Can A Dead Company Sue You? Maybe, Says Court.

Strategy

In 2013, the monetary authority of Singapore said it had uncovered an interest-rate bid-rigging scandal involving some of the world’s largest banks. Three years later, a pair of Cayman Islands hedge funds, FrontPoint Asian Event Driven Fund, and Sonterra Capital Master Fund sued the banks in federal court in New York. The lawsuit referred to both funds in the present tense, but that was misleading: Both had been terminated almost five years before. The real plaintiff, or “party in interest” in legal terms, was an entity with the bland name of Fund Liquidation Holdings LLC. 

Fund Liquidation lifted the veil a bit in 2017, referring to the two plaintiffs in the past tense in an amended court filing. Finally, in 2018, Fund Liquidation identified itself as the real plaintiff, and the banks moved to dismiss, saying the case had been a legal nullity from the start. Under longstanding U.S. precedent, dead people can’t sue, and courts have generally held the same for dead companies. A trial judge agreed, dismissing the case in July 2019. 

The Second Circuit Court of Appeals in New York reversed that decision in March, however, saying it didn’t really matter that the plaintiffs had gone to the Great Beyond before they filed suit, as long as somebody had a stake in the case. That rubbed a number of pro-business organizations the wrong way, including the U.S. Chamber of Commerce, which has asked the U.S. Supreme Court to overturn the decision. In an amicus brief before the court, the Chamber says the decision opens the door to anonymous third-party funders filing lawsuits for profit or political gain. 

In 17th-century England, they might have called this barratry, a word believed to have come from the Old Norse term for “struggle” or “strife.” In England, it meant stirring up trouble by paying people to file lawsuits against your opponents, and it was a crime.

 In 21st-century America, funding other people’s lawsuits has become a multibillion-dollar business that proponents say fills a vital need. By sizing up cases and putting real dollars behind them, litigation funders help companies maintain lawsuits—especially against big competitors— that they otherwise might have to abandon because of the cost. The funder takes on the risk of failure, and the plaintiff can redeploy those dollars in the business. 

The rapid growth of the litigation-finance business demonstrates how popular the formula has become. From an exotic investment concept a decade or two ago, third-party litigation has ballooned into more than $11 billion in assets by some estimates. Publicly traded Burford Capital, one of the leading providers of litigation finance, has a market value of $1.7 billion. Returns frequently exceed 50 percent a year. 

None of this impresses critics like the U.S. Chamber of Commerce. They point to the Fund Liquidation case as a scary harbinger of a world in which anonymous funders promote lawsuits that lack what many thought was the fundamental requirement for getting into court: an injured plaintiff. 

In its filing seeking review, the Chamber cites a recent Supreme Court decision that held that the U.S. Constitution limits federal-court jurisdiction to cases involving “a real controversy with real impact on real persons.” 

Without that check, the Chamber says, problems “will only metastasize.” Hedge funds won’t even bother to find real plaintiffs, pressure groups will gin up lawsuits to harass their opponents, and class-action lawyers will be free to pursue lawsuits without a single real “client” to maintain a check on their fees. 

All of which may be true, but in the meantime, the litigation-finance business continues to grow, with corporate litigants leading the way. Somebody thinks it’s a good idea.

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