putting aside the shady conglomeration of dark-money groups involved in the project, the aim of the organization is chilling. Whether the target is Sidney Powell for filing legal challenges to electoral regularities, John Eastman for writing a legal memo explaining the potential constitutional options available on January 6, 2021, or even Alan Dershowitz defending the very lawyers The 65 Project is attacking, the message is clear: If lawyers challenge a Democratic electoral victory, defend certain high-profile conservatives in court, or otherwise take on the reigning regime, there will be consequences. The 65 Project will ensure that lawyers who take on such political cases will be sued, prosecuted, and stripped of their licenses to practice law.

Irrespective of one’s opinions about the merits of the 2020 election suits, it is disturbing that an organization exists for the sole purpose of funding legal campaigns targeting individuals for doing their jobs. This is a mockery of the American legal tradition, where an individual party either makes a civil claim or files a report because a harmful action was done to him. In that case, he hires a lawyer (or speaks to a prosecutor) and the case begins and grows organically. But when millions of dollars are being raised so that a third-party organization can instigate politically motivated lawsuits that will dissuade conservative lawyers from taking certain cases or defending certain individuals, this is a gross, inorganic perversion of the legal process.

It is a different matter when people donate money to the Alliance Defending Freedom to litigate religious freedom or to the ACLU to litigate whatever causes they are promoting these days. In those cases, the organizations exist to promote broad general principles and take on certain types of cases. But The 65 Project is different. It is oriented not toward general issues but at funding and encouraging targeted litigation against particular individuals: Your donor dollars will ensure that conservative lawyers X and Y will be punished for their work. Public-interest law firms are one thing; direct funding of litigation by third parties to silence political opposition is another. If you donate to Alliance Defending Freedom, you are donating to some legal action in defense of religious freedom. But if you donate to The 65 Project, you likely know specifically what you are purchasing: an attack on a particular conservative lawyer who dared to help Trump or one of his allies in court.

The 65 Project uses the legal system as a weapon against political enemies, degrades the rule of law, makes the United States function more like a corrupt Third-World regime, and severely chills speech and conservative political legal work. Who wants to go defend Republican election lawsuits when the lawyer could be disbarred, sued, or even thrown in jail for his efforts? “Conservative lawyers: think twice!” is exactly the message the left wants you to take from this lawfare campaign.

But there is a more general and fundamental problem with these types of legal arrangements: third parties generally should not be funding litigation in which they are not involved. The model rules governing legal ethics recognize the threat of third-party funding: Rule 1.8(f) addresses such concerns by forbidding attorneys to take funds from anyone other than the client unless there is informed consent, the third-party relationship causes no interference with the lawyer’s independence, and the relationship with the client (including confidentiality) is not jeopardized. The reasons for caution are obvious when a non-party to a lawsuit is paying the legal bills. Does the financial backer of the lawsuit get access to confidential information? Does he have a say in strategy? Does he make the ultimate decision about when to settle or when to press forward? These should always be conversations between the party and his attorney. Introducing a third-party with a financial interest can severely muddy the water.

There are cases where the purpose of lawsuits being funded by third parties is clearly political activism. But there is another (also disturbing and inappropriate) category of third-party funding, where the goal is not activism but return on investment. This trend has been well-documented: Investors (often hedge funds or private equity groups) fund tort lawsuits to make a profit. Sometimes these are simply small, predatory investments: Investors find poor, vulnerable people who have been injured and are involved in a tort lawsuit, offer to pay them the equivalent of a “payday loan,” and then take the proceeds of the lawsuit to pay back the loan (along with exorbitant fees and interest).

At other times, the third-party funding is in the form of fronting cash for a large class-action lawsuit, where the third party pays up front for legal costs—as well as non-legal expenses, such as advertising to find additional plaintiffs. In exchange, the third party gets a percentage of the award when the case settles or goes to trial.

A civil lawsuit is supposed to remedy the injury by “making the parties whole.” If a plaintiff was injured, the lawsuit resolves justly when he is offered a settlement large enough to cover his medical expenses, lost wages, pain and suffering, and the like. But how does the equation change when a third party has poured money into court costs, advertising fees, etc. for the purpose of making a profit? Will the amount that makes the plaintiff whole also provide a sufficient profit margin for the investor? And will the third-party investor have a say in whether to reject a settlement (even one that satisfies the plaintiff) in the hopes of a bigger payout at trial?

Further, third-party funding raises serious questions about confidentiality. How involved are the third parties in the lawsuit? Do they have access to the lawyer-client conversations? What about the document discovery process? Is it possible that third-party funders of lawsuits (who are sometimes anonymous) may be corporations funding lawsuits against competitors, and that they may use these suits as a vehicle to gain access to their competitors’ sensitive documents during the discovery process? 

The political lawfare being engaged in by groups like The 65 Project and the lawsuit-as-investment model have different particular problems, but share a basic vice: When plaintiffs are being funded by (often anonymous) third parties rather than the parties themselves, the legal system becomes a weapon rather than a tool for achieving justice. 

Whether footing the bill to sue John Eastman for ideological purposes or to sue big pharma in hopes of a major payday, third-party funding of litigation needs to be reined in by state legislatures. There are reasonable exceptions: paying for a lawyer when your brother makes a mistake and ends up in jail for the night, or when a family member is sued and doesn’t have the money for her own attorney. But the practice probably shouldn’t go much further than that. Anonymity, access to confidential information (especially documents obtained in discovery), and control of the decision-making process by third-party funders need to be closely scrutinized by lawmakers.

From political lawfare to frivolous lawsuits, the integrity of the American legal system is under attack. Finding ways to disincentivize third-party funding from flowing into legal cases, so that parties to a lawsuit actually pay their own legal fees and therefore maintain control of their own legal affairs, is important to ensure our system of justice is not a place where the right infusion of cash can punish a political enemy, obtain trade secrets from a competitor, or offer a return on investment. Shut off some of the financial spigots and the frivolous way in which our courts are abused may begin to dry up.